<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
-----
Pre-Effective Amendment No.
-----
Post-Effective Amendment No. 19 X
----- -----
AND
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REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
-----
Amendment No. 20
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VOYAGEUR MUTUAL FUNDS, INC.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
1818 Market Street, Philadelphia, Pennsylvania 19103
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (215) 255-2923
--------------
George M. Chamberlain, Jr., 1818 Market Street, Philadelphia, PA 19103
- --------------------------------------------------------------------------------
(Name and Address of Agent for Service)
Approximate Date of Public Offering: April 30, 1998
--------------
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b)
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X on April 30, 1998 pursuant to paragraph (b)
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60 days after filing pursuant to paragraph (a)(1)
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on (date) pursuant to paragraph (a)(1)
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75 days after filing pursuant to paragraph (a)(2)
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on (date) pursuant to paragraph (a)(2) of Rule 485
If appropriate:
this post-effective amendment designates a new effective date
----- for a previously filed post-effective amendement
<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
National High Yield Municipal Bond Fund A Class
National High Yield Municipal Bond Fund B Class
National 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. 19 to Registration File No.
2-63238 includes the following:
1. Facing Page
2. Contents Page
3. Cross-Reference Sheets(1)
4. Part A - Prospectus(2)
5. Part B - Statement of Additional Information(2)
6. Part C - Other Information(2)
7. Signatures
(1) This Post-Effective Amendment relates to the Registrant's eight series of
shares and their classes. Shares of Minnesota High Yield Municipal Bond
Fund and National High Yield Municipal Bond Fund each are described in
separate Prospectuses and Statements of Additional Information. Shares of
the other six Series are described in a common Prospectus and Statement
of Additional Information. Shares of each Series are described in a
common Part C.
(2) This Registration Statement contains three Prospectuses and three
Statements of Additional Information for seven 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, is being
filed for each Registrant.
<PAGE>
CROSS-REFERENCE SHEET
PART A
<TABLE>
<CAPTION>
Item No. Description Location in Prospectus
- -------- ----------- ----------------------
Tax Free Arizona Fund/
Tax Free California Fund/
Tax Free Idaho Fund/
Tax Free Iowa Fund/
Tax Free New York Fund/
Tax Free Wisconsin Fund
<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 A
<TABLE>
<CAPTION>
Item No. Description Location in Prospectus
- -------- ----------- ----------------------
Minnesota High Yield Municipal Bond Fund
<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 Fund
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 Fund
8 Redemption or Repurchase................................... How to Buy Shares;
Redemption and Exchange
9 Legal Proceedings.......................................... None
</TABLE>
<PAGE>
CROSS-REFERENCE SHEET
PART A
<TABLE>
<CAPTION>
Item No. Description Location in Prospectus
- -------- ----------- ----------------------
National High Yield Municipal Bond Fund
<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 Fund
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 Fund
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
------------------------
Tax-Free Arizona Fund/
Tax-Free California Fund/
Tax-Free Idaho Fund/
Tax-Free Iowa Fund/
Tax-Free New York Fund/
Tax-Free Wisconsin Fund
<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 Restrictions
and Policies
14 Management of the Registrant............................... Officers and Directors/Trustees
15 Control Persons and Principal Holders of Securities ....... Officers and Directors/Trustees
16 Investment Advisory and Other Services..................... Officers and Directors;
Investment Management
Agreements; 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 B
<TABLE>
<CAPTION>
Item No. Description Location in Statement of
- -------- ----------- Additional Information
------------------------
Minnesota High Yield Municipal Bond Fund
<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 Restrictions
and Policies
14 Management of the Registrant............................... Officers and Directors
15 Control Persons and Principal Holders of Securities ....... Officers and Directors
16 Investment Advisory and Other Services..................... 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 and Taxes
21 Underwriters............................................... Purchasing Shares
22 Calculation of Performance Data............................ Performance Information
23 Financial Statements....................................... Financial Statements
</TABLE>
<PAGE>
CROSS-REFERENCE SHEET
PART B
<TABLE>
<CAPTION>
Item No. Description Location in Statement of
- -------- ----------- Additional Information
------------------------
National High Yield Municipal Bond Fund
<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 Restrictions
and Policies
14 Management of the Registrant............................... Officers and Directors
15 Control Persons and Principal Holders of Securities ....... Officers and Directors
16 Investment Advisory and Other Services..................... 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 and 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>
Delaware Investments includes funds with a wide range of investment
objectives. Stock funds, income funds, national and state-specific tax- exempt
funds, money market funds, global and international funds and closed-end funds
give investors the ability to create a portfolio that fits their personal
financial goals. For more information, contact your financial adviser or call
Delaware Investments at 800-523-4640.
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 55479
- -------------------------------------------
DELAWARE-VOYAGEUR TAX-FREE
MUTUAL FUNDS
- -------------------------------------------
A CLASS
B CLASS
C CLASS
- -------------------------------------------
PROSPECTUS
- -------------------------------------------
APRIL 30, 1998
- -------------
DELAWARE
INVESTMENTS
- -------------
(not part of Prospectus)
<PAGE>
(DVTXFR)
CLASS A SHARES PROSPECTUS
CLASS B SHARES APRIL 30, 1998
CLASS C SHARES
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1818 Market Street, Philadelphia, PA 19103
For Prospectus and Performance: Nationwide 800-523-4640
Information on Existing Accounts: (SHAREHOLDERS ONLY)
Nationwide 800-523-1918
Dealer Services: (BROKER/DEALERS ONLY)
Nationwide 800-362-7500
Representatives of Financial Institutions:
Nationwide 800-659-2265
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.
Three 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") and longer term insured municipal funds (the
"Insured 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. 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. There is no assurance that any Fund
will achieve its investment objective.
Delaware-Voyageur Tax-Free Arizona Intermediate Fund
Delaware-Voyageur Tax-Free Arizona Insured Fund(1)
Delaware-Voyageur Tax-Free Arizona Fund
Delaware-Voyageur Tax-Free California Intermediate Fund
Delaware-Voyageur Tax-Free California Insured Fund(1)
Delaware-Voyageur Tax-Free California Fund
Delaware-Voyageur Tax-Free Colorado Intermediate Fund
Delaware-Voyageur Tax-Free Colorado Insured Fund
Delaware-Voyageur Tax-Free Colorado Fund(1)
Delaware-Voyageur Tax-Free Florida Intermediate Fund
Delaware-Voyageur Tax-Free Florida Insured Fund(1)
Delaware-Voyageur Tax-Free Florida Fund
Delaware-Voyageur Tax-Free Idaho Fund
Delaware-Voyageur Tax-Free Iowa Fund
Delaware-Voyageur Tax-Free Kansas Fund
Delaware-Voyageur Tax-Free Minnesota Intermediate Fund(1)
Delaware-Voyageur Minnesota Insured Fund(1)
Delaware-Voyageur Tax-Free Minnesota Fund(1)
Delaware-Voyageur Tax-Free Missouri Insured Fund
Delaware-Voyageur Tax-Free New Mexico Fund
Delaware-Voyageur Tax-Free New York Fund
Delaware-Voyageur Tax-Free North Dakota Fund
Delaware-Voyageur Tax-Free Oregon Insured Fund
Delaware-Voyageur Tax-Free Utah Fund
Delaware-Voyageur Tax-Free Washington Insured Fund
Delaware-Voyageur Tax-Free Wisconsin Fund
- -------------------------
(1) Diversified Series
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<PAGE>
(DVTXFR)
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 statement), dated April 30, 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 December 31, 1997, which will accompany any response to
requests for Part B. The SEC also maintains a Web site (http://www.sec.gov) that
contains Part B, material incorporated by reference into the Funds' registration
statement 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>
(DVTXFR)
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.
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, it 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. Each Fund (except for the Insured Funds) may invest up to 20% of its
assets in high-yield securities (junk bonds) and, 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.
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.
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<PAGE>
(DVTXFR)
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 of the other funds available from Delaware
Investments. Delaware Distributors, L.P. (the "Distributor") is the national
distributor for the each Fund and for all of the other mutual funds available
from Delaware Investments. 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 available
from Delaware Investments. For further information regarding the Manager and the
fees payable under each Fund's Investment Management Agreement, see Summary of
Expenses and Management of the Funds.
Sales Charges
The price of Class A Shares of Tax-Free Funds and Insured Funds 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
(subject to a contingent deferred sales charge ("Limited CDSC") of 1% if shares
are redeemed within 12 months of purchase and a dealer commission was paid in
connection with such purchase). Class A Shares are 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 and Insured Funds are subject to a
contingent deferred sales charge ("CDSC") of: (i) 4% if shares are redeemed
within two years of purchase; (ii) 3% if shares are redeemed during the third or
fourth year following purchase; (iii) 2% if shares are redeemed during the fifth
year following purchase; and (iv) 1% if shares are redeemed during the sixth
year following purchase. Class B Shares of the Tax-Free Funds and Insured Funds
are subject to annual 12b-1 Plan expenses for approximately eight years after
purchase. 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; and (ii) 1% if
shares are redeemed during the third year following purchase. Class B Shares of
Tax-Free Intermediate Funds are subject to annual 12b-1 Plan expenses for
approximately five years after purchase. See Automatic Conversion of Class B
Shares under Classes of Shares.
The price of Class C Shares of each Fund is equal to the net asset value
per share. Class C Shares 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 for the life of the investment.
See Classes of Shares and Distribution (12b-1) and Service under
Management of the Funds.
Purchase Amounts
Generally, the minimum initial investment in any Class is $1,000.
Subsequent investments generally must be at least $100.
Each purchase of Class B Shares is subject to a maximum purchase
limitation of $250,000. For Class C Shares, each purchase must be in an amount
that is less than $1,000,000. An investor may exceed these maximum purchase
limitations for Class B Shares and Class C Shares by making cumulative purchases
over a period of time. An investor should keep in mind, however, that reduced
front-end sales charges apply to
-5-
<PAGE>
(DVTXFR)
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 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 calculated after receipt of the redemption or exchange request
subject, in the case of redemptions, to any applicable CDSC. Neither the Funds
nor the Distributor assesses any charges other than the CDSC for redemptions or
exchanges of Class B 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 Commonwealth of Massachusetts. 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-
<PAGE>
(DVTFXR)
SUMMARY OF EXPENSES
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
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 Fee Expenses Expenses Payment(2) Payment
- ------------------------------------------------------------------------------------------------------------------------------------
STATE INSURED FUNDS
<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% 0.25% 0.50%(5) 1.03% 0.50%
Class B None None 4.00(3) None 0.00% 1.00% 0.25% 1.25%(5) 1.78% 0.50%
Class C None None 1.00(4) None 0.00% 1.00% 0.25% 1.25%(5) 1.78% 0.50%
Tax-Free California
Class A 3.75% None 1.00%(2) None 0.00% 0.25% 0.00% 0.25%(5) 1.29% 0.50%
Class B None None 4.00(3) None 0.00% 1.00% 0.00% 1.00%(5) 2.04% 0.50%
Class C None None 1.00(4) None 0.00% 1.00% 0.00% 1.00%(5) 2.04% 0.50%
Tax-Free Colorado
Class A 3.75% None 1.00%(2) None 0.38% 0.25% 0.24% 0.87%(5) 0.99% 0.50%
Class B None None 4.00(3) None 0.38% 1.00% 0.24% 1.62%(5) 1.74% 0.50%
Class C None None 1.00(4) None 0.38% 1.00% 0.24% 1.62%(5) 1.74% 0.50%
Tax-Free Florida
Class A 3.75% None 1.00%(2) None 0.00% 0.25% 0.31% 0.56%(5) 1.08% 0.50%
Class B None None 4.00(3) None 0.00% 1.00% 0.31% 1.31%(5) 1.83% 0.50%
Class C None None 1.00(4) None 0.00% 1.00% 0.31% 1.31%(5) 1.83% 0.50%
Tax-Free Idaho
Class A 3.75% None 1.00%(2) None 0.50% 0.25% 0.24% 0.99%(6) 0.99% 0.50%
Class B None None 4.00(3) None 0.50% 1.00% 0.24% 1.74%(6) 1.74% 0.50%
Class C None None 1.00(4) None 0.50% 1.00% 0.24% 1.74%(6) 1.74% 0.50%
Tax-Free Iowa
Class A 3.75% None 1.00%(2) None 0.43% 0.25% 0.32% 1.00%(5) 1.07% 0.50%
Class B None None 4.00(3) None 0.43% 1.00% 0.32% 1.75%(5) 1.82% 0.50%
Class C None None 1.00(4) None 0.43% 1.00% 0.32% 1.75%(5) 1.82% 0.50%
Tax-Free Kansas
Class A 3.75% None 1.00%(2) None 0.46% 0.25% 0.29% 1.00%(5) 1.04% 0.50%
Class B None None 4.00(3) None 0.46% 1.00% 0.29% 1.75%(5) 1.79% 0.50%
Class C None None 1.00(4) None 0.46% 1.00% 0.29% 1.75%(5) 1.79% 0.50%
Tax-Free Minnesota
Class A 3.75% None 1.00%(2) None 0.47% 0.25% 0.22% 0.94%(5) 0.97% 0.50%
Class B None None 4.00(3) None 0.47% 1.00% 0.22% 1.69%(5) 1.72% 0.50%
Class C None None 1.00(4) None 0.47% 1.00% 0.22% 1.69%(5) 1.72% 0.50%
Tax-Free New Mexico
Class A 3.75% None 1.00%(2) None 0.33% 0.25% 0.42% 1.00%(5) 1.17% 0.50%
Class B None None 4.00(3) None 0.33% 1.00% 0.42% 1.75%(5) 1.92% 0.50%
Class C None None 1.00(4) None 0.33% 1.00% 0.42% 1.75%(5) 1.92% 0.50%
Tax-Free New York
Class A 3.75% None 1.00%(2) None 0.42% 0.25% 0.33% 1.00%(5) 1.08% 0.50%
Class B None None 4.00(3) None 0.42% 1.00% 0.33% 1.75%(5) 1.83% 0.50%
Class C None None 1.00(4) None 0.42% 1.00% 0.33% 1.75%(5) 1.83% 0.50%
Tax-Free North Dakota
Class A 3.75% None 1.00%(2) None 0.35% 0.25% 0.40% 1.00%(5) 1.15% 0.50%
Class B None None 4.00(3) None 0.35% 1.00% 0.40% 1.75%(5) 1.90% 0.50%
Class C None None 1.00(4) None 0.35% 1.00% 0.40% 1.75%(5) 1.90% 0.50%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Tax-Free Utah
Class A 3.75% None 1.00%(2) None 0.20% 0.25% 0.40% 0.85%(5) 1.15% 0.50%
Class B None None 4.00(3) None 0.20% 1.00% 0.40% 1.60%(5) 1.90% 0.50%
Class C None None 1.00(4) None 0.20% 1.00% 0.40% 1.60%(5) 1.90% 0.50%
Tax-Free Wisconsin
Class A 3.75% None 1.00%(2) None 0.46% 0.25% 0.29% 1.00%(5) 1.04% 0.50%
Class B None None 4.00(3) None 0.46% 1.00% 0.29% 1.75%(5) 1.79% 0.50%
Class C None None 1.00(4) None 0.46% 1.00% 0.29% 1.75%(5) 1.79% 0.50%
</TABLE>
-7-
<PAGE>
(DVTFXR)
SUMMARY OF EXPENSES (CONTINUED)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
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 Fee Expenses Expenses Payment(2) Payment
- ------------------------------------------------------------------------------------------------------------------------------------
STATE INSURED FUNDS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Arizona Insured
Class A 3.75% None 1.00%(2) None 0.44% 0.25% 0.22% 0.91%(5) 0.97% 0.50%
Class B None None 4.00(3) None 0.44% 1.00% 0.22% 1.66%(5) 1.72% 0.50%
Class C None None 1.00(4) None 0.44% 1.00% 0.22% 1.66%(5) 1.72% 0.50%
California Insured
Class A 3.75% None 1.00%(2) None 0.50% 0.25% 0.24% 0.99%(6) 0.99% 0.50%
Class B None None 4.00(3) None 0.50% 1.00% 0.24% 1.74%(6) 1.74% 0.50%
Class C None None 1.00(4) None 0.50% 1.00% 0.24% 1.74%(6) 1.74% 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%
Florida Insured
Class A 3.75% None 1.00%(2) None 0.26% 0.25% 0.36% 0.87%(5) 1.11% 0.50%
Class B None None 4.00(3) None 0.26% 1.00% 0.36% 1.62%(5) 1.86% 0.50%
Class C None None 1.00(4) None 0.26% 1.00% 0.36% 1.62%(5) 1.86% 0.50%
Minnesota Insured
Class A 3.75% None 1.00%(2) None 0.50% 0.25% 0.21% 0.96%(5) 0.96% 0.50%
Class B None None 4.00(3) None 0.50% 1.00% 0.21% 1.71%(5) 1.71% 0.50%
Class C None None 1.00(4) None 0.50% 1.00% 0.21% 1.71%(5) 1.71% 0.50%
Missouri Insured
Class A 3.75% None 1.00%(2) None 0.41% 0.25% 0.25% 0.91%(5) 1.00% 0.50%
Class B None None 4.00(3) None 0.41% 1.00% 0.25% 1.66%(5) 1.75% 0.50%
Class C None None 1.00(4) None 0.41% 1.00% 0.25% 1.66%(5) 1.75% 0.50%
Oregon Insured
Class A 3.75% None 1.00%(2) None 0.18% 0.25% 0.28% 0.71%(5) 1.03% 0.50%
Class B None None 4.00(3) None 0.18% 1.00% 0.28% 1.46%(5) 1.78% 0.50%
Class C None None 1.00(4) None 0.18% 1.00% 0.28% 1.46%(5) 1.78% 0.50%
Washington Insured
Class A 3.75% None 1.00%(2) None 0.00% 0.25% 0.25% 0.50%(5) 1.25% 0.50%
Class B None None 4.00(3) None 0.00% 1.00% 0.25% 1.25%(5) 2.00% 0.50%
Class C None None 1.00(4) None 0.00% 1.00% 0.25% 1.25%(5) 2.00% 0.50%
</TABLE>
-8-
<PAGE>
(DVTFXR)
SUMMARY OF EXPENSES (CONTINUED)
<TABLE>
<CAPTION>
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 Fee Expenses Expenses Payment(2) Payment
- ------------------------------------------------------------------------------------------------------------------------------------
STATE INTERMEDIATE FUNDS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Arizona Intermediate
Class A 2.75% None 1.00%(2) None 0.17% 0.15%(7) 0.58% 0.90%(5) 1.23% 0.40%
Class B None None 2.00(3) None 0.17% 1.00%(7) 0.58% 1.75%(5) 1.98% 0.40%
Class C None None 1.00(4) None 0.17% 1.00%(7) 0.58% 1.75%(5) 1.98% 0.40%
California Intermediate
Class A 2.75% None 1.00%(2) None 0.17% 0.15%(7) 0.58% 0.90%(5) 1.23% 0.40%
Class B None None 2.00(3) None 0.17% 1.00%(7) 0.58% 1.75%(5) 1.98% 0.40%
Class C None None 1.00(4) None 0.17% 1.00%(7) 0.58% 1.75%(5) 1.98% 0.40%
Colorado Intermediate
Class A 2.75% None 1.00%(2) None 0.17% 0.15%(7) 0.58% 0.90%(5) 1.23% 0.40%
Class B None None 2.00(3) None 0.17% 1.00%(7) 0.58% 1.75%(5) 1.98% 0.40%
Class C None None 1.00(4) None 0.17% 1.00%(7) 0.58% 1.75%(5) 1.98% 0.40%
Florida Intermediate
Class A 2.75% None 1.00%(2) None 0.01% 0.15%(7) 0.74% 0.90%(5) 1.29% 0.40%
Class B None None 2.00(3) None 0.01% 1.00%(7) 0.74% 1.75%(5) 2.14% 0.40%
Class C None None 1.00(4) None 0.01% 1.00%(7) 0.74% 1.75%(5) 2.14% 0.40%
Minnesota Intermediate
Class A 2.75% None 1.00%(2) None 0.40% 0.15%(7) 0.31% 0.86%(6) 0.86% 0.40%
Class B None None 2.00(3) None 0.40% 1.00%(7) 0.31% 1.71%(6) 1.71% 0.40%
Class C None None 1.00(4) None 0.40% 1.00%(7) 0.31% 1.71%(6) 1.71% 0.40%
</TABLE>
(1) CoreStates Bank, N.A. 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 within 12 months
of purchase. Additional Class A purchase options involving a CDSC may be
permitted as described in the 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 and Insured Funds 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 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. The Manager has elected voluntarily 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 each 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. See Expenses under Management of the Funds for a
discussion of the waivers.
(6) 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
-9-
<PAGE>
of its fee and may pay certain expenses of each Fund from time to time. 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, brokeage fees and
commissions) do not exceed, on an annualized basis, 0.75% of the average
daily net assets of the Fund.
(7) The annual 12b-1 Plan expenses for Class A Shares have been set at 0.15% of
the average daily net assets of such Class. The maximum annual 12b-1 Plan
expenses permitted under the 12b-1 Plan for CLass A Shares are 0.25% of the
average daily net assets of such Class. See Distribution (12b-1) and Service
under Management of the Funds.
Investors utilizing the Asset Planner asset allocation service also
typically incur an annual maintenance fee of $35 per Strategy. However,
effective November 1, 1996, the annual maintenance fee is waived until further
notice. See Asset Planner in Part B.
An investor in a Fund would pay the following dollar amount of expenses on
a $1,000 investment assuming (a) 5% annual return, (b) redemption, and no
redemption, at the end of each period and (c) for Class B Shares and Class C
Shares, the 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 noted 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>
STATE LONG TERM FUNDS
Tax-Free Arizona
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 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
Tax-Free Colorado
Class A $45(1) $64 $ 84 $141 $46 $64 $84 $141
Class B $56 $81 $108 $172(2) $16 $51 $86 $172(2)
Class C $26 $51 $ 88 $192 $16 $51 $86 $192
Tax-Free Florida
Class A $43(1) $65 $ 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
Tax-Free Idaho
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 Iowa
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 Kansas
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>
-10-
<PAGE>
<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 Minnesota
Class A $47(1) $66 $ 88 $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
Tax-Free New Mexico
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 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 $65 $ 95 $206 $18 $55 $95 $206
Tax-Free Utah
Class A $46(1) $64 $ 83 $138 $46 $64 $83 $138
Class B $56 $81 $107 $170(2) $16 $51 $87 $170(2)
Class C $26 $51 $ 87 $190 $16 $51 $87 $190
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
- -------------------------------------------------------------------------------------------------------------------
STATE INSURED FUNDS
- -------------------------------------------------------------------------------------------------------------------
Arizona Insured
Class A $46(1) $66 $ 86 $145 $46 $65 $85 $146
Class B $57 $82 $110 $177(2) $17 $52 $90 $177(2)
Class C $27 $52 $ 90 $197 $17 $52 $90 $197
California Insured
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
Colorado Insured
Class A $47(1) $68 $ 91 $155 $47 $68 $91 $155
Class B $58 $95 $115 $186(2) $18 $55 $95 $186(2)
Class C $28 $55 $ 95 $206 $18 $55 $95 $206
Florida Insured
Class A $46(1) $64 $ 84 $141 $46 $64 $84 $141
Class B $56 $81 $108 $172(2) $16 $51 $88 $172(2)
Class C $26 $51 $ 88 $192 $16 $51 $88 $192
Minnesota Insured
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 $202 $17 $54 $93 $202
Missouri Insured
Class A $46(1) $65 $ 88 $145 $46 $65 $86 $145
Class B $57 $82 $110 $177(2) $17 $52 $90 $177(2)
Class C $27 $52 $ 90 $197 $17 $52 $90 $197
Oregon Insured
Class A $44(1) $59 $ 76 $122 $44 $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
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
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
-11-
<PAGE>
<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>
STATE INTERMEDIATE FUNDS
Arizona Intermediate
Class A $36(1) $55 $ 76 $135 $36 $55 $ 76 $135
Class B $38 $65 $ 95(3) $160(3) $18 $55 $ 95(3) $160(3)
Class C $28 $55 $ 95 $206 $18 $55 $ 95 $206
California Intermediate
Class A $36(1) $55 $ 76 $135 $36 $55 $ 76 $135
Class B $38 $65 $ 95(3) $160(3) $18 $55 $ 95(3) $160(3)
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) $160(3) $18 $55 $ 95(3) $160(3)
Class C $28 $55 $ 95 $206 $18 $55 $ 95 $206
Florida Intermediate
Class A $36(1) $55 $ 76 $135 $36 $55 $ 76 $135
Class B $58 $85 $105(3) $186(3) $18 $55 $ 95(3) $160(3)
Class C $23 $55 $ 95 $206 $18 $55 $ 95 $206
Minnesota Intermediate
Class A $36(1) $64 $ 74 $131 $36 $64 $ 74 $131
Class B $37 $64 $ 93(3) $148(3) $17 $54 $ 93(3) $146(3)
Class C $27 $54 $ 93 $202 $17 $54 $ 93 $202
</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 and Insured 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 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 How to Purchase 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 How to Purchase Shares for a
description of the automatic conversion feature.
The examples contained in the table should not be considered a representation
of past or future expenses. Actual expenses may be greater or less than those
shown.
The purpose of the above tables is to assist the investor in understanding
the various costs and expenses that an investor in any of the Funds will bear
directly or indirectly.
-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 year ended December 31, 1997 and by the Funds' previous independent auditors
for the prior fiscal periods. The data for the most recent fiscal year 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- Net Net
Asset Net Unrealized Dividends butions Asset Assets
Value Invest- Gain from Net from Value End of
Delaware-Voyageur Beginning ment (Loss) on Investment Capital End of Total Period
Funds of Period Income Securities Income Gains Period Return(3) (000s)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
Tax-Free Arizona(11)
Class A - 12/31/97 $10.700 0.589 0.455 (0.589) (0.015) $11.140 10.07% $10,916
- ----------------------------------------------------------------------------------------------------------------
Class A - 12/31/96 10.750 0.580 (0.010) (0.580) (0.040) 10.700 5.48 9,755
- ----------------------------------------------------------------------------------------------------------------
Class A - 12/31/95(1) 10.000 0.460 0.840 (0.460) (0.090) 10.750 13.27 6,225
- ----------------------------------------------------------------------------------------------------------------
Class B - 12/31/97 $10.690 0.502 0.469 (0.506) (0.015) $11.140 9.34% $3,711
- ----------------------------------------------------------------------------------------------------------------
Class B - 12/31/96 10.740 0.510 (0.010) (0.510) (0.040) 10.690 4.84 3,491
- ----------------------------------------------------------------------------------------------------------------
Class B - 12/31/95(1) 10.300 0.260 0.530 (0.260) (0.090) 10.740 7.74 1,629
- ----------------------------------------------------------------------------------------------------------------
Class C - 12/31/97 $10.710 0.534 0.437 (0.506) (0.015) $11.160 9.32% $332
- ----------------------------------------------------------------------------------------------------------------
Class C - 12/31/96 10.760 0.500 (0.010) (0.500) (0.040) 10.710 4.70 23
- ----------------------------------------------------------------------------------------------------------------
Class C - 12/31/95(1) 10.200 0.300 0.650 (0.300) (0.090) 10.760 9.43 27
- ----------------------------------------------------------------------------------------------------------------
Arizona Insured(11)
Class A - 12/31/97 $11.060 0.548 0.416 (0.554) none $11.470 8.96% $186,485
- ----------------------------------------------------------------------------------------------------------------
Class A - 12/31/96 11.150 0.530 (0.090) (0.530) none 11.060 4.09 209,258
- ----------------------------------------------------------------------------------------------------------------
Class A - 12/31/95 9.860 0.540 1.310 (0.560) none 11.150 19.10 238,114
- ----------------------------------------------------------------------------------------------------------------
Class A - 12/31/94 11.310 0.550 (1.370) (0.530) (0.100)(6) 9.860 (7.41) 231,736
- ----------------------------------------------------------------------------------------------------------------
Class A - 12/31/93 10.710 0.580 0.740 (0.580) (0.140) 11.310 12.64 263,312
- ----------------------------------------------------------------------------------------------------------------
Class A - 12/31/92 10.390 0.610 0.380 (0.610) (0.060) 10.710 9.86 124,120
- ----------------------------------------------------------------------------------------------------------------
Class A - 12/31/91(1) 10.000 0.500 0.470 (0.500) (0.080) 10.390 9.98 38,322
- ----------------------------------------------------------------------------------------------------------------
<PAGE>
Class B - 12/31/97 $11.050 0.455 0.414 (0.459) none $11.460 8.06% $3,657
- ----------------------------------------------------------------------------------------------------------------
Class B - 12/31/96 11.140 0.450 (0.090) (0.450) none 11.050 3.32 3,110
- ----------------------------------------------------------------------------------------------------------------
Class B - 12/31/95(1) 10.440 0.380 0.690 (0.370) none 11.140 10.36 2,048
- ----------------------------------------------------------------------------------------------------------------
Class C - 12/31/97 $11.060 0.456 0.414 (0.460) none $11.470 8.05% $675
- ----------------------------------------------------------------------------------------------------------------
Class C - 12/31/96 11.150 0.430 (0.090) (0.430) none 11.060 3.18 554
- ----------------------------------------------------------------------------------------------------------------
Class C - 12/31/95 9.860 0.450 1.310 (0.470) none 11.150 18.10 541
- ----------------------------------------------------------------------------------------------------------------
Class C - 12/31/94(1) 10.480 0.270 (0.560) (0.250) (0.08)(6) 9.860 (2.84) 326
- ----------------------------------------------------------------------------------------------------------------
Tax-Free California(11)
Class A - 12/31/97 $10.430 0.590 0.665 (0.595) (0.040) $11.050 12.43% $4,385
- ----------------------------------------------------------------------------------------------------------------
Class A - 12/31/96 10.640 0.600 (0.180) (0.600) (0.030) 10.430 4.21 1,218
- ----------------------------------------------------------------------------------------------------------------
Class A - 12/31/95(1) 10.000 0.470 0.700 (0.470) (0.060) 10.640 11.97 1,012
- ----------------------------------------------------------------------------------------------------------------
Class B - 12/31/97 $10.440 0.520 0.688 (0.528) (0.040) $11.080 11.91% $5,576
- ----------------------------------------------------------------------------------------------------------------
Class B - 12/31/96 10.650 0.560 (0.180) (0.560) (0.030) 10.440 3.77 660
- ----------------------------------------------------------------------------------------------------------------
Class B - 12/31/95(1) 9.960 0.200 0.740 (0.190) (0.060) 10.650 9.52 128
- ----------------------------------------------------------------------------------------------------------------
Class C - 12/31/97 $10.420 0.487 0.696 (0.513) (0.040) 11.050 11.69% $109
- ----------------------------------------------------------------------------------------------------------------
Class C - 12/31/96(1) 10.070 0.370 0.380 (0.370) (0.030) 10.420 7.58 94
================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
---------------------------------------------
Ratio of
Ratio of Ratio Expenses
Expenses of Net to Average
to Investment Daily
Average Income to Net Assets
Daily Average Portfolio Prior to
Delaware-Voyageur Net Daily Turnover Expense
Funds Assets(2) Net Assets Rate Limitation
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------
Tax-Free Arizona(11)
Class A - 12/31/97 0.48% 5.42% 39% 1.08%
- -----------------------------------------------------------------------
Class A - 12/31/96 0.46 5.43 70 1.25
- -----------------------------------------------------------------------
Class A - 12/31/95(1) 0.52(4) 5.19(4) 38 1.25(4)
- -----------------------------------------------------------------------
Class B - 12/31/97 1.22% 4.68% 39% 1.82%
- -----------------------------------------------------------------------
Class B - 12/31/96 1.11 4.77 70 2.00
- -----------------------------------------------------------------------
Class B - 12/31/95(1) 0.99(4) 4.60(4) 38 2.00(4)
- -----------------------------------------------------------------------
Class C - 12/31/97 1.23% 4.67% 39% 1.83%
- -----------------------------------------------------------------------
Class C - 12/31/96 1.21 4.68 70 2.00
- -----------------------------------------------------------------------
Class C - 12/31/95(1) 1.20(4) 4.65(4) 38 2.00(4)
- -----------------------------------------------------------------------
Arizona Insured(11)
Class A - 12/31/97 0.84% 4.92% 42% 0.89%
- -----------------------------------------------------------------------
Class A - 12/31/96 0.82 4.89 42 0.95
- -----------------------------------------------------------------------
Class A - 12/31/95 0.69 5.07 42 0.95
- -----------------------------------------------------------------------
Class A - 12/31/94 0.72 5.20 25 0.92
- -----------------------------------------------------------------------
Class A - 12/31/93 0.59 5.00 33 1.03
- -----------------------------------------------------------------------
Class A - 12/31/92 0.35 5.60 40 1.16
- -----------------------------------------------------------------------
Class A - 12/31/91(1) none(5) 6.58(4) 178 1.24(4)
- -----------------------------------------------------------------------
<PAGE>
Class B - 12/31/97 1.65% 4.11% 42% 1.70%
- -----------------------------------------------------------------------
Class B - 12/31/96 1.59 4.11 42 1.70
- -----------------------------------------------------------------------
Class B - 12/31/95(1) 1.33(4) 4.08(4) 42 1.60(4)
- -----------------------------------------------------------------------
Class C - 12/31/97 1.65% 4.11% 42% 1.70%
- -----------------------------------------------------------------------
Class C - 12/31/96 1.70 4.01 42 1.70
- -----------------------------------------------------------------------
Class C - 12/31/95 1.54 4.18 42 1.69
- -----------------------------------------------------------------------
Class C - 12/31/94(1) 1.50(4) 4.10(4) 25 1.71(4)
- -----------------------------------------------------------------------
Tax-Free California(11)
Class A - 12/31/97 0.13% 5.32% 17% 1.19%
- -----------------------------------------------------------------------
Class A - 12/31/96 0.27 5.71 8 1.25
- -----------------------------------------------------------------------
Class A - 12/31/95(1) 0.46(4) 5.57(4) 40 1.22(4)
- -----------------------------------------------------------------------
Class B - 12/31/97 0.80% 4.65% 17% 1.86%
- -----------------------------------------------------------------------
Class B - 12/31/96 0.50 5.34 8 2.00
- -----------------------------------------------------------------------
Class B - 12/31/95(1) 0.60(4) 5.33(4) 40 1.93(4)
- -----------------------------------------------------------------------
Class C - 12/31/97 0.87% 4.58% 17% 1.93%
- -----------------------------------------------------------------------
Class C - 12/31/96(1) 0.78 5.13(4) 8 2.00(4)
=======================================================================
</TABLE>
See Notes to Financial Highlights
-13-
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
Income from
Investment
Operations Less Distributions
----------- ------------------
Net
Realized
Net and Distri- Net Net
Asset Net Unrealized Dividends butions Asset Assets
Value Invest- Gain from Net from Value End of
Delaware-Voyageur Beginning ment (Loss) on Investment Capital End of Total Period
Funds of Period Income Securities Income Gains Period Return(3) (000s)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
California Insured(11)
Class A - 12/31/97 $10.500 0.513 0.486 (0.519) none $10.980 9.78% $26,923
- ------------------------------------------------------------------------------------------------------------------
Class A - 12/31/96 10.650 0.520 (0.150) (0.520) none 10.500 3.63 30,551
- ------------------------------------------------------------------------------------------------------------------
Class A - 12/31/95 9.330 0.530 1.340 (0.550) none 10.650 20.51 33,860
- ------------------------------------------------------------------------------------------------------------------
Class A - 12/31/94 9.510 0.100 (0.180) (0.090) (0.010) 9.330 (0.84) 27,994
- ------------------------------------------------------------------------------------------------------------------
Class A - 10/31/94 11.080 0.550 (1.520) (0.540) (0.060) 9.510 (8.97) 27,282
- ------------------------------------------------------------------------------------------------------------------
Class A - 10/31/93 10.020 0.600 1.110 (0.600) (0.050) 11.080 17.29 12,509
- ------------------------------------------------------------------------------------------------------------------
Class A - 10/31/92(1) 10.000 none 0.020 none none 10.020 0.20 2,056
- ------------------------------------------------------------------------------------------------------------------
Class B - 12/31/97 $10.500 0.457 0.495 (0.462) none $10.990 9.29% $6,629
- ------------------------------------------------------------------------------------------------------------------
Class B - 12/31/96 10.650 0.480 (0.150) (0.480) none 10.500 3.22 6,717
- ------------------------------------------------------------------------------------------------------------------
Class B - 12/31/95 9.330 0.500 1.330 (0.510) none 10.650 20.01 6,029
- ------------------------------------------------------------------------------------------------------------------
Class B - 12/31/94 9.510 0.080 (0.170) (0.080) (0.010) 9.330 (0.92) 2,219
- ------------------------------------------------------------------------------------------------------------------
Class B - 10/31/94(1) 10.680 0.310 (1.160) (0.300) (0.020) 9.510 (7.93) 1,427
- ------------------------------------------------------------------------------------------------------------------
<PAGE>
Class C - 12/31/97 $10.460 0.485 0.432 (0.437) none $10.940 8.98% $476
- ------------------------------------------------------------------------------------------------------------------
Class C - 12/31/96 10.650 0.440 (0.190) (0.440) none 10.460 2.47 55
- ------------------------------------------------------------------------------------------------------------------
Class C - 12/31/95(1) 10.190 0.250 0.530 (0.320) none 10.650 7.77 53(4)
- ------------------------------------------------------------------------------------------------------------------
Tax-Free Colorado(11)
Class A - 12/31/97 $10.780 0.574 0.618 (0.592) none $11.380 11.40% $357,993
- ------------------------------------------------------------------------------------------------------------------
Class A - 12/31/96 10.900 0.560 (0.130) (0.550) none 10.780 4.08 358,328
- ------------------------------------------------------------------------------------------------------------------
Class A - 12/31/95 9.530 0.540 1.380 (0.550) none 10.900 20.54 392,815
- ------------------------------------------------------------------------------------------------------------------
Class A - 12/31/94 11.100 0.550 (1.540) (0.540) (0.040) 9.530 (9.12) 354,138
- ------------------------------------------------------------------------------------------------------------------
Class A - 12/31/93 10.570 0.560 0.850 (0.560) (0.320) 11.100 13.72 399,218
- ------------------------------------------------------------------------------------------------------------------
Class A - 12/31/92 10.270 0.580 0.450 (0.580) (0.150) 10.570 10.42 202,165
- ------------------------------------------------------------------------------------------------------------------
Class A - 12/31/91 10.020 0.610 0.430 (0.610) (0.180) 10.270 10.80 104,863
- ------------------------------------------------------------------------------------------------------------------
Class A - 12/31/90 10.000 0.640 0.020 (0.640) none 10.020 6.81 53,987
- ------------------------------------------------------------------------------------------------------------------
Class A - 12/31/89 9.740 0.670 0.320 (0.670) (0.060) 10.000 10.73 34,625
- ------------------------------------------------------------------------------------------------------------------
Class A - 12/31/88 9.430 0.690 0.340 (0.690) (0.030) 9.740 10.57 19,767
- ------------------------------------------------------------------------------------------------------------------
Class A - 12/31/87(1) 9.580 0.490 (0.150) (0.490) none 9.430 3.27 5,546
- ------------------------------------------------------------------------------------------------------------------
Class B - 12/31/97 $10.780 0.483 0.616 (0.499) none $11.380 10.47% $7,798
- ------------------------------------------------------------------------------------------------------------------
Class B - 12/31/96 10.900 0.470 (0.130) (0.460) none 10.780 3.25 4,172
- ------------------------------------------------------------------------------------------------------------------
Class B - 12/31/95(1) 10.250 0.350 0.650 (0.350) none 10.900 9.96 1,643
- ------------------------------------------------------------------------------------------------------------------
Class C - 12/31/97 $10.780 0.484 0.615 (0.499) none $11.380 10.47% $1,697
- ------------------------------------------------------------------------------------------------------------------
Class C - 12/31/96 10.900 0.460 (0.130) (0.450) none 10.780 3.17 1,522
- ------------------------------------------------------------------------------------------------------------------
Class C - 12/31/95 9.530 0.450 1.370 (0.450) none 10.900 19.44 1,042
- ------------------------------------------------------------------------------------------------------------------
Class C - 12/31/94(1) 10.210 0.290 (0.670) (0.270) (0.030) 9.530 (3.75) 465
==================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
---------------------------------------------
Ratio of
Ratio of Ratio Expenses
Expenses of Net to Average
to Investment Daily
Average Income to Net Assets
Daily Average Portfolio Prior to
Delaware-Voyageur Net Daily Turnover Expense
Funds Assets(2) Net Assets Rate Limitation
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------
California Insured(11)
Class A - 12/31/97 0.99 4.85% 63% 1.02%
- -----------------------------------------------------------------------
Class A - 12/31/96 0.82 5.05 55 1.01
- -----------------------------------------------------------------------
Class A - 12/31/95 0.70 5.23 107 1.02
- -----------------------------------------------------------------------
Class A - 12/31/94 0.10(4) 6.30(4) 7 1.24(4)
- -----------------------------------------------------------------------
Class A - 10/31/94 0.20 5.37 18 1.25
- -----------------------------------------------------------------------
Class A - 10/31/93 none 5.26 24 1.25
- -----------------------------------------------------------------------
Class A - 10/31/92(1) none none 7 none
- -----------------------------------------------------------------------
Class B - 12/31/97 1.53% 4.31% 63% 1.56%
- -----------------------------------------------------------------------
Class B - 12/31/96 1.21 4.64 55 1.76
- -----------------------------------------------------------------------
Class B - 12/31/95 1.10 4.75 107 1.75
- -----------------------------------------------------------------------
Class B - 12/31/94 0.57(4) 5.54(4) 7 1.94(4)
- -----------------------------------------------------------------------
Class B - 10/31/94(1) 0.73(4) 4.82(4) 18 1.95(4)
- -----------------------------------------------------------------------
<PAGE>
Class C - 12/31/97 1.71% 4.13% 63% 1.74%
- -----------------------------------------------------------------------
Class C - 12/31/96 1.58 4.02 55 1.77
- -----------------------------------------------------------------------
Class C - 12/31/95(1) 1.53(4) 4.25(4) 107 1.77(4)
- -----------------------------------------------------------------------
Tax-Free Colorado(11)
Class A - 12/31/97 0.81% 5.25% 54% 0.86%
- -----------------------------------------------------------------------
Class A - 12/31/96 0.78 5.27 40 0.91
- -----------------------------------------------------------------------
Class A - 12/31/95 0.76 5.18 82 0.93
- -----------------------------------------------------------------------
Class A - 12/31/94 0.66 5.35 69 0.72
- -----------------------------------------------------------------------
Class A - 12/31/93 0.75 4.97 58 0.75
- -----------------------------------------------------------------------
Class A - 12/31/92 0.80 5.59 70 0.80
- -----------------------------------------------------------------------
Class A - 12/31/91 0.82 6.15 92 0.82
- -----------------------------------------------------------------------
Class A - 12/31/90 1.00 6.38 70 1.00
- -----------------------------------------------------------------------
Class A - 12/31/89 1.00 6.37 33 1.00
- -----------------------------------------------------------------------
Class A - 12/31/88 1.00 6.77 56 1.00
- -----------------------------------------------------------------------
Class A - 12/31/87(1) 1.00(4) 6.49(4) 93 1.00(4)
- -----------------------------------------------------------------------
Class B - 12/31/97 1.62% 4.44% 54% 1.67%
- -----------------------------------------------------------------------
Class B - 12/31/96 1.58 4.45 40 1.65
- -----------------------------------------------------------------------
Class B - 12/31/95(1) 1.39(4) 3.96(4) 82 1.60(4)
- -----------------------------------------------------------------------
Class C - 12/31/97 1.64% 4.42% 54% 1.69%
- -----------------------------------------------------------------------
Class C - 12/31/96 1.66 4.40 40 1.66
- -----------------------------------------------------------------------
Class C - 12/31/95 1.66 4.20 82 1.66
- -----------------------------------------------------------------------
Class C - 12/31/94(1) 1.80(4) 4.23(4) 69 1.81(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- Net Net
Asset Net Unrealized Dividends butions Asset Assets
Value Invest- Gain from Net from Value End of
Delaware-Voyageur Beginning ment (Loss) on Investment Capital End of Total Period
Funds of Period Income Securities Income Gains Period Return(3) (000s)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
Tax-Free Florida(11)
Class A - 12/31/97 $10.520 0.591 0.523 (0.594) (0.020) $11.020 10.93% $7,506
- ----------------------------------------------------------------------------------------------------------------
Class A - 12/31/96 10.730 0.590 (0.210) (0.590) none 10.520 3.74 5,761
- ----------------------------------------------------------------------------------------------------------------
Class A - 12/31/95(1) 10.000 0.470 0.750 (0.470) (0.020) 10.730 12.49 4,421
- ----------------------------------------------------------------------------------------------------------------
Class B - 12/31/97 $10.530 0.527 0.531 (0.538) (0.020) $11.030 10.35% $2,685
- ----------------------------------------------------------------------------------------------------------------
Class B - 12/31/96 10.730 0.560 (0.200) (0.560) none 10.530 3.51 1,635
- ----------------------------------------------------------------------------------------------------------------
Class B - 12/31/95(1) 10.370 0.150 0.380 (0.150) (0.020) 10.730 5.10 101
- ----------------------------------------------------------------------------------------------------------------
Class C - 12/31/97 $10.520 0.511 0.521 (0.512) (0.020) $11.020 10.09% $133
- ----------------------------------------------------------------------------------------------------------------
Class C - 12/31/96 10.730 0.370 (0.210) (0.370) none 10.520 2.97 16
- ----------------------------------------------------------------------------------------------------------------
Class C - 12/31/95(1) 10.200 0.330 0.560 (0.340) (0.020) 10.730 8.88 9
- ----------------------------------------------------------------------------------------------------------------
Florida Insured(7)(11)
Class A - 12/31/97 $10.710 0.548 0.536 (0.554) none $11.240 10.42% $162,097
- ----------------------------------------------------------------------------------------------------------------
Class A - 12/31/96 10.940 0.530 (0.230) (0.530) none 10.710 2.90 192,171
- ----------------------------------------------------------------------------------------------------------------
Class A - 12/31/95 9.520 0.540 1.440 (0.560) none 10.940 21.22 242,425
- ----------------------------------------------------------------------------------------------------------------
Class A - 12/31/94 9.640 0.100 (0.120) (0.090) (0.010) 9.520 (0.11) 240,228
- ----------------------------------------------------------------------------------------------------------------
Class A - 10/31/94 11.150 0.550 (1.460) (0.540) (0.060) 9.640 (8.38) 259,702
- ----------------------------------------------------------------------------------------------------------------
Class A - 10/31/93 10.110 0.580 1.120 (0.580) (0.080) 11.150 17.27 289,682
- ----------------------------------------------------------------------------------------------------------------
Class A - 10/31/92(1) 10.000 0.510 0.150 (0.510) (0.040) 10.110 6.74 50,666
- ----------------------------------------------------------------------------------------------------------------
<PAGE>
Class B - 12/31/97 $10.710 0.477 0.523 (0.480) none $11.230 9.58% $3,943
- ----------------------------------------------------------------------------------------------------------------
Class B - 12/31/96 10.940 0.480 (0.230) (0.480) none 10.710 2.40 3,222
- ----------------------------------------------------------------------------------------------------------------
Class B - 12/31/95 9.520 0.500 1.440 (0.520) none 10.940 20.76 2,814
- ----------------------------------------------------------------------------------------------------------------
Class B - 12/31/94 9.630 0.090 (0.110) (0.080) (0.010) 9.520 (0.03) 1,477
- ----------------------------------------------------------------------------------------------------------------
Class B - 10/31/94(1) 10.640 0.310 (1.010) (0.300) (0.010) 9.630 (6.69) 1,135
- ----------------------------------------------------------------------------------------------------------------
Florida Intermediate(11)
Class A - 12/31/97 $10.430 0.475 0.261 (0.524) (0.022) $10.620 7.25% $3,163
- ----------------------------------------------------------------------------------------------------------------
Class A - 12/31/96 10.560 0.420 (0.080) (0.470) none 10.430 3.34 3,159
- ----------------------------------------------------------------------------------------------------------------
Class A - 12/31/95 9.640 0.440 1.010 (0.490) (0.040) 10.560 15.14 859
- ----------------------------------------------------------------------------------------------------------------
Class A - 12/31/94(1) 10.000 0.180 (0.360) (0.180) none 9.640 (1.55) 592
- ----------------------------------------------------------------------------------------------------------------
Class B - 12/31/97 $10.420 0.391 0.272 (0.441) (0.022) $10.620 6.50% $928
- ----------------------------------------------------------------------------------------------------------------
Class B - 12/31/96 10.560 0.340 (0.090) (0.390) none 10.420 2.47 1,042
- ----------------------------------------------------------------------------------------------------------------
Class B - 12/31/95(1) 10.580 0.100 0.030 (0.110) (0.040) 10.560 1.13 41
- ----------------------------------------------------------------------------------------------------------------
Class C - 12/31/97 $10.420 0.383 0.272 (0.433) (0.022) $10.620 6.43% $55
- ----------------------------------------------------------------------------------------------------------------
Class C - 12/31/96 10.550 0.330 (0.090) (0.370) none 10.420 2.37 54
- ----------------------------------------------------------------------------------------------------------------
Class C - 12/31/95(1) 10.080 0.250 0.550 (0.290) (0.040) 10.550 7.95 54
================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
---------------------------------------------
Ratio of
Ratio of Ratio Expenses
Expenses of Net to Average
to Investment Daily
Average Income to Net Assets
Daily Average Portfolio Prior to
Delaware-Voyageur Net Daily Turnover Expense
Funds Assets(2) Net Assets Rate Limitation
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------
Tax-Free Florida(11)
Class A - 12/31/97 0.56% 5.53% 19% 1.11%
- -----------------------------------------------------------------------
Class A - 12/31/96 0.33 5.66 70 1.25
- -----------------------------------------------------------------------
Class A - 12/31/95(1) 0.32(4) 5.26(4) 64 1.25(4)
- -----------------------------------------------------------------------
Class B - 12/31/97 1.10% 4.99% 19% 1.65%
- -----------------------------------------------------------------------
Class B - 12/31/96 0.76 5.23 70 2.00
- -----------------------------------------------------------------------
Class B - 12/31/95(1) 0.44(4) 4.88(4) 64 2.00(4)
- -----------------------------------------------------------------------
Class C - 12/31/97 1.31% 4.78% 19% 1.86%
- -----------------------------------------------------------------------
Class C - 12/31/96 1.15 4.83 70 2.00
- -----------------------------------------------------------------------
Class C - 12/31/95(1) 1.11(4) 4.57(4) 64 2.00(4)
- -----------------------------------------------------------------------
Florida Insured(7)(11)
Class A - 12/31/97 0.79% 5.07% 15% 0.85%
- -----------------------------------------------------------------------
Class A - 12/31/96 0.73 5.02 57 0.96
- -----------------------------------------------------------------------
Class A - 12/31/95 0.51 5.24 101 0.95
- -----------------------------------------------------------------------
Class A - 12/31/94 0.20(4) 6.24(4) 3 1.06(4)
- -----------------------------------------------------------------------
Class A - 10/31/94 0.44 5.24 49 0.96
- -----------------------------------------------------------------------
Class A - 10/31/93 0.18 5.18 54 1.12
- -----------------------------------------------------------------------
Class A - 10/31/92(1) --- 5.38(4) 208 1.25(4)
- -----------------------------------------------------------------------
Class B - 12/31/97 1.46% 4.40% 15% 1.52%
- -----------------------------------------------------------------------
Class B - 12/31/96 1.24 4.51 57 1.72
- -----------------------------------------------------------------------
Class B - 12/31/95 0.89 4.80 101 1.68
- -----------------------------------------------------------------------
Class B - 12/31/94 0.59(4) 5.68(4) 3 1.81(4)
- -----------------------------------------------------------------------
Class B - 10/31/94(1) 1.00(4) 4.63(4) 49 1.28(4)
- -----------------------------------------------------------------------
Florida Intermediate(11)
Class A - 12/31/97 0.61% 4.64% 20% 1.33%
- -----------------------------------------------------------------------
Class A - 12/31/96 0.66 4.63 63 1.25
- -----------------------------------------------------------------------
Class A - 12/31/95 0.63 4.28 28 1.25
- -----------------------------------------------------------------------
Class A - 12/31/94(1) none 4.19(4) none 1.25(4)
- -----------------------------------------------------------------------
Class B - 12/31/97 1.39% 3.86% 20% 2.11%
- -----------------------------------------------------------------------
Class B - 12/31/96 1.48 3.81 63 2.00
- -----------------------------------------------------------------------
Class B - 12/31/95(1) 1.52(4) 3.32(4) 28 2.00(4)
- -----------------------------------------------------------------------
Class C - 12/31/97 1.46% 3.79% 20% 2.18%
- -----------------------------------------------------------------------
Class C - 12/31/96 1.55 3.74 63 2.00
- -----------------------------------------------------------------------
Class C - 12/31/95(1) 1.62(4) 3.10(4) 28 2.00(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- Net Net
Asset Net Unrealized Dividends butions Asset Assets
Value Invest- Gain from Net from Value End of
Delaware-Voyageur Beginning ment (Loss) on Investment Capital End of Total Period
Funds of Period Income Securities Income Gains Period Return(3) (000s)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
Tax-Free Idaho(11)
Class A - 12/31/97 $10.910 0.551 0.552 (0.563) none $11.450 10.41% $33,788
- ----------------------------------------------------------------------------------------------------------------
Class A - 12/31/96 11.020 0.580 (0.120) (0.570) none 10.910 4.36 27,684
- ----------------------------------------------------------------------------------------------------------------
Class A - 12/31/95(1) 10.000 0.600 1.100 (0.600) (0.080) 11.020 17.48 13,540
- ----------------------------------------------------------------------------------------------------------------
Class B - 12/31/97 $10.890 0.487 (0.560) (0.497) none $11.440 9.87% $6,827
- ----------------------------------------------------------------------------------------------------------------
Class B - 12/31/96 11.010 0.520 (0.130) (0.510) none 10.890 3.75 4,945
- ----------------------------------------------------------------------------------------------------------------
Class B - 12/31/95(1) 10.500 0.420 0.590 (0.420) (0.080) 11.010 9.86 1,977
- ----------------------------------------------------------------------------------------------------------------
Class C - 12/31/97 $10.900 0.459 0.549 (0.478) none $11.430 9.49% $1,125
- ----------------------------------------------------------------------------------------------------------------
Class C - 12/31/96 11.020 0.500 (0.130) (0.490) none 10.900 3.48 822
- ----------------------------------------------------------------------------------------------------------------
Class C - 12/31/95(1) 10.040 0.500 1.060 (0.500) (0.080) 11.020 15.81 789
- ----------------------------------------------------------------------------------------------------------------
Tax-Free Iowa(11)
Class A - 12/31/97 $9.620 0.449 0.440 (0.449) none $10.060 9.49% $38,343
- ----------------------------------------------------------------------------------------------------------------
Class A - 12/31/96 9.830 0.440 (0.210) (0.440) none 9.620 2.56 40,037
- ----------------------------------------------------------------------------------------------------------------
Class A - 12/31/95 8.560 0.450 1.290 (0.470) none 9.830 20.80 42,374
- ----------------------------------------------------------------------------------------------------------------
Class A - 12/31/94 9.260 0.170 (0.720) (0.150) none 8.560 (5.86) 32,373
- ----------------------------------------------------------------------------------------------------------------
Class A - 8/31/94(1) 10.000 0.490 (0.740) (0.490) none 9.260 (2.67) 38,669
- ----------------------------------------------------------------------------------------------------------------
Class B - 12/31/97 $9.610 0.366 0.457 (0.373) none $10.060 8.75% $2,910
- ----------------------------------------------------------------------------------------------------------------
Class B - 12/31/96 9.830 0.380 (0.220) (0.380) none 9.610 1.76 1,645
- ----------------------------------------------------------------------------------------------------------------
Class B - 12/31/95(1) 9.180 0.310 0.640 (0.300) none 9.830 10.62 819
- ----------------------------------------------------------------------------------------------------------------
<PAGE>
Class C - 12/31/97 $9.610 0.360 0.456 (0.366) none $10.060 8.68% $871
- ----------------------------------------------------------------------------------------------------------------
Class C - 12/31/96 9.830 0.360 (0.220) (0.360) none 9.610 1.56 670
- ----------------------------------------------------------------------------------------------------------------
Class C - 12/31/95(1) 8.550 0.370 1.280 (0.370) none 9.830 19.66 462
- ----------------------------------------------------------------------------------------------------------------
Tax-Free Kansas(11)
Class A - 12/31/97 $10.560 0.526 0.506 (0.532) none $11.060 10.06% $10,663
- ----------------------------------------------------------------------------------------------------------------
Class A - 12/31/96 10.730 0.520 (0.170) (0.520) none 10.560 3.43 10,176
- ----------------------------------------------------------------------------------------------------------------
Class A - 12/31/95 9.500 0.560 1.220 (0.550) none 10.730 19.13 10,677
- ----------------------------------------------------------------------------------------------------------------
Class A - 12/31/94 9.630 0.090 (0.130) (0.090) none 9.500 (0.38) 7,355
- ----------------------------------------------------------------------------------------------------------------
Class A - 10/31/94 10.850 0.570 (1.210) (0.570) (0.010) 9.630 (6.10) 6,469
- ----------------------------------------------------------------------------------------------------------------
Class A - 10/31/93(1) 10.000 0.560 0.850 (0.560) none 10.850 14.49 2,057
- ----------------------------------------------------------------------------------------------------------------
Class B - 12/31/97 $10.570 0.440 0.516 (0.446) none $11.080 9.28% $3,452
- ----------------------------------------------------------------------------------------------------------------
Class B - 12/31/96 10.740 0.450 (0.170) (0.450) none 10.570 2.69 2,402
- ----------------------------------------------------------------------------------------------------------------
Class B - 12/31/95(1) 10.190 0.340 0.540 (0.330) none 10.740 8.76 677
- ----------------------------------------------------------------------------------------------------------------
Class C - 12/31/97 $10.550 0.439 0.504 (0.443) none $11.050 9.17% $108
- ----------------------------------------------------------------------------------------------------------------
Class C - 12/31/96 10.720 0.430 (0.170) (0.430) none 10.550 2.52 90
- ----------------------------------------------------------------------------------------------------------------
Class C - 12/31/95(1) 10.200 0.320 0.510 (0.310) none 10.720 8.29 40
================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
---------------------------------------------
Ratio of
Ratio of Ratio Expenses
Expenses of Net to Average
to Investment Daily
Average Income to Net Assets
Daily Average Portfolio Prior to
Delaware-Voyageur Net Daily Turnover Expense
Funds Assets(2) Net Assets Rate Limitation
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------
Tax-Free Idaho(11)
Class A - 12/31/97 0.87% 4.98% 19% 1.02%
- -----------------------------------------------------------------------
Class A - 12/31/96 0.60 5.29 35 1.10
- -----------------------------------------------------------------------
Class A - 12/31/95(1) 0.26(4) 5.24(4) 42 1.25(4)
- -----------------------------------------------------------------------
Class B - 12/31/97 1.46% 4.39% 19% 1.61%
- -----------------------------------------------------------------------
Class B - 12/31/96 1.11 4.78 35 1.85
- -----------------------------------------------------------------------
Class B - 12/31/95(1) 0.79(4) 4.68(4) 42 1.90(4)
- -----------------------------------------------------------------------
Class C - 12/31/97 1.62% 4.23% 19% 1.77%
- -----------------------------------------------------------------------
Class C - 12/31/96 1.33 4.57 35 1.82
- -----------------------------------------------------------------------
Class C - 12/31/95(1) 1.05(4) 4.48(4) 42 2.00(4)
- -----------------------------------------------------------------------
Tax-Free Iowa(11)
Class A - 12/31/97 0.91% 4.62% 14% 0.97%
- -----------------------------------------------------------------------
Class A - 12/31/96 0.92 4.68 14 1.06
- -----------------------------------------------------------------------
Class A - 12/31/95 0.72 4.88 21 1.06
- -----------------------------------------------------------------------
Class A - 12/31/94 0.11(4) 5.71(4) 7 1.25(4)
- -----------------------------------------------------------------------
Class A - 8/31/94(1) 0.12 4.89 119 1.25
- -----------------------------------------------------------------------
Class B - 12/31/97 1.67% 3.86% 14% 1.73%
- -----------------------------------------------------------------------
Class B - 12/31/96 1.61 3.97 14 1.81
- -----------------------------------------------------------------------
Class B - 12/31/95(1) 1.28(4) 4.06(4) 21 1.65(4)
- -----------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Class C - 12/31/97 1.74% 3.79% 14% 1.80%
- -----------------------------------------------------------------------
Class C - 12/31/96 1.75 3.82 14 1.81
- -----------------------------------------------------------------------
Class C - 12/31/95(1) 1.61(4) 3.74(4) 21 1.72(4)
- -----------------------------------------------------------------------
Tax-Free Kansas(11)
Class A - 12/31/97 0.84% 4.92% 30% 1.03%
- -----------------------------------------------------------------------
Class A - 12/31/96 0.83 4.97 56 1.21
- -----------------------------------------------------------------------
Class A - 12/31/95 0.37 5.32 19 1.11
- -----------------------------------------------------------------------
Class A - 12/31/94 0.01(4) 5.88(4) none 1.25(4)
- -----------------------------------------------------------------------
Class A - 10/31/94 0.06 5.30 38 1.25
- -----------------------------------------------------------------------
Class A - 10/31/93(1) none 5.26(4) 28 1.25(4)
- -----------------------------------------------------------------------
Class B - 12/31/97 1.61% 4.15% 30% 1.80%
- -----------------------------------------------------------------------
Class B - 12/31/96 1.61 4.16 56 2.00
- -----------------------------------------------------------------------
Class B - 12/31/95(1) 0.94(4) 4.63(4) 19 1.68(4)
- -----------------------------------------------------------------------
Class C - 12/31/97 1.64% 4.12% 30% 1.83%
- -----------------------------------------------------------------------
Class C - 12/31/96 1.77 4.02 56 2.00
- -----------------------------------------------------------------------
Class C - 12/31/95(1) 1.27(4) 4.21(4) 19 1.79(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- Net Net
Asset Net Unrealized Dividends butions Asset Assets
Value Invest- Gain from Net from Value End of
Delaware-Voyageur Beginning ment (Loss) on Investment Capital End of Total Period
Funds of Period Income Securities Income Gains Period Return(3) (000s)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
Tax-Free Minnesota(11)
Class A - 12/31/97 $12.400 0.654 0.511 (0.655) none $12.910 9.68% $417,365
- ----------------------------------------------------------------------------------------------------------------
Class A - 12/31/96 12.630 0.630 (0.230) (0.630) none 12.400 3.33 428,380
- ----------------------------------------------------------------------------------------------------------------
Class A - 12/31/95 11.330 0.620 1.320 (0.640) none 12.630 17.49 455,220
- ----------------------------------------------------------------------------------------------------------------
Class A - 12/31/94 12.850 0.630 (1.480) (0.610) (0.060)(8) 11.330 (6.73) 406,497
- ----------------------------------------------------------------------------------------------------------------
Class A - 12/31/93 12.210 0.640 0.870 (0.640) (0.230) 12.850 12.70 458,145
- ----------------------------------------------------------------------------------------------------------------
Class A - 12/31/92 12.070 0.700 0.230 (0.700) (0.090) 12.210 7.97 331,314
- ----------------------------------------------------------------------------------------------------------------
Class A - 12/31/91 11.670 0.750 0.490 (0.750) (0.090) 12.070 11.04 251,594
- ----------------------------------------------------------------------------------------------------------------
Class A - 12/31/90 11.680 0.770 0.020 (0.770) (0.030 11.670 7.03 197,629
- ----------------------------------------------------------------------------------------------------------------
Class A - 12/31/89 11.480 0.800 0.220 (0.800) (0.020) 11.680 9.11 172,476
- ----------------------------------------------------------------------------------------------------------------
Class A - 12/31/88 11.160 0.800 0.320 (0.800) none 11.480 10.31 150,031
- ----------------------------------------------------------------------------------------------------------------
Class A - 12/31/87(1) 11.850 0.810 (0.660) (0.810) (0.030) 11.160 1.38 124,082
- ----------------------------------------------------------------------------------------------------------------
Class B - 12/31/97 $12.400 0.574 0.508 (0.572) none $12.910 8.95% $8,215
- ----------------------------------------------------------------------------------------------------------------
Class B - 12/31/96 12.620 0.560 (0.220) (0.560) none 12.400 2.83 6,233
- ----------------------------------------------------------------------------------------------------------------
Class B - 12/31/95(1) 11.900 0.450 0.710 (0.440) none 12.620 9.95 2,701
- ----------------------------------------------------------------------------------------------------------------
<PAGE>
Class C - 12/31/97 $12.410 0.564 0.508 (0.562) none $12.920 8.82% $3,083
- ----------------------------------------------------------------------------------------------------------------
Class C - 12/31/96 12.630 0.540 (0.220) (0.540) none 12.410 2.64 3,083
- ----------------------------------------------------------------------------------------------------------------
Class C - 12/31/95 11.330 0.530 1.320 (0.550) none 12.630 16.62 2,319
- ----------------------------------------------------------------------------------------------------------------
Class C - 12/31/94(1) 11.960 0.340 (0.610) (0.320) (0.040) 11.330 (2.30) 1,061
- ----------------------------------------------------------------------------------------------------------------
Minnesota Insured(11)
Class A - 12/31/97 $10.600 0.533 0.341 (0.534) none $10.940 8.49% $288,494
- ----------------------------------------------------------------------------------------------------------------
Class A - 12/31/96 10.730 0.520 (0.130) (0.520) none 10.600 3.75 304,877
- ----------------------------------------------------------------------------------------------------------------
Class A - 12/31/95 9.610 0.510 1.140 (0.530) none 10.730 17.52 307,734
- ----------------------------------------------------------------------------------------------------------------
Class A - 12/31/94 11.020 0.540 (1.390) (0.520) (0.040) 9.610 (7.88) 284,132
- ----------------------------------------------------------------------------------------------------------------
Class A - 12/31/93 10.270 0.540 0.840 (0.540) (0.090) 11.020 13.80 311,187
- ----------------------------------------------------------------------------------------------------------------
Class A - 12/31/92 10.070 0.590 0.250 (0.590) (0.050) 10.270 8.57 162,728
- ----------------------------------------------------------------------------------------------------------------
Class A - 12/31/91 9.650 0.600 0.480 (0.600) (0.060) 10.070 11.59 68,250
- ----------------------------------------------------------------------------------------------------------------
Class A - 12/31/90 9.640 0.610 0.020 (0.610) (0.010) 9.650 6.63 29,394
- ----------------------------------------------------------------------------------------------------------------
Class A - 12/31/89 9.480 0.630 0.200 (0.630) (0.040) 9.640 8.96 8,217
- ----------------------------------------------------------------------------------------------------------------
Class A - 12/31/88 9.190 0.670 0.290 (0.670) none 9.480 10.70 4,707
- ----------------------------------------------------------------------------------------------------------------
Class A - 12/31/87(1) 9.510 0.460 (0.320) (0.460) none 9.190 1.48 2,759
- ----------------------------------------------------------------------------------------------------------------
Class B - 12/31/97 $10.580 0.454 0.348 (0.452) none $10.930 7.77% $8,926
- ----------------------------------------------------------------------------------------------------------------
Class B - 12/31/96 10.720 0.450 (0.140) (0.450) none 10.580 3.03 6,817
- ----------------------------------------------------------------------------------------------------------------
Class B - 12/31/95(1) 10.140 0.380 0.580 (0.380) none 10.720 9.59 4,655
- ----------------------------------------------------------------------------------------------------------------
Class C - 12/31/97 $10.600 0.454 0.338 (0.452) none $10.940 7.66% $3,096
- ----------------------------------------------------------------------------------------------------------------
Class C - 12/31/96 10.730 0.440 (0.130) (0.440) none 10.600 2.98 3,126
- ----------------------------------------------------------------------------------------------------------------
Class C - 12/31/95 9.610 0.430 1.140 (0.450) none 10.730 16.63 3,166
- ----------------------------------------------------------------------------------------------------------------
Class C - 12/31/94(1) 10.230 0.300 (0.620) (0.280) (0.020) 9.610 (3.14) 1,525
===============================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
---------------------------------------------
Ratio of
Ratio of Ratio Expenses
Expenses of Net to Average
to Investment Daily
Average Income to Net Assets
Daily Average Portfolio Prior to
Delaware-Voyageur Net Daily Turnover Expense
Funds Assets(2) Net Assets Rate Limitation
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------
Tax-Free Minnesota(11)
Class A - 12/31/97 0.91% 5.22% 19% 0.95%
- -----------------------------------------------------------------------
Class A - 12/31/96 0.92 5.13 28 0.92
- -----------------------------------------------------------------------
Class A - 12/31/95 0.93 5.11 51 0.93
- -----------------------------------------------------------------------
Class A - 12/31/94 0.90 5.29 24 0.90
- -----------------------------------------------------------------------
Class A - 12/31/93 1.02 5.02 32 1.02
- -----------------------------------------------------------------------
Class A - 12/31/92 0.96 5.73 24 1.04
- -----------------------------------------------------------------------
Class A - 12/31/91 0.83 6.44 27 0.98
- -----------------------------------------------------------------------
Class A - 12/31/90 0.82 6.68 21 1.02
- -----------------------------------------------------------------------
Class A - 12/31/89 0.77 6.85 23 0.77
- -----------------------------------------------------------------------
Class A - 12/31/88 0.77 7.01 10 0.77
- -----------------------------------------------------------------------
Class A - 12/31/87(1) 0.78 7.10 14 0.78
- -----------------------------------------------------------------------
Class B - 12/31/97 1.56% 4.57% 19% 1.60%
- -----------------------------------------------------------------------
Class B - 12/31/96 1.50 4.53 28 1.67
- -----------------------------------------------------------------------
Class B - 12/31/95(1) 1.38(4) 4.43(4) 51 1.63(4)
- -----------------------------------------------------------------------
<PAGE>
Class C - 12/31/97 1.65% 4.48% 19% 1.69%
- -----------------------------------------------------------------------
Class C - 12/31/96 1.67 4.38 28 1.67
- -----------------------------------------------------------------------
Class C - 12/31/95 1.67 4.33 51 1.67
- -----------------------------------------------------------------------
Class C - 12/31/94(1) 1.72(4) 4.56(4) 24 1.72(4)
- -----------------------------------------------------------------------
Minnesota Insured(11)
Class A - 12/31/97 0.92% 5.01% 21% 0.94%
- -----------------------------------------------------------------------
Class A - 12/31/96 0.92 4.93 14 0.92
- -----------------------------------------------------------------------
Class A - 12/31/95 0.87 4.92 54 0.92
- -----------------------------------------------------------------------
Class A - 12/31/94 0.61 5.29 25 0.94
- -----------------------------------------------------------------------
Class A - 12/31/93 0.70 4.93 18 1.02
- -----------------------------------------------------------------------
Class A - 12/31/92 0.37 5.66 14 1.06
- -----------------------------------------------------------------------
Class A - 12/31/91 0.78 6.13 44 1.16
- -----------------------------------------------------------------------
Class A - 12/31/90 0.74 6.30 15 1.25
- -----------------------------------------------------------------------
Class A - 12/31/89 0.78 6.55 28 1.00
- -----------------------------------------------------------------------
Class A - 12/31/88 0.86 7.08 68 1.00
- -----------------------------------------------------------------------
Class A - 12/31/87(1) 0.76(4) 7.93(4) 21 1.00(4)
- -----------------------------------------------------------------------
Class B - 12/31/97 1.67% 4.26% 21% 1.69%
- -----------------------------------------------------------------------
Class B - 12/31/96 1.56 4.29 14 1.68
- -----------------------------------------------------------------------
Class B - 12/31/95(1) 1.34(4) 4.15(4) 54 1.64(4)
- -----------------------------------------------------------------------
Class C - 12/31/97 1.67% 4.26% 21% 1.69%
- -----------------------------------------------------------------------
Class C - 12/31/96 1.68 4.18 14 1.68
- -----------------------------------------------------------------------
Class C - 12/31/95 1.66 4.11 54 1.67
- -----------------------------------------------------------------------
Class C - 12/31/94(1) 1.36(4) 4.68(4) 25 1.68(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- Net Net
Asset Net Unrealized Dividends butions Asset Assets
Value Invest- Gain from Net from Value End of
Delaware-Voyageur Beginning ment (Loss) on Investment Capital End of Total Period
Funds of Period Income Securities Income Gains Period Return(3) (000s)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
Minnesota Intermediate(11)
Class A - 12/31/97 $10.990 0.535 0.180 (0.535) none $11.170 6.69% $57,524
- ----------------------------------------------------------------------------------------------------------------
Class A - 12/31/96 11.140 0.510 (0.150) (0.510) none 10.990 3.46 66,024
- ----------------------------------------------------------------------------------------------------------------
Class A - 12/31/95 10.500 0.510 0.640 (0.510) none 11.140 11.00 72,405
- ----------------------------------------------------------------------------------------------------------------
Class A - 12/31/94 11.160 0.450 (0.660) (0.450) none 10.500 (1.91) 84,168
- ----------------------------------------------------------------------------------------------------------------
Class A - 12/31/93 10.830 0.470 0.370 (0.470) (0.040) 11.160 7.88 75,374
- ----------------------------------------------------------------------------------------------------------------
Class A - 12/31/92 10.690 0.510 0.180 (0.510) (0.040) 10.830 6.62 48,210
- ----------------------------------------------------------------------------------------------------------------
Class A - 12/31/91 10.320 0.550 0.370 (0.550) none 10.690 9.24 27,268
- ----------------------------------------------------------------------------------------------------------------
Class A - 12/31/90 10.260 0.600 0.060 (0.600) none 10.320 6.59 22,526
- ----------------------------------------------------------------------------------------------------------------
Class A - 12/31/89 10.210 0.590 0.050 (0.590) none 10.260 6.43 21,884
- ----------------------------------------------------------------------------------------------------------------
Class A - 12/31/88 10.170 0.530 0.040 (0.530) none 10.210 6.02 24,157
- ----------------------------------------------------------------------------------------------------------------
Class A - 12/31/87(1) 10.430 0.550 (0.250) (0.550) (0.010) 10.170 2.97 29,063
- ----------------------------------------------------------------------------------------------------------------
Class B - 12/31/97 $10.990 0.437 0.190 (0.447) none $11.170 5.84% $910
- ----------------------------------------------------------------------------------------------------------------
Class B - 12/31/96 11.140 0.440 (0.150) (0.440) none 10.990 2.74 408
- ----------------------------------------------------------------------------------------------------------------
Class B - 12/31/95(1) 10.950 0.170 0.190 (0.170) none 11.140 3.26 27
- ----------------------------------------------------------------------------------------------------------------
Class C - 12/31/97 $10.990 0.440 0.187 (0.447) none 11.170 5.84% $1,512
- ----------------------------------------------------------------------------------------------------------------
Class C - 12/31/96 11.130 0.430 (0.140) (0.430) none 10.990 2.69 1,137
- ----------------------------------------------------------------------------------------------------------------
Class C - 12/31/95 10.500 0.420 0.630 (0.420) none 11.130 10.18 694
- ----------------------------------------------------------------------------------------------------------------
Class C - 12/31/94(1) 10.740 0.240 (0.240) (0.240) none 10.500 (0.03) 341
================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
---------------------------------------------
Ratio of
Ratio of Ratio Expenses
Expenses of Net to Average
to Investment Daily
Average Income to Net Assets
Daily Average Portfolio Prior to
Delaware-Voyageur Net Daily Turnover Expense
Funds Assets(2) Net Assets Rate Limitation
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------
Minnesota Intermediate(11)
Class A - 12/31/97 0.91% 4.86% 21% 0.95%
- -----------------------------------------------------------------------
Class A - 12/31/96 0.89 4.69 28 0.89
- -----------------------------------------------------------------------
Class A - 12/31/95 0.91 4.61 40 0.91
- -----------------------------------------------------------------------
Class A - 12/31/94 0.92 4.18 42 0.92
- -----------------------------------------------------------------------
Class A - 12/31/93 0.99 4.18 19 0.99
- -----------------------------------------------------------------------
Class A - 12/31/92 1.09 4.71 26 1.09
- -----------------------------------------------------------------------
Class A - 12/31/91 1.23 5.35 43 1.23
- -----------------------------------------------------------------------
Class A - 12/31/90 1.18 5.81 51 1.18
- -----------------------------------------------------------------------
Class A - 12/31/89 0.84 5.74 68 0.84
- -----------------------------------------------------------------------
Class A - 12/31/88 0.84 5.15 16 0.84
- -----------------------------------------------------------------------
Class A - 12/31/87(1) 0.84 5.14 25 0.84
- -----------------------------------------------------------------------
Class B - 12/31/97 1.81% 3.96% 21% 1.85%
- -----------------------------------------------------------------------
Class B - 12/31/96 1.56 3.99 28 1.62
- -----------------------------------------------------------------------
Class B - 12/31/95(1) 1.30(4) 3.93(4) 40 1.55(4)
- -----------------------------------------------------------------------
Class C - 12/31/97 1.77% 4.00% 21% 1.81%
- -----------------------------------------------------------------------
Class C - 12/31/96 1.64 3.94 28 1.64
- -----------------------------------------------------------------------
Class C - 12/31/95 1.63 3.82 40 1.63
- -----------------------------------------------------------------------
Class C - 12/31/94(1) 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- Net Net
Asset Net Unrealized Dividends butions Asset Assets
Value Invest- Gain from Net from Value End of
Delaware-Voyageur Beginning ment (Loss) on Investment Capital End of Total Period
Funds of Period Income Securities Income Gains Period Return(3) (000s)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
Missouri Insured(11)
Class A - 12/31/97 $10.370 0.504 0.446 (0.510) none $10.810 9.43% $48,565
- ----------------------------------------------------------------------------------------------------------------
Class A - 12/31/96 10.540 0.520 (0.180) (0.510) none 10.370 3.41 49,301
- ----------------------------------------------------------------------------------------------------------------
Class A - 12/31/95 9.270 0.520 1.290 (0.540) none 10.540 19.96 50,211
- ----------------------------------------------------------------------------------------------------------------
Class A - 12/31/94 9.370 0.100 (0.110) (0.090) none 9.270 (0.07) 37,790
- ----------------------------------------------------------------------------------------------------------------
Class A - 10/31/94 10.820 0.550 (1.430) (0.540) (0.030) 9.370 (8.28) 37,384
- ----------------------------------------------------------------------------------------------------------------
Class A - 10/31/93(1) 10.000 0.550 0.890 (0.550) (0.070) 10.820 14.74 30,270
- ----------------------------------------------------------------------------------------------------------------
Class B - 12/31/97 $10.370 0.425 0.451 (0.436) none $10.810 8.66% $11,507
- ----------------------------------------------------------------------------------------------------------------
Class B - 12/31/96 10.540 0.460 (0.180) (0.450) none 10.370 2.93 10,432
- ----------------------------------------------------------------------------------------------------------------
Class B - 12/31/95 9.270 0.480 1.280 (0.490) none 10.540 19.18 6,195
- ----------------------------------------------------------------------------------------------------------------
Class B - 12/31/94 9.370 0.080 (0.100) (0.080) none 9.270 (0.14) 2,742
- ----------------------------------------------------------------------------------------------------------------
Class B - 10/31/94(1) 10.300 0.330 (0.940) (0.320) none 9.370 (6.16) 1,701
- ----------------------------------------------------------------------------------------------------------------
Class C - 12/31/97 $10.370 0.405 0.455 (0.420) none $10.810 8.49% $225
- ----------------------------------------------------------------------------------------------------------------
Class C - 12/31/96 10.540 0.430 (0.180) (0.420) none 10.370 2.48 152
- ----------------------------------------------------------------------------------------------------------------
Class C - 12/31/95(1) 10.360 0.060 0.170 (0.050) none 10.540 2.24 20
- ----------------------------------------------------------------------------------------------------------------
Tax-Free New Mexico(11)
Class A - 12/31/97 $10.790 0.547 0.503 (0.560) none $11.280 10.01% $18,959
- ----------------------------------------------------------------------------------------------------------------
Class A - 12/31/96 10.890 0.540 (0.110) (0.530) none 10.790 4.13 20,133
- ----------------------------------------------------------------------------------------------------------------
Class A - 12/31/95 9.590 0.520 1.330 (0.550) none 10.890 19.64 21,402
- ----------------------------------------------------------------------------------------------------------------
Class A - 12/31/94 9.770 0.110 (0.200) (0.090) none 9.590 (0.90) 19,706
- ----------------------------------------------------------------------------------------------------------------
Class A - 10/31/94 10.920 0.560 (1.160) (0.550) none 9.770 (5.56) 23,096
- ----------------------------------------------------------------------------------------------------------------
Class A - 10/31/93 10.000 0.570 0.980 (0.570) (0.060) 10.920 15.77 17,302
- ----------------------------------------------------------------------------------------------------------------
Class A - 10/31/92(1) 10.000 none none none none 10.000 none 361
- ----------------------------------------------------------------------------------------------------------------
Class B - 12/31/97 $10.790 0.465 0.508 (0.473) none $11.290 9.24% 1,065
- ----------------------------------------------------------------------------------------------------------------
Class B - 12/31/96 10.890 0.460 (0.110) (0.450) none 10.790 3.39 794
- ----------------------------------------------------------------------------------------------------------------
Class B - 12/31/95 9.590 0.460 1.320 (0.480) none 10.890 18.84 605
- ----------------------------------------------------------------------------------------------------------------
Class B - 12/31/94 9.770 0.090 (0.190) (0.080) none 9.590 (0.98) 272
- ----------------------------------------------------------------------------------------------------------------
Class B - 10/31/94(1) 10.690 0.310 (0.930) (0.300) none 9.770 (5.84) 264
- ----------------------------------------------------------------------------------------------------------------
Class C - 12/31/97 $10.790 0.459 0.495 (0.464) none 11.280 9.06% $315
- ----------------------------------------------------------------------------------------------------------------
Class C - 12/31/96(1) 10.410 0.280 0.370 (0.270) none 10.790 6.30 341
================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
---------------------------------------------
Ratio of
Ratio of Ratio Expenses
Expenses of Net to Average
to Investment Daily
Average Income to Net Assets
Daily Average Portfolio Prior to
Delaware-Voyageur Net Daily Turnover Expense
Funds Assets(2) Net Assets Rate Limitation
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------
Missouri Insured(11)
Class A - 12/31/97 0.91% 4.81% 12% 0.93%
- -----------------------------------------------------------------------
Class A - 12/31/96 0.71 5.05 28 1.03
- -----------------------------------------------------------------------
Class A - 12/31/95 0.50 5.25 31 1.07
- -----------------------------------------------------------------------
Class A - 12/31/94 0.11(4) 6.00(4) 8 1.12(4)
- -----------------------------------------------------------------------
Class A - 10/31/94 0.15 5.39 32 1.13
- -----------------------------------------------------------------------
Class A - 10/31/93(1) none 4.82(4) 76 1.25(4)
- -----------------------------------------------------------------------
Class B - 12/31/97 1.61% 4.11% 12% 1.63%
- -----------------------------------------------------------------------
Class B - 12/31/96 1.29 4.46 28 1.78
- -----------------------------------------------------------------------
Class B - 12/31/95 0.97 4.70 31 1.81
- -----------------------------------------------------------------------
Class B - 12/31/94 0.60(4) 5.32(4) 8 1.84(4)
- -----------------------------------------------------------------------
Class B - 10/31/94(1) 0.49(4) 4.89(4) 32 1.83(4)
- -----------------------------------------------------------------------
Class C - 12/31/97 1.74% 3.98% 12% 1.76%
- -----------------------------------------------------------------------
Class C - 12/31/96 1.62 4.10 28 1.78
- -----------------------------------------------------------------------
Class C - 12/31/95(1) 1.22(4) 4.09(4) 31 1.55(4)
- -----------------------------------------------------------------------
Tax-Free New Mexico(11)
Class A - 12/31/97 0.99% 5.00% 28% 1.04%
- -----------------------------------------------------------------------
Class A - 12/31/96 0.88 5.06 42 1.07
- -----------------------------------------------------------------------
Class A - 12/31/95 0.87 5.07 55 1.09
- -----------------------------------------------------------------------
Class A - 12/31/94 0.06(4) 6.38(4) 2 1.25(4)
- -----------------------------------------------------------------------
Class A - 10/31/94 0.29 5.26 22 1.16
- -----------------------------------------------------------------------
Class A - 10/31/93 none 5.10 30 1.25
- -----------------------------------------------------------------------
Class A - 10/31/92(1) none none none none
- -----------------------------------------------------------------------
Class B - 12/31/97 1.76% 4.23% 28% 1.82%
- -----------------------------------------------------------------------
Class B - 12/31/96 1.61 4.31 42 1.82
- -----------------------------------------------------------------------
Class B - 12/31/95 1.53 4.33 55 1.83
- -----------------------------------------------------------------------
Class B - 12/31/94 0.75(4) 5.60(4) 2 2.00(4)
- -----------------------------------------------------------------------
Class B - 10/31/94(1) 0.98(4) 4.57(4) 22 1.86(4)
- -----------------------------------------------------------------------
Class C - 12/31/97 1.84% 4.15% 28% 1.89%
- -----------------------------------------------------------------------
Class C - 12/31/96(1) 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- Net Net
Asset Net Unrealized Dividends butions Asset Assets
Value Invest- Gain from Net from Value End of
Delaware-Voyageur Beginning ment (Loss) on Investment Capital End of Total Period
Funds of Period Income Securities Income Gains Period Return(3) (000s)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
Tax-Free New York(11)
Class A - 12/31/97 $10.690 0.603 0.128 (0.606) (0.175) $10.640 7.09% $9,563
- ----------------------------------------------------------------------------------------------------------------
Class A - 12/31/96(10) 10.720 0.120 0.010 (0.120) (0.040) 10.690 1.21 10,044
- ----------------------------------------------------------------------------------------------------------------
Class A - 9/30/96 10.870 0.550 (0.130) (0.550) (0.020) 10.720 3.94 10,548
- ----------------------------------------------------------------------------------------------------------------
Class A - 9/30/95 10.740 0.570 0.170 (0.590) (0.020) 10.870 7.31 11,931
- ----------------------------------------------------------------------------------------------------------------
Class A - 9/30/94 10.810 0.150 (0.060) (0.160) none 10.740 0.79 12,797
- ----------------------------------------------------------------------------------------------------------------
Class A - 6/30/94 11.510 0.620 (0.540) (0.620) (0.160) 10.810 0.63 12,851
- ----------------------------------------------------------------------------------------------------------------
Class A - 6/30/93 11.030 0.650 0.650 (0.660)(9) (0.160) 11.510 12.19 13,915
- ----------------------------------------------------------------------------------------------------------------
Class A - 6/30/92 10.570 0.660 0.620 (0.660) (0.160) 11.030 12.53 14,943
- ----------------------------------------------------------------------------------------------------------------
Class A - 6/30/91 10.270 0.480 0.300 (0.480) none 10.570 5.49 15,592
- ----------------------------------------------------------------------------------------------------------------
Class A - 9/30/90 10.500 0.670 (0.220) (0.670) (0.010) 10.270 4.44 27,065
- ----------------------------------------------------------------------------------------------------------------
Class A - 9/30/89 10.300 0.720 0.200 (0.720) none 10.500 9.21 23,069
- ----------------------------------------------------------------------------------------------------------------
Class A - 9/30/88(1) 10.000 0.640 0.300 (0.640) none 10.300 10.09 9,260
- ----------------------------------------------------------------------------------------------------------------
Class B - 12/31/97 $10.650 0.524 0.136 (0.525) (0.175) $10.610 6.39% $167
- ----------------------------------------------------------------------------------------------------------------
Class B - 12/31/96(10) 10.690 0.100 none (0.100) (0.040) 10.650 0.95 254
- ----------------------------------------------------------------------------------------------------------------
Class B - 9/30/96 10.840 0.470 (0.130) (0.470) (0.020) 10.690 3.14 448
- ----------------------------------------------------------------------------------------------------------------
Class B - 9/30/95(1) 10.340 0.430 0.540 (0.450) (0.020) 10.840 9.46 266
- ----------------------------------------------------------------------------------------------------------------
<PAGE>
Class C - 12/31/97 $10.660 0.522 0.128 (0.525) (0.175) $10.610 6.29% $56
- ----------------------------------------------------------------------------------------------------------------
Class C - 12/31/96(10) 10.700 0.100 none (0.100) (0.040) 10.660 0.95 53
- ----------------------------------------------------------------------------------------------------------------
Class C - 9/30/96 10.850 0.470 (0.130) (0.470) (0.020) 10.700 3.14 52
- ----------------------------------------------------------------------------------------------------------------
Class C - 9/30/95(1) 10.790 0.210 0.060 (0.210) none 10.850 2.54 51
- ----------------------------------------------------------------------------------------------------------------
Tax-Free North Dakota(11)
Class A - 12/31/97 $10.880 0.546 0.451 (0.557) none $11.320 9.43% $30,965
- ----------------------------------------------------------------------------------------------------------------
Class A - 12/31/96 11.000 0.540 (0.130) (0.530) none 10.880 3.89 33,713
- ----------------------------------------------------------------------------------------------------------------
Class A - 12/31/95 9.850 0.540 1.180 (0.570) none 11.000 17.81 36,096
- ----------------------------------------------------------------------------------------------------------------
Class A - 12/31/94 11.070 0.560 (1.150) (0.530) (0.100)(12) 9.850 (5.47) 33,829
- ----------------------------------------------------------------------------------------------------------------
Class A - 12/31/93 10.590 0.580 0.580 (0.580) (0.100) 11.070 11.20 34,880
- ----------------------------------------------------------------------------------------------------------------
Class A - 12/31/92 10.340 0.620 0.340 (0.620) (0.090) 10.590 9.70 15,846
- ----------------------------------------------------------------------------------------------------------------
Class A - 12/31/91(1) 10.000 0.490 0.410 (0.490) (0.070) 10.340 9.23 4,914
- ----------------------------------------------------------------------------------------------------------------
Class B - 12/31/97 $10.880 0.484 0.451 (0.495) none $11.320 8.82% $889
- ----------------------------------------------------------------------------------------------------------------
Class B - 12/31/96 11.000 0.490 (0.130) (0.480) none 10.880 3.39 700
- ----------------------------------------------------------------------------------------------------------------
Class B - 12/31/95 9.850 0.480 1.180 (0.510) none 11.000 17.24 375
- ----------------------------------------------------------------------------------------------------------------
Class B - 12/31/94(1) 10.310 0.300 (0.390) (0.270) (0.100)(12) 9.850 (0.77) 144
- ----------------------------------------------------------------------------------------------------------------
Class C - 12/31/97 $10.870 0.441 0.468 (0.459) none $11.320 8.57% $41
- ----------------------------------------------------------------------------------------------------------------
Class C - 12/31/96 11.000 0.440 (0.140) (0.430) none 10.870 2.81 40
- ----------------------------------------------------------------------------------------------------------------
Class C - 12/31/95(1) 10.510 0.170 0.500 (0.180) none 11.000 6.47 20
================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
---------------------------------------------
Ratio of
Ratio of Ratio Expenses
Expenses of Net to Average
to Investment Daily
Average Income to Net Assets
Daily Average Portfolio Prior to
Delaware-Voyageur Net Daily Turnover Expense
Funds Assets(2) Net Assets Rate Limitation
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------
Tax-Free New York(11)
Class A - 12/31/97 1.00% 5.66% 30% 1.39%
- -----------------------------------------------------------------------
Class A - 12/31/96(10) 0.97(4) 5.31(4) 5 1.12(4)
- -----------------------------------------------------------------------
Class A - 9/30/96 1.34 5.14 12 1.55
- -----------------------------------------------------------------------
Class A - 9/30/95 1.31 5.66 10 1.82
- -----------------------------------------------------------------------
Class A - 9/30/94 1.09(4) 5.74(4) none 1.09(4)
- -----------------------------------------------------------------------
Class A - 6/30/94 0.99 5.55 4 1.09
- -----------------------------------------------------------------------
Class A - 6/30/93 0.99 5.74 17 1.05
- -----------------------------------------------------------------------
Class A - 6/30/92 1.00 6.15 19 1.26
- -----------------------------------------------------------------------
Class A - 6/30/91 1.23(4) 6.08(4) 18 1.48(4)
- -----------------------------------------------------------------------
Class A - 9/30/90 1.09 6.35 31 1.49
- -----------------------------------------------------------------------
Class A - 9/30/89 0.60 6.75 11 1.70
- -----------------------------------------------------------------------
Class A - 9/30/88(1) 0.45(4) 6.87(4) 18 2.04(4)
- -----------------------------------------------------------------------
Class B - 12/31/97 1.75% 4.91% 30% 2.14%
- -----------------------------------------------------------------------
Class B - 12/31/96(10) 1.87(4) 4.43(4) 5 2.00(4)
- -----------------------------------------------------------------------
Class B - 9/30/96 2.09 4.39 12 2.30
- -----------------------------------------------------------------------
Class B - 9/30/95(1) 2.09(4) 4.68(4) 10 2.60(4)
- -----------------------------------------------------------------------
<PAGE>
Class C - 12/31/97 1.75% 4.91% 30% 2.14%
- -----------------------------------------------------------------------
Class C - 12/31/96(10) 1.84(4) 4.45(4) 5 2.00(4)
- -----------------------------------------------------------------------
Class C - 9/30/96 2.09 4.39 12 2.30
- -----------------------------------------------------------------------
Class C - 9/30/95(1) 2.09(4) 4.44(4) 10 2.60(4)
- -----------------------------------------------------------------------
Tax-Free North Dakota(11)
Class A - 12/31/97 1.00% 4.97% 41% 1.04%
- -----------------------------------------------------------------------
Class A - 12/31/96 0.88 5.01 58 1.08
- -----------------------------------------------------------------------
Class A - 12/31/95 0.81 5.07 45 1.05
- -----------------------------------------------------------------------
Class A - 12/31/94 0.46 5.36 33 1.14
- -----------------------------------------------------------------------
Class A - 12/31/93 0.59 5.11 27 1.25
- -----------------------------------------------------------------------
Class A - 12/31/92 0.40 5.78 26 1.25
- -----------------------------------------------------------------------
Class A - 12/31/91(1) 0.16(4) 6.43(4) 126 1.25(4)
- -----------------------------------------------------------------------
Class B - 12/31/97 1.55% 4.42% 41% 1.59%
- -----------------------------------------------------------------------
Class B - 12/31/96 1.36 4.52 58 1.83
- -----------------------------------------------------------------------
Class B - 12/31/95 1.29 4.56 45 1.79
- -----------------------------------------------------------------------
Class B - 12/31/94(1) 0.99(4) 4.97(4) 33 1.89(4)
- -----------------------------------------------------------------------
Class C - 12/31/97 1.87% 4.10% 41% 1.91%
- -----------------------------------------------------------------------
Class C - 12/31/96 1.75 4.06 58 1.75
- -----------------------------------------------------------------------
Class C - 12/31/95(1) 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- Net Net
Asset Net Unrealized Dividends butions Asset Assets
Value Invest- Gain from Net from Value End of
Delaware-Voyageur Beginning ment (Loss) on Investment Capital End of Total Period
Funds of Period Income Securities Income Gains Period Return(3) (000s)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
Oregon Insured(11)
Class A - 12/31/97 $9.870 0.481 0.444 (0.485) none $10.310 9.66% $22,071
- ----------------------------------------------------------------------------------------------------------------
Class A - 12/31/96 10.050 0.480 (0.180) (0.480) none 9.870 3.15 20,913
- ----------------------------------------------------------------------------------------------------------------
Class A - 12/31/95 8.920 0.490 1.140 (0.500) none 10.050 18.71 21,590
- ----------------------------------------------------------------------------------------------------------------
Class A - 12/31/94 9.000 0.090 (0.090) (0.080) none 8.920 0.06 14,650
- ----------------------------------------------------------------------------------------------------------------
Class A - 10/31/94 10.240 0.500 (1.240) (0.500) none 9.000 (7.35) 14,086
- ----------------------------------------------------------------------------------------------------------------
Class A - 10/31/93(1) 10.000 0.130 0.240 (0.130) none 10.240 30.64 4,609
- ----------------------------------------------------------------------------------------------------------------
Class B - 12/31/97 $9.870 0.422 0.434 (0.416) none $10.310 8.90% $6,461
- ----------------------------------------------------------------------------------------------------------------
Class B - 12/31/96 10.050 0.430 (0.180) (0.430) none 9.870 2.61 4,758
- ----------------------------------------------------------------------------------------------------------------
Class B - 12/31/95 8.920 0.440 1.140 (0.450) none 10.050 18.10 2,786
- ----------------------------------------------------------------------------------------------------------------
Class B - 12/31/94 9.000 0.080 (0.090) (0.070) none 8.920 0.03 1,303
- ----------------------------------------------------------------------------------------------------------------
Class B - 10/31/94(1) 9.850 0.270 (0.850) (0.270) none 9.000 (5.95) 1,146
- ----------------------------------------------------------------------------------------------------------------
<PAGE>
Class C - 12/31/97 $9.880 0.411 0.431 (0.402) none $10.320 8.75% $532
- ----------------------------------------------------------------------------------------------------------------
Class C - 12/31/96 10.050 0.400 (0.170) (0.400) none 9.880 2.38 360
- ----------------------------------------------------------------------------------------------------------------
Class C - 12/31/95(1) 9.630 0.190 0.410 (0.180) none 10.050 6.35 250
- ----------------------------------------------------------------------------------------------------------------
Tax-Free Utah(11)
Class A - 12/31/97 $10.840 0.565 0.495 (0.570) none $11.330 10.08% $3,223
- ----------------------------------------------------------------------------------------------------------------
Class A - 12/31/96 11.040 0.550 (0.200) (0.550) none 10.840 3.35 3,861
- ----------------------------------------------------------------------------------------------------------------
Class A - 12/31/95 9.800 0.590 1.240 (0.590) none 11.040 19.06 4,142
- ----------------------------------------------------------------------------------------------------------------
Class A - 12/31/94 9.940 0.100 (0.150) (0.090) none 9.800 (0.41) 3,728
- ----------------------------------------------------------------------------------------------------------------
Class A - 10/31/94 11.070 0.600 (1.070) (0.600) (0.060) 9.940 (4.50) 4,054
- ----------------------------------------------------------------------------------------------------------------
Class A - 10/31/93 10.000 0.650 1.070 (0.650) none 11.070 17.54 3,913
- ----------------------------------------------------------------------------------------------------------------
Class A - 10/31/92(1) 10.000 none none none none 10.000 none 19
- ----------------------------------------------------------------------------------------------------------------
Class B - 12/31/97 $10.830 0.464 0.515 (0.479) none $11.330 9.28% $558
- ----------------------------------------------------------------------------------------------------------------
Class B - 12/31/96 11.040 0.470 (0.210) (0.470) none 10.830 2.47 397
- ----------------------------------------------------------------------------------------------------------------
Class B - 12/31/95(1) 10.630 0.300 0.390 (0.280) none 11.040 6.60 363
- ----------------------------------------------------------------------------------------------------------------
Washington Insured(11)
Class A - 12/31/97 $10.300 0.541 0.481 (0.552) none $10.770 10.23% $2,372
- ----------------------------------------------------------------------------------------------------------------
Class A - 12/31/96 10.440 0.540 (0.140) (0.540) none 10.300 3.98 2,382
- ----------------------------------------------------------------------------------------------------------------
Class A - 12/31/95 9.210 0.590 1.210 (0.570) none 10.440 19.94 2,099
- ----------------------------------------------------------------------------------------------------------------
Class A - 12/31/94 9.370 0.090 (0.160) (0.090) none 9.210 (0.69) 2,049
- ----------------------------------------------------------------------------------------------------------------
Class A - 10/31/94 10.670 0.550 (1.260) (0.570) (0.020) 9.370 (6.85) 2,118
- ----------------------------------------------------------------------------------------------------------------
Class A - 10/31/93(1) 10.000 0.150 0.670 (0.150) none 10.670 8.05 2,108
- ----------------------------------------------------------------------------------------------------------------
Class B - 12/31/97 $10.310 0.471 0.470 (0.471) none $10.780 9.38% $963
- ----------------------------------------------------------------------------------------------------------------
Class B - 12/31/96 10.440 0.470 (0.140) (0.460) none 10.310 3.32 516
- ----------------------------------------------------------------------------------------------------------------
Class B - 12/31/95(1) 10.180 0.090 0.250 (0.080) none 10.440 3.30 15
- ----------------------------------------------------------------------------------------------------------------
Class C - 12/31/97 $10.300 0.465 0.469 (0.464) none $10.770 9.31% $69
- ----------------------------------------------------------------------------------------------------------------
Class C - 12/31/96 10.430 0.450 (0.140) (0.440) none 10.300 3.12 19
- ----------------------------------------------------------------------------------------------------------------
Class C - 12/31/95(1) 9.940 0.310 0.480 (0.300) none 10.430 8.13 19
================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
---------------------------------------------
Ratio of
Ratio of Ratio Expenses
Expenses of Net to Average
to Investment Daily
Average Income to Net Assets
Daily Average Portfolio Prior to
Delaware-Voyageur Net Daily Turnover Expense
Funds Assets(2) Net Assets Rate Limitation
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------
Oregon Insured(11)
Class A - 12/31/97 0.71% 4.83% 5% 0.94%
- -----------------------------------------------------------------------
Class A - 12/31/96 0.71 4.92 40 1.07
- -----------------------------------------------------------------------
Class A - 12/31/95 0.54 5.12 41 1.11
- -----------------------------------------------------------------------
Class A - 12/31/94 0.05(4) 5.79(4) 5 1.25(4)
- -----------------------------------------------------------------------
Class A - 10/31/94 0.03 5.17 49 1.25
- -----------------------------------------------------------------------
Class A - 10/31/93(1) none 4.61(4) 11 1.25(4)
- -----------------------------------------------------------------------
Class B - 12/31/97 1.39% 4.15% 5% 1.62%
- -----------------------------------------------------------------------
Class B - 12/31/96 1.25 4.37 40 1.83
- -----------------------------------------------------------------------
Class B - 12/31/95 1.04 4.57 41 1.86
- -----------------------------------------------------------------------
Class B - 12/31/94 0.60(4) 5.19(4) 5 2.00(4)
- -----------------------------------------------------------------------
Class B - 10/31/94(1) 0.75(4) 4.43(4) 49 2.00(4)
- -----------------------------------------------------------------------
Class C - 12/31/97 1.51% 4.03% 5% 1.74%
- -----------------------------------------------------------------------
Class C - 12/31/96 1.55 4.03 40 1.82
- -----------------------------------------------------------------------
Class C - 12/31/95(1) 1.39(4) 4.00(4) 41 1.74(4)
- -----------------------------------------------------------------------
Tax-Free Utah(11)
Class A - 12/31/97 0.69% 5.10% 39% 3.12%
- -----------------------------------------------------------------------
Class A - 12/31/96 0.68 5.14 39 1.25
- -----------------------------------------------------------------------
Class A - 12/31/95 0.38 5.51 35 1.25
- -----------------------------------------------------------------------
Class A - 12/31/94 0.11(4) 6.38(4) none 1.14(4)
- -----------------------------------------------------------------------
Class A - 10/31/94 0.10 5.64 2 1.25
- -----------------------------------------------------------------------
Class A - 10/31/93 none 5.65 44 1.25
- -----------------------------------------------------------------------
Class A - 10/31/92(1) none none none none
- -----------------------------------------------------------------------
<PAGE>
Class B - 12/31/97 1.50% 4.29% 39% 3.93%
- -----------------------------------------------------------------------
Class B - 12/31/96 1.46 4.34 39 2.00
- -----------------------------------------------------------------------
Class B - 12/31/95(1) 0.92(4) 4.74(4) 35 2.00(4)
- -----------------------------------------------------------------------
Washington Insured(11)
Class A - 12/31/97 0.49% 5.20% 20% 1.38%
- -----------------------------------------------------------------------
Class A - 12/31/96 0.44 5.29 33 1.25
- -----------------------------------------------------------------------
Class A - 12/31/95 0.28 5.57 51 1.25
- -----------------------------------------------------------------------
Class A - 12/31/94 0.10(4) 6.18(4) --- 1.25(4)
- -----------------------------------------------------------------------
Class A - 10/31/94 0.14 5.44 --- 1.25
- -----------------------------------------------------------------------
Class A - 10/31/93(1) none 5.50(4) 45 1.25(4)
- -----------------------------------------------------------------------
Class B - 12/31/97 1.24% 4.45% 20% 2.13%
- -----------------------------------------------------------------------
Class B - 12/31/96 1.21 4.47 33 2.00
- -----------------------------------------------------------------------
Class B - 12/31/95(1) 1.04(4) 4.44(4) 51 2.00(4)
- -----------------------------------------------------------------------
Class C - 12/31/97 1.29% 4.40% 20% 2.18%
- -----------------------------------------------------------------------
Class C - 12/31/96 1.37 4.36 33 2.00
- -----------------------------------------------------------------------
Class C - 12/31/95(1) 1.30(4) 4.45(4) 51 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- Net Net
Asset Net Unrealized Dividends butions Asset Assets
Value Invest- Gain from Net from Value End of
Delaware-Voyageur Beginning ment (Loss) on Investment Capital End of Total Period
Funds of Period Income Securities Income Gains Period Return(3) (000s)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
Tax-Free Wisconsin(11)
Class A - 12/31/97 $9.640 0.466 0.383 (0.479) none $10.010 9.07% $30,879
- ----------------------------------------------------------------------------------------------------------------
Class A - 12/31/96 9.780 0.460 (0.140) (0.460) none 9.640 3.49 28,292
- ----------------------------------------------------------------------------------------------------------------
Class A - 12/31/95 8.740 0.480 1.040 (0.480) none 9.780 17.74 26,449
- ----------------------------------------------------------------------------------------------------------------
Class A - 12/31/94 9.280 0.160 (0.550) (0.150) none 8.740 (4.12) 20,167
- ----------------------------------------------------------------------------------------------------------------
Class A - 8/31/94(1) 10.000 0.490 (0.720) (0.490) none 9.280 (2.40) 16,093
- ----------------------------------------------------------------------------------------------------------------
Class B - 12/31/97 $9.630 0.395 0.382 (0.407) none $10.000 8.27% $1,931
- ----------------------------------------------------------------------------------------------------------------
Class B - 12/31/96 9.770 0.410 (0.140) (0.410) none 9.630 2.84 1,339
- ----------------------------------------------------------------------------------------------------------------
Class B - 12/31/95(1) 9.390 0.280 0.370 (0.270) none 9.770 7.08 725
- ----------------------------------------------------------------------------------------------------------------
Class C - 12/31/97 $9.660 0.380 0.390 (0.400) none $10.030 8.16% $689
- ----------------------------------------------------------------------------------------------------------------
Class C - 12/31/96 9.790 0.390 (0.130) (0.390) none 9.660 2.74 555
- ----------------------------------------------------------------------------------------------------------------
Class C - 12/31/95(1) 9.340 0.300 0.440 (0.290) none 9.790 8.06 73
===============================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
---------------------------------------------
Ratio of
Ratio of Ratio Expenses
Expenses of Net to Average
to Investment Daily
Average Income to Net Assets
Daily Average Portfolio Prior to
Delaware-Voyageur Net Daily Turnover Expense
Funds Assets(2) Net Assets Rate Limitation
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------
Tax-Free Wisconsin(11)
Class A - 12/31/97 0.99% 4.76% 30% 1.07%
- -----------------------------------------------------------------------
Class A - 12/31/96 0.98 4.90 38 1.09
- -----------------------------------------------------------------------
Class A - 12/31/95 0.88 5.05 12 1.09
- -----------------------------------------------------------------------
Class A - 12/31/94 0.08(4) 5.54(4) 20 1.25(4)
- -----------------------------------------------------------------------
Class A - 8/31/94(1) 0.04 4.89 86 1.25
- -----------------------------------------------------------------------
Class B - 12/31/97 1.72% 4.03% 30% 1.80%
- -----------------------------------------------------------------------
Class B - 12/31/96 1.66 4.37 38 1.85
- -----------------------------------------------------------------------
Class B - 12/31/95(1) 1.45(4) 4.31(4) 12 1.70(4)
- -----------------------------------------------------------------------
Class C - 12/31/97 1.81% 3.94% 30% 1.89%
- -----------------------------------------------------------------------
Class C - 12/31/96 1.75 4.12 38 1.83
- -----------------------------------------------------------------------
Class C - 12/31/95(1) 1.77(4) 4.04(4) 12 1.77(4)
=======================================================================
</TABLE>
-22-
<PAGE>
NOTES TO FINANCIAL HIGHLIGHTS
(1) Except for Tax-Free Minnesota 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:
Tax-Free Arizona Fund
Class A March 2, 1995
Class B June 29, 1995
Class C May 13, 1995
Tax-Free Arizona Insured Fund
Class A April 1, 1991
Class B March 10, 1995
Class C May 26, 1994
Tax-Free California Fund
Class A March 3, 1995
Class B August 23, 1995
Class C April 9, 1996
Tax-Free California Insured Fund
Class A October 15, 1992
Class B March 1, 1994
Class C April 12, 1995
Tax-Free Colorado Fund
Class A April 23, 1987
Class B March 22, 1995
Class C May 6, 1994
Tax-Free Florida Fund
Class A March 2, 1995
Class B September 15, 1995
Class C April 22, 1995
Tax-Free Florida Insured Fund
Class A January 1, 1992
Class B March 11, 1994
<PAGE>
Tax-Free Florida Intermediate Fund
Class A May 1, 1994
Class B September 15, 1995
Class C March 23, 1995
Tax-Free Idaho Fund
Class A January 4, 1995
Class B March 16, 1995
Class C January 11, 1995
Tax-Free Iowa Fund
Class A September 1, 1993
Class B March 24, 1995
Class C January 4, 1995
Tax-Free Kansas Fund
Class A November 30, 1992
Class B April 8, 1995
Class C April 12, 1995
Tax-Free Minnesota Fund
Class A February 27, 1984
Class B March 11, 1995
Class C May 4, 1994
Minnesota Insured Fund
Class A May 1, 1987
Class B March 7, 1995
Class C May 4, 1994
Tax-Free Minnesota Intermediate Fund
Class A October 27, 1985
Class B August 15, 1995
Class C April 30, 1994
Tax-Free Missouri Insured Fund
Class A November 2, 1992
Class B March 12, 1994
Class C November 11, 1995
Tax-Free New Mexico Fund
Class A October 5, 1992
Class B March 3, 1994
Class C May 7, 1996
<PAGE>
Tax-Free New York Fund
Class A November 6, 1987
Class B November 14, 1994
Class C April 26, 1995
Tax-Free North Dakota Fund
Class A April 1, 1991
Class B May 10, 1994
Class C July 29, 1995
Tax-Free Oregon Insured Fund
Class A August 1, 1993
Class B March 12, 1994
Class C July 7, 1995
Tax-Free Utah Fund
Class A October 5, 1992
Class B May 27, 1995
Tax-Free Washington Insured Fund
Class A August 1, 1993
Class B October 24, 1995
Class C April 21, 1995
Tax-Free Wisconsin Fund
Class A September 1, 1993
Class B April 22, 1995
Class C March 28, 1995
-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 the impact of a sales charge.
(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 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.
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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 weighted average
maturity of the investment portfolio of each Tax-Free Fund and Insured Fund is
expected to be approximately 15 to 25 years. Each of Tax-Free Florida
Intermediate Fund, 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 that is typically connected with direct purchases
of the type of securities in which the Funds invest.
An investor should not consider a purchase of shares of any of the
Funds as equivalent to a complete investment program. Delaware Investments
includes a family of funds, generally available through registered investment
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, Tax-Free
New York Fund will invest at least 80% of the value of
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its net assets in such obligations under normal market conditions (not including
obligations subject to the alternative minimum tax). 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 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. Each Fund's investment objective and certain other investment
policies explicitly designated herein as such are fundamental, which means that
they cannot be changed without the vote of its 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 Services ("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; 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 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
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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 the 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 the 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 the Funds to do so. Further information about insurance (including its
limitations) is set forth in Part B.
All Funds
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 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.
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.
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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 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.
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<PAGE>
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 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
As a fundamental 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. 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
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California Intermediate Fund, Tax-Free California Fund, Tax-Free Colorado
Intermediate Fund, Tax-Free Colorado Insured Fund, Tax-Free Florida Intermediate
Fund, Tax-Free Florida Fund, Tax-Free Idaho 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 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.
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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
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.
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
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to increase taxes and other developments generally affecting the revenues of
issuers (for example, legislation or court decisions reducing state aid to local
governments or mandatory additional services). A summary description 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.
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
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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 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 of approximately $8.826 billion).
Currently Wisconsin's general obligation bonds are rated Aa2 by Moody's and AA
by S&P.
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THE DELAWARE DIFFERENCE
PLANS AND SERVICES
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superior information and quality service on your investments in Delaware
Investments.
SHAREHOLDER PHONE DIRECTORY
Investor Information Center
800-523-4640
Fund Information; Literature; Price; Yield and Performance Figures
Shareholder Service Center
800-523-1918
Information on Existing Investment Accounts; Wire Investments;
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800-362-FUND
(800-362-3863)
Performance Information
You can call the Investor Information Center at any time 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. Our 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.
Statements and Confirmations
You will receive quarterly statements of your account summarizing
all transactions during the period. A confirmation statement will be sent
following all transactions other than those involving a reinvestment of
dividends. You should examine statements and confirmations immediately and
promptly report any discrepancy by calling the Shareholder Service Center.
Duplicate Confirmations
If your financial adviser or investment dealer is noted on your
investment application, we will send a duplicate confirmation to him or her.
This makes it easier for your adviser to help you manage your investments.
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<PAGE>
Tax Information
Each year, the Funds will mail to you information on the tax status
of your dividends and distributions.
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 with a different investment objective, subject to
certain exceptions and limitations.
For more information, see Additional Methods of Adding to Your
Investment - Dividend Reinvestment Plan under How to Buy Shares or call the
Shareholder Service Center.
MoneyLine(SM) Services
Delaware Investments offers the following services for fast and
convenient transfer of funds between your personal bank account and your
Delaware Investments fund account:
1. MoneyLine(SM) Direct Deposit Service
If you elect to have your dividends and distributions paid
in cash and such dividends and distributions are in an amount of
$25 or more, you may choose the MoneyLine(SM) Direct Deposit
Service and have such payments transferred from your Fund account
to your predesignated bank account. See Dividends and
Distributions. In addition, you may elect to have your Systematic
Withdrawal Plan payments transferred from your Fund account to your
predesignated bank account through this service. See Systematic
Withdrawal Plans under Redemption and Exchange.
2. MoneyLine(SM) On Demand
You or your investment dealer may request
purchases and redemptions of Fund shares by phone using
MoneyLine(SM) On Demand. When you authorize 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 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 MoneyLine(SM) services; however,
your bank may charge a fee. Please call the Shareholder Service Center for
additional information about these services.
Right of Accumulation
With respect to Class A Shares, the Right of Accumulation feature
allows you to combine the value of your current holdings of Class A Shares,
Class B Shares and Class C Shares of a Fund with the dollar amount of new
purchases of Class A Shares of 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.
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Letter of Intention
The Letter of Intention feature permits you to obtain a reduced
front-end sales charge on purchases of Class A Shares by aggregating certain of
your purchases of Delaware Investments fund shares over a 13-month period. See
Classes of Shares and Part B.
12-Month Reinvestment Privilege
The 12-Month Reinvestment Privilege permits you to reinvest
proceeds from a redemption of Class A Shares, within one year of the date of the
redemption, without paying a front-end sales charge. See Part B.
Exchange Privilege
The Exchange Privilege permits you to exchange all or part of your
shares into shares of 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 Funds fiscal year ends on December
31.
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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. See also Contingent Deferred Sales
Charge for Certain Redemptions of Class A Shares Purchased at Net Asset Value
and Distribution (12b-1) and Service.
Class B Shares. An investor who elects the deferred sales charge
alternative acquires Class B Shares, which do not incur a front-end sales charge
when they are purchased, but are subject to a contingent deferred sales charge
if shares are redeemed within six years of purchase in the case of Tax-Free
Funds and Insured Funds, 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
and Insured Funds 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 and Insured Funds 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 entire initial purchase amount
invested in a Fund with their investment being subject to a CDSC if they redeem
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<PAGE>
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. In addition, the effect of
any return earned on such additional money will diminish over time. In comparing
Class B Shares to Class C Shares, investors should 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 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
and Insured Funds, 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>
Tax-Free Funds A Classes and Insured Funds A Classes(4)
- -------------------------------------------------------------------------------------------------------------------
Dealer's
Commission(3)
Front-End Sales Charge as % of as % of
Offering Offering
----------------------------------------------------------
Amount of Purchase Price Amount Invested(2) 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
- -------------------------------------------------------------------------------------------------------------------
Tax-Free Intermediate Funds A Classes(5)
- -------------------------------------------------------------------------------------------------------------------
Dealer's
Commission(3)
Front-End Sales Charge as % of as % of
Offering Offering
---------------------------------------------------------------
Amount of Purchase Price Amount Invested(2) 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 1%
limited contingent deferred sales charge may apply upon redemption of
such shares.
(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 year. Those amounts are as
follows:
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<PAGE>
<TABLE>
<CAPTION>
Offering Price Offering Price
3.75% 3.00% 2.50% 2.00% 2.75% 2.00% 1.00%
------------------------------- ----------------------
Amount Invested Amount Invested
------------------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Tax-Free Arizona 3.86% 3.05% 2.60% 2.06% Tax-Free Florida Intermediate 2.82% 2.07% 1.04%
Tax-Free Arizona Insured 3.92 3.05 2.53 2.01 Tax-Free Minnesota Intermediate 2.86 2.06 0.98
Tax-Free California 3.84 3.08 2.53 2.08
Tax-Free California Insured 3.92 3.10 2.55 2.00
Tax-Free Colorado 3.87 3.08 2.55 2.02
Tax-Free Florida 3.90 3.09 2.54 2.00
Tax-Free Florida Insured 3.91 3.11 2.58 2.05
Tax-Free Idaho 3.93 3.06 2.53 2.01
Tax-Free Iowa 3.88 3.08 2.58 2.09
Tax-Free Kansas 3.89 3.07 2.53 2.08
Tax-Free Minnesota 3.87 3.10 2.56 2.01
Minnesota Insured 3.93 3.11 2.56 2.01
Tax-Free Missouri Insured 3.90 3.05 2.59 2.04
Tax-Free New Mexico 3.90 3.10 2.57 2.04
Tax-Free New York Fund 3.85 3.10 2.54 2.07
Tax-Free North Dakota 3.89 3.09 2.56 2.03
Tax-Free Oregon Insured 3.88 3.10 2.52 2.04
Tax-Free Washington Insur 3.90 3.06 2.60 2.04
Tax-Free Wisconsin 3.90 3.10 2.60 2.00
Tax-Free Utah 3.88 3.09 2.56 2.03
</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, Colorado Insured Tax-Free Florida, Tax-Free Florida Insured,
Free, 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, Tax-Free Florida
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 Delaware
Investments products and services and who increase sales of shares 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>
For initial purchases of Class A Shares of Tax-Free Funds and Insured
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 $2 million 1.00%
Next $1 million up to $3 million 0.75
Next $2 million up to $5 million 0.50
Amount over $5 million 0.25
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 Underwriter 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 $2 million 0.50%
Next $1 million up to $3 million 0.50
Next $2 million up to $5 million 0.40
Amount over $5 million 0.20
For accounts with assets over $1 million, the dealer commission resets
annually to the highest incremental commission rate on the anniversary of the
first purchase. In determining a financial adviser's eligibility for the
dealer's commission, purchases of Class A Shares of other Delaware Investments
funds as to which a Limited CDSC applies may be aggregated with those of Class A
Shares of a Fund. Financial advisers also may be eligible for a dealer's
commission in connection with certain purchases made under a Letter of Intention
or pursuant to an investor's Right of Accumulation. Financial advisers should
contact the Distributor concerning the applicability and calculation of the
dealer's commission in the case of combined purchases.
An exchange from other funds in the Delaware Investments family will not
qualify for payment of the dealer's commission, unless a dealer's commission or
similar payment has not been previously paid on the assets being exchanged. The
schedule and program for payment of the dealer's commission are subject to
change or termination at any time by the Distributor at its discretion.
Redemptions of Class A Shares purchased at net asset value may result in
the imposition of a Limited CDSC if the dealer's commission described above was
paid in connection with the purchase of those shares. See Contingent Deferred
Sales Charge for Certain Redemptions of Class A Shares Purchased at Net Asset
Value under Redemption and Exchange.
Combined Purchases Privilege
By combining your holdings of Class A Shares with your holdings of Class
B Shares and/or Class C Shares of a Fund and shares of other funds in the
Delaware Investments family, except as those noted below, you can reduce the
front-end sales charges on any additional purchases of Class A Shares. Shares of
Delaware
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<PAGE>
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 Delaware
Investments fund holdings. Shares of other funds that do not carry a front-end
sales charge or CDSC may not be included unless they were acquired through an
exchange from a Delaware Investments fund that does carry a front-end sales
charge or CDSC.
This privilege permits you to combine your purchases and holdings with
those of your spouse, your children under 21 and any trust, fiduciary or
retirement account for the benefit of such family members.
It also permits you to use these combinations under a Letter of
Intention. A Letter of Intention allows you to make purchases over a 13-month
period and qualify the entire purchase for a reduction in front-end sales
charges on Class A Shares.
Combined purchases of $1,000,000 or more, including certain purchases
made at net asset value pursuant to a Right of Accumulation or under a Letter of
Intention, may result in the payment of a dealer's commission and the
applicability of a Limited CDSC. Investors should consult their financial
advisers or the Shareholder Service Center about the operation of these
features. See Front-End Sales Charge Alternative - Class A Shares, above.
Buying Class A Shares at Net Asset Value
Class A Shares of a Fund may be purchased at net asset value under the
Delaware 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.
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 Delaware Investments at net asset value.
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<PAGE>
A Fund must be notified in advance that an investment qualifies for
purchase at net asset value.
Deferred Sales Charge Alternative - Class B Shares
Class B Shares may be purchased at net asset value without a front-end
sales charge and, as a result, the full amount of the investor's purchase
payment will be invested in Fund shares. The Distributor currently anticipates
compensating dealers or brokers for selling Tax-Free Funds and Insured Funds at
the time of purchase from its own assets in an amount equal to no more than 4%
of the dollar amount purchased. Such payments for Tax-Free Intermediate Funds
are currently anticipated to be in an amount equal to no more than 2%. In
addition, from time to time, upon written notice to all of its dealers, the
Distributor may hold special promotions for specified periods during which the
Distributor may pay additional compensation to dealers or brokers for selling
Class B Shares at the time of purchase. As discussed below, however, Class B
Shares are subject to annual 12b-1 Plan expenses and, if Tax-Free Funds and
Insured Funds 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 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 and Insured Funds' Class B Shares CDSC schedule may be higher than the
CDSC schedule for Class B Shares acquired as a result of the exchange. See
Redemption and Exchange.
Automatic Conversion of Class B Shares
Class B Shares of Tax-Free Funds and Insured Funds, other than shares
acquired through reinvestment of dividends, held for eight years after purchase
are eligible for automatic conversion into Class A Shares. Class B Shares of
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.
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.
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<PAGE>
Level Sales Charge Alternative - Class C Shares
Class C Shares may be purchased at net asset value without a front-end
sales charge and, as a result, the full amount of the investor's purchase
payment will be invested in Fund shares. The Distributor currently anticipates
compensating dealers or brokers for selling Class C Shares at the time of
purchase from its own assets in an amount equal to no more than 1% of the dollar
amount purchased. As discussed below, 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%. CDSCs are charged
as a percentage of the dollar amount subject to the CDSC. The charge will be
assessed on an amount equal to the lesser of the net asset value at the time of
purchase of the shares being redeemed or the net asset value of those shares at
the time of redemption. No CDSC will be imposed on increases in net asset value
above the initial purchase price, nor will a CDSC be assessed on redemptions of
shares acquired through reinvestments of dividends or capital gains
distributions. For purposes of this formula, the "net asset value at the time of
purchase" will be the net asset value at purchase of Class B Shares or Class C
Shares of a Fund, even if those shares are later exchanged for shares of another
Delaware Investments fund. In the event of an exchange of the shares, the "net
asset value of such shares at the time of redemption" will be the net asset
value of the shares that were acquired in the exchange.
The following table sets forth the rates of the CDSC for Class B Shares
of Tax-Free Funds and Insured Funds:
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 and Insured
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
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<PAGE>
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 and Insured Funds 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.
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 Delaware Investments fund shares, the
Distributor may, from time to time, pay to participate in dealer-sponsored
seminars and conferences, reimburse dealers for expenses incurred in connection
with preapproved seminars, conferences and advertising and may, from time to
time, pay or allow additional promotional incentives to dealers, which shall
include non-cash concessions, such as certain luxury merchandise
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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.
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 CoreStates Bank, N.A., ABA #031000011, account number 1412893401
(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 CoreStates Bank, N.A., 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 Delaware
Investments, 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 the Fund or of any other fund in
the Delaware Investments family. Holders of Class B Shares of a Fund are
permitted to exchange all or part of their Class B Shares only into Class B
Shares of other 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 the Minnesota Funds 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
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government or transmitting bank. If there are insufficient funds in your
account, you are obligated to reimburse such Fund.
3. MoneyLine (SM) On Demand
Through the MoneyLine (SM) On Demand service, you or your investment
dealer may call the Fund to request a transfer of funds from your predesignated
bank account to your Fund account. See MoneyLine (SM) Services under The
Delaware Difference for additional information about this service.
4. Wealth Builder Option
You can use our Wealth Builder Option to invest in a Fund through
regular liquidations of shares in your accounts in other funds in the Delaware
Investments family. You may also elect to invest in other mutual funds in the
Delaware Investments family through the Wealth Builder Option through regular
liquidations of shares in your Fund account.
Under this automatic exchange program, you can authorize regular monthly
amounts (minimum of $100 per fund) to be liquidated from your account in one or
more funds in the Delaware Investments family and invested automatically into
any other account in a Delaware Investments mutual fund that you may specify. If
in connection with the election of the Wealth Builder Option, you wish to open a
new account to receive the automatic investment, such new account must meet the
minimum initial purchase requirements described in the prospectus of the fund
that you select. All investments under this option are exchanges and are
therefore subject to the same conditions and limitations as other exchanges
noted above. You can terminate your participation in Wealth Builder at any time
by giving written notice to the fund from which 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 account. Or, you may invest
your distributions in certain other funds in the Delaware Investments family,
subject to the exceptions noted below as well as the eligibility and minimum
purchase requirements set forth in each fund's prospectus.
Reinvestments of distributions into Class A Shares of a Fund or of other
Delaware Investments funds are made without a front-end sales charge.
Reinvestments of distributions into Class B Shares of a Fund or of other
Delaware Investments funds or into Class C Shares of a Fund or of other Delaware
Investments funds are also made without any sales charge and will not be subject
to a CDSC if later redeemed. See Automatic Conversion of Class B Shares under
Classes of Shares for information concerning the automatic conversion of Class B
Shares acquired by reinvesting dividends.
Holders of Class A Shares of a Fund may not reinvest their distributions
into Class B Shares or Class C Shares of any fund in the Delaware Investments
family, including the Funds. Holders of Class B Shares of a Fund may reinvest
their distributions only into Class B Shares of the funds in the Delaware
Investments family which offer that class of shares. Similarly, holders of Class
C Shares of a Fund may reinvest their distributions only into Class C Shares of
the funds in the Delaware Investments family which offer that class of shares.
For more information about reinvestments, call the Shareholder Service Center.
Purchase Price and Effective Date
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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.
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, the
Fund will charge a $9 fee for that quarter and each subsequent calendar quarter
until the account is brought up to the minimum balance. The service fee will be
deducted from the account during the first week of each calendar quarter for the
previous quarter, and will be used to help defray the cost of maintaining
low-balance accounts. No fees will be charged without proper notice, and no CDSC
will apply to such assessments.
Each Fund also reserves the right, upon 60 days written notice, to
involuntarily redeem accounts that remain under the minimum initial purchase
amount as a result of redemptions. An investor making the minimum initial
investment may be subject to involuntary redemption without the imposition of a
CDSC or Limited CDSC if he or she redeems any portion of his or her account.
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REDEMPTION AND EXCHANGE
You can redeem or exchange your shares in a number of different ways.
The exchange service is useful if your investment requirements change and you
want an easy way to invest in other tax-advantaged funds, bond funds, equity
funds or money market funds. This service is also useful if you are anticipating
a major expenditure and want to move a portion of your investment into a fund
that has the checkwriting feature. Exchanges are subject to the requirements of
each fund and all exchanges of shares constitute taxable events. See Taxes.
Further, in order for an exchange to be processed, shares of the fund being
acquired must be registered in the state where the acquiring shareholder
resides. You may want to consult your financial adviser or investment dealer to
discuss which funds in the Delaware Investments 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
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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.
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 the Original Shares.
However, such shareholders will continue to be subject to the CDSC and, in the
case of Class B Shares, the automatic conversion schedule of the Original Shares
as described in this Prospectus and any CDSC assessed upon redemption will be
charged by the Fund from which the Original Shares were exchanged. In an
exchange of shares from either Tax-Free Funds B Class or Insured Funds B Class,
the CDSC schedule for such Class may be higher than the CDSC schedule relating
to the New Shares acquired as a result of the exchange. For purposes of
computing the CDSC that may be payable upon a disposition of the New Shares, the
period of time that an investor held the Original Shares is added to the period
of time that an investor held the New Shares. The automatic conversion schedule
of the Original Shares of Class B Shares of Tax-Free Funds and Insured Funds 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 and Insured Funds 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. Each signature guarantee must be supplied by
an eligible guarantor institution. Each Fund reserves the right to reject a
signature guarantee supplied by an eligible institution based on its
creditworthiness. The Funds may require further documentation from corporations,
executors, retirement plans, administrators, trustees or guardians.
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
certificates.
The Telephone Redemption - Check to Your Address of Record service and
the Telephone Exchange service, both of which are described below, are
automatically provided unless you notify the Fund in which you have your account
in writing that you do not wish to have such services available with respect to
your account. Each Fund reserves the right to modify, terminate or suspend these
procedures upon 60 days' written notice to shareholders. It may be difficult to
reach the Funds by telephone during periods when market or economic conditions
lead to an unusually large volume of telephone requests.
Neither the Funds nor their Transfer Agent is responsible for any
shareholder loss incurred in acting upon written or telephone instructions for
redemption or exchange of Fund shares which are reasonably believed to be
genuine. With respect to such telephone transactions, each Fund will follow
reasonable procedures to confirm that instructions communicated by telephone are
genuine (including verification of a form of personal identification) as, if it
does not, such Fund or the Transfer Agent may be liable for any losses due to
unauthorized or fraudulent transactions. 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.
CoreStates Bank, N.A.'s fee (currently $7.50) will be deducted from your
redemption proceeds. If you ask for a check, it will normally be mailed the next
business day after receipt of your redemption request to your predesignated bank
account. There are no separate fees for this redemption method, but the mail
time may delay getting funds into your bank account. Simply call the Shareholder
Service Center prior to the time the offering price and net asset value are
determined, as noted above.
MoneyLine (SM) On Demand
Through the MoneyLine (SM) On Demand service, you or your investment
dealer may call the Fund to request a transfer of funds from your Fund account
to your predesignated bank account. See MoneyLine (SM) Services under The
Delaware Difference for additional information about this service.
Telephone Exchange
The Telephone Exchange feature is a convenient and efficient way to
adjust your investment holdings as your liquidity requirements and investment
objectives change. You or your investment dealer of record can
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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. As with the written exchange service, telephone exchanges
are subject to the requirements of each fund, as described above. Telephone
exchanges may be subject to limitations as to amounts or frequency.
Systematic Withdrawal Plans
This plan provides shareholders with a consistent monthly (or quarterly)
payment. This is particularly useful to shareholders living on fixed incomes,
since it can provide them with a stable supplemental amount. With accounts of at
least $5,000, you may elect monthly withdrawals of $25 (quarterly $75) or more.
The Funds do not recommend any particular monthly amount, as each shareholder's
situation and needs vary. Payments are normally made by check. In the
alternative, you may elect to have your payments transferred from your Fund
account to your predesignated bank account through the MoneyLine (SM) Direct
Deposit Service. Through this service, it may take up to four business days for
the transaction 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, call the
Shareholder Service Center.
Contingent Deferred Sales Charge for Certain Redemptions of Class A Shares
Purchased at Net Asset Value
A Limited CDSC will be imposed on certain redemptions of Class A Shares
(or shares into which such Class A Shares are exchanged) made within 12 months
of purchase, if such purchases were made at net asset value and triggered the
payment by the Distributor of the dealer's commission previously described. See
Classes of Shares.
The Limited CDSC will be paid to the Distributor and will be equal to
the lesser of 1% of: (1) the net asset value at the time of purchase of 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
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be the net asset value at purchase of Class A Shares even if those shares are
later exchanged for shares of another Delaware Investments fund and, in the
event of an exchange of Class A Shares, the "net asset value of such shares at
the time of redemption" will be the net asset value of the shares acquired in
the exchange.
Redemptions of such Class A Shares held for more than 12 months will not
be subjected to the Limited CDSC and an exchange of such Class A Shares into
another Delaware Investments fund will not trigger the imposition of the Limited
CDSC at the time of such exchange. The period a shareholder owns shares into
which Class A Shares are exchanged will count towards satisfying the 12-month
holding period. The Limited CDSC is assessed if such 12-month period is not
satisfied irrespective of whether the redemption triggering its payment is of
Class A Shares of a Fund or Class A Shares acquired in the exchange.
In determining whether a Limited CDSC is payable, it will be assumed
that shares not subject to the Limited CDSC are the first redeemed followed by
other shares held for the longest period of time. The Limited CDSC will not be
imposed upon shares representing reinvested dividends or capital gains
distributions, or upon amounts representing share appreciation. All investments
made during a calendar month, regardless of what day of the month the investment
occurred, will age one month on the last day of that month and each subsequent
month.
Waiver of Limited Contingent Deferred Sales Charge - Class A Shares
The Limited CDSC for Class A Shares on which a dealer's commission has
been paid will be waived in the following instances: (i) redemptions that result
from a Fund's right to liquidate a shareholder's account if the aggregate net
asset value of the shares held in the account is less than the then-effective
minimum account size; and (ii) redemptions by the classes of shareholders who
are permitted to purchase shares at net asset value, regardless of the size of
the purchase (see Buying Class A Shares at Net Asset Value under Classes of
Shares).
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. 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. Payment by check of
cash dividends will ordinarily be mailed within three business days after the
payable date.
Any payment by check of dividends or other distributions which cannot be
delivered by the United States Post Office or which remains uncashed for a
period of more than one year may be reinvested in your account at the
then-current net asset value and the dividend option may be changed from cash to
reinvest. If you elect to take your dividends and distributions in cash and such
dividends and distributions are in an amount of $25 or more, you may choose the
MoneyLine (SM) Direct Deposit Service and have such payments transferred from
your Fund account to your predesignated bank account. See MoneyLine (SM)
Services under The Delaware Difference for more information about this service.
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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 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 byproduct 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. 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.
Dividends which are declared in October, November or December to
shareholders of record on a specified date in one of those months, but which,
for operational reasons, may not be paid to the shareholder until the following
January, will be treated for tax purposes as if paid by a Fund and received by
the shareholder on December 31 of the calendar year in which they are declared.
The sale of shares of a Fund is a taxable event and may result in a
capital gain or loss to shareholders subject to tax. Capital gain or loss may be
realized from an ordinary redemption of shares or an exchange of shares between
a Fund and any other fund in the Delaware Investments family. Any loss incurred
on a sale or exchange of Fund shares that had been held for six months or less,
will be treated as a long-term capital loss to the extent of capital gain
dividends received with respect to such shares and will be disallowed to the
extent of exempt-interest dividends paid with respect to such shares. All or a
portion of the sales charge incurred in acquiring Fund shares will be excluded
from the federal tax basis of any of such shares sold or exchanged within 90
days of their purchase (for purposes of determining gain or loss upon sale of
such shares) if the sale proceeds are reinvested in a Fund or in another fund in
the Delaware Investments family 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 municipal
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.
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 withholding
requirement by certifying on your Investment Application your proper Taxpayer
Identification Number and by certifying that you are not subject to backup
withholding.
See Taxes in Part B for additional information on tax matters relating
to each Fund and its shareholders.
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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 the 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
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.
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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
Exempt interest dividends from the Minnesota Funds that are excluded from
gross income for federal income tax purposes and that are shareholders
represents 95 percent or more of the exempt interest dividends that are paid by
the Minnesota Funds. However, 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
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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 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.
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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 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 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.
Class A Shares are purchased at the offering price per share, while Class
B Shares and Class C Shares are purchased at the NAV. The offering price per
share of Class A Shares consists of the NAV per share next computed after the
order is received, plus any applicable front-end sales charges.
The offering price and NAV are computed as of the close of regular
trading on the New York Stock Exchange (ordinarily, 4 p.m., Eastern time) on
days when the Exchange is open.
The net asset values of all outstanding shares of each Class of a Fund
will be computed on a pro-rata basis for each outstanding share based on the
proportionate participation in the Fund represented by the value of shares of
that Class. All income earned and expenses incurred by a Fund will be borne on a
pro-rata basis by each outstanding share of a Class, based on each Class'
percentage in that Fund represented by the value of shares of such Classes,
except that Class A Shares, Class B Shares and Class C Shares will bear only the
12b-1 Plan expenses payable under their respective 12b-1 Plans. Due to the
specific distribution expenses and other costs that may be allocable to each
Class, the dividends paid to each Class of a particular Fund may vary. However,
the NAV per share of each Class of a particular Fund is expected to be
equivalent.
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MANAGEMENT OF THE FUNDS
Directors and Trustees
The business and affairs of each Fund are managed under the direction of
the Board of Directors or Trustees. Part B contains additional information
regarding the 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 December 31, 1997, the Manager and
its affiliates within the Delaware Investments family, including Delaware
International Advisers Ltd., were managing in the aggregate more than $40
billion in assets in the various institutional or separately managed
(approximately $24,040,760,000) and investment company (approximately
$16,482,523,000) 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, as
appropriate for each Fund. 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 ("LNC") as a result of LNC's
acquisition of DFG. LNC, 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 December 31, 1997, DMH, through
its subsidiaries, was responsible for the management of approximately $00
billion.
Because LNC'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, 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 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. 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 . Each Tax-Free Intermediate Fund pays the Manager a
monthly investment advisory and management fee equivalent on an
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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.
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 and Tax-Free
Colorado Fund. In addition, he has co-managed Tax-Free New Mexico Fund and
Tax-Free Utah Fund since September 1996. 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 Investn 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.
Thor Raarup has co-managed Tax-Free New Mexico Fund and Tax-Free Utah
Fund since September 1996. Mr. Raarup holds a bachelor's degree in financial
economics and history from Gustavus Adolphus College. Prior to joining Delaware
Investments, Mr. Raarup was an Associate Portfolio Manager with Voyageur Asset
Management. Previously, he was a commodity trader at the Minneapolis Grain
Exchange. Mr. Raarup is a member of the National Federation of Municipal
Analysts and the Minnesota Society of Municipal Analysts.
Elizabeth H. Howell has had, since 1991, day-to-day portfolio management
responsibility for the 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 to 1997 and was a Vice President of each of the
Voyageur Funds. Ms. Howell has over 13 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,
Tax-Free Florida Intermediate 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.
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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
1981-1985. 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 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%.
The Manager uses its best efforts to obtain the best available price and
most favorable execution for portfolio transactions. Orders may be placed with
brokers or dealers who provide brokerage and research services to the Manager or
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.
Because securities prices fluctuate, investment results of the Classes
will fluctuate over time. Past performance is not considered a guarantee 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.
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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 the 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 1.00% 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. The Transfer Agent also
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provides accounting services to the Funds pursuant to the terms of a separate
Fund Accounting Agreement. The directors and trustees annually review service
fees paid to the Transfer Agent.
The Distributor and the Transfer Agent are also indirect, wholly owned
subsidiaries of DMH. The directors or trustees of each Fund annually review the
fees paid to the Distributor and the Transfer Agent.
* * *
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.
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 the Fund's expenses to the extent necessary to ensure that
the Fund's total operating expenses (excluding 12b-1 Plan fees, interest
expense, taxes, brokerage fees and commissions) do not exceed, on an annual
basis, 1.00% of the average daily net assets of each Class of the Fund. This
agreement replaces a similar provision in the Funds' investment advisory
contracts with the Funds' 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 fees 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 December 31, 1997, 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 Payments by the Assuming No Fee Waiver and Payments by the
Manager and Voyageur Manager and Voyageur
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% 1.65% 1.65% 0.89% 1.70% 1.70%
-----------------------------------------------------------------------------------
Arizona Fund 0.48 1.22 1.23 1.08 1.82 1.83
-----------------------------------------------------------------------------------
California Insured Fund 0.99 1.53 1.71 1.02 1.56 1.74
-----------------------------------------------------------------------------------
California Fund 0.13 0.80 0.87 1.19 1.86 1.93
-----------------------------------------------------------------------------------
Colorado Fund 0.81 1.62 1.64 0.86 1.67 1.69
-----------------------------------------------------------------------------------
Florida Intermediate Fund 0.61 1.39 1.46 1.33 2.11 2.18
-----------------------------------------------------------------------------------
Florida Insured Fund 0.79 1.46 N/A 0.85 1.52 N/A
-----------------------------------------------------------------------------------
Florida Fund 0.56 1.10 1.31 1.11 1.65 1.86
- ---------------------------------------------------------------------------------------------------------------------
Idaho Fund 0.87 1.46 1.62 1.02 1.61 1.77
- ---------------------------------------------------------------------------------------------------------------------
Iowa Fund 0.91 1.67 1.74 0.97 1.73 1.80
- ---------------------------------------------------------------------------------------------------------------------
Kansas Fund 0.84 1.61 1.64 1.03 1.80 1.83
- ---------------------------------------------------------------------------------------------------------------------
Minnesota Intermediate Fund 0.91 1.81 1.77 0.95 1.85 1.81
-----------------------------------------------------------------------------------
Minnesota Insured Fund 0.92 1.67 1.67 0.94 1.69 1.69
-----------------------------------------------------------------------------------
Minnesota Fund 0.91 1.56 1.65 0.95 1.60 1.69
-----------------------------------------------------------------------------------
Missouri Insured Fund 0.91 1.61 1.74 0.93 1.63 1.76
-----------------------------------------------------------------------------------
New Mexico Fund 0.99 1.76 1.84 1.04 1.81 1.89
-----------------------------------------------------------------------------------
New York Fund 1.00 1.75 1.75 1.39 2.14 2.14
-----------------------------------------------------------------------------------
North Dakota Fund 1.00 1.55 1.87 1.04 1.59 1.91
-----------------------------------------------------------------------------------
Oregon Insured Fund 0.71 1.39 1.51 0.94 1.62 1.74
-----------------------------------------------------------------------------------
Utah Fund 0.69 1.50 N/A 3.12 3.93 N/A
-----------------------------------------------------------------------------------
Washington Insured Fund 0.49 1.24 1.29 1.38 2.13 2.18
-----------------------------------------------------------------------------------
Wisconsin Fund 0.99 1.72 1.81 1.07 1.80 1.89
-----------------------------------------------------------------------------------
</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 Commonwealth of
Massachusetts, 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 Trust Massachusetts Business Trust September 16, 1991
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 Investment Trust II Massachusetts Business Trust November 16, 1993
Tax-Free Florida Intermediate
Voyageur Mutual Funds, Inc. Minnesota Corporation April 14, 1993
Tax-Free Arizona
Tax-Free California
Tax-Free Idaho
Tax-Free Iowa
Tax-Free Wisconsin
Tax-Free New York
Voyageur Mutual Funds II, Inc. Minnesota Corporation January 13, 1987
Tax-Free Colorado
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE>
Effective June 9, 1997, the names of the Funds were changed as follows:
<TABLE>
<CAPTION>
<S> <C>
Previous Name New Name
Voyageur Arizona Limited Term Tax Free Fund 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 Limited Term Tax Free Fund Delaware-Voyageur Tax-Free Florida Intermediate 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 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>
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
Massachusetts 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.
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.
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.
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
Intermediate Fund, Tax-Free Florida Fund, Tax-Free Idaho 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
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<PAGE>
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 Investment Policies and Restrictions--Options and Futures Transactions 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 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.
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
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<PAGE>
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) 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
Intermediate Fund, Tax-Free Florida Fund, Tax-Free Idaho 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 the Fund may invest ("futures contracts") and may
purchase and write put and call options to buy or sell futures contracts
("options on futures contracts"). 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 the Fund will be traded on exchanges or
over the counter. The successful use of such instruments draws upon the
Manager's experience with respect to such instruments and usually depends upon
the Manager's ability to forecast interest rate movements correctly. Should
interest rates move in an unexpected manner, the Fund may not achieve the
anticipated benefits of futures contracts or options on futures contracts or may
realize losses and would thus be in a worse position than if such strategies had
not been used. In addition, the correlation between movements in the price of
futures contracts or options on futures contracts and movements in the prices of
the securities hedged or used for cover will not be perfect.
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<PAGE>
A Fund's use of financial futures and options thereon will in all cases
be consistent with applicable regulatory requirements. To the extent required to
comply with applicable SEC releases and staff positions, when purchasing a
futures contract or writing a put option, the Fund will maintain in a segregated
account cash 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 currently require that, in order to avoid "commodity
pool operator" status, the Fund must use futures and options positions (a) for
"bona fide hedging purposes" (as defined in the regulations) or (b) for other
purposes so long as aggregate initial margins and premiums required in
connection with non hedging positions do not exceed 5% of the liquidation value
of the Fund's portfolio. There are no other numerical limits on 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.
Investment Restrictions
Each Fund has adopted certain investment restrictions in addition to
those set forth above, which are set forth in their entirety in the Statement of
Additional Information. 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 the Fund's Board 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. To
the extent that 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.
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.
-76-
<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 December 31, 1997.
<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>
Tax-Free Funds
Arizona 51% 6% 19% 13% 5% -- 6% 100%
- -----------------------------------------------------------------------------------------------------------------------
Colorado 21% 20% 17% 25% -- -- 17% 100%
- -----------------------------------------------------------------------------------------------------------------------
Florida 32% 20% 19% 14% -- -- 15% 100%
- -----------------------------------------------------------------------------------------------------------------------
Idaho 23% 8% 27% 27% -- -- 15% 100%
- -----------------------------------------------------------------------------------------------------------------------
Iowa 27% -- 54% 13% 6% 100%
- -----------------------------------------------------------------------------------------------------------------------
Kansas 51% 16% 9% 13% -- -- 11% 100%
- -----------------------------------------------------------------------------------------------------------------------
Minnesota 46% 10% 20% 7% -- -- 17% 100%
- -----------------------------------------------------------------------------------------------------------------------
New Mexico 49% 5% 26% 5% -- -- 10% 100%
- -----------------------------------------------------------------------------------------------------------------------
North Dakota 35% 28% 14% 9% -- -- 14% 100%
- -----------------------------------------------------------------------------------------------------------------------
Utah 59% 11% 14% 5% -- -- 11% 100%
- -----------------------------------------------------------------------------------------------------------------------
Wisconsin 38% 7% 14% 9% -- -- 32% 100%
- -----------------------------------------------------------------------------------------------------------------------
Tax-Free Intermediate Funds
Florida 62% 8% -- 25% -- -- 5% 100%
- -----------------------------------------------------------------------------------------------------------------------
Minnesota 36% 8% 11% 24% -- -- 21% 100%
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
General Rating Information
The ratings list below can be further described as follows. For all
catergories 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 catergories lower than AAA, Standard & Poor's
Ratings Group and Fitch IBCA, Inc. may add a "+" or "-" following the rating to
characterize a higher or lower rating, respectively.
<TABLE>
<CAPTION>
Bonds
<S> <C> <C>
Moody's Investors Aaa Highest quality, smallest degree of investment risk.
Service, Inc. Aa High quality; together with Aaa bonds, they compose the high-grade bond
group
A Upper-medium-grade obligations; many favorable investment attributes.
Baa Medium-grade obligations; neither highly protected nor poorly secured.
Interest and principal appear adequate for the present, but certain
protective elements may be lacking or may be unreliable over any great
length of time.
Ba More uncertain with speculative elements. Protective of interest and
principal payments not well safeguarded in good and bad times.
B Lack characteristics of desirable investment; potentially low assurance of
timely interest and principal payments or maintenance of other contract
terms over time.
Caa Poor standing, may be in default; elements of danger with respect to
principal or interest payments.
</TABLE>
-77-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
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.
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, CC interest and principal payments. BB-lowest degree of speculation; CC-the
highest degree of speculation. Quality and protective characteristics
outweighed by large uncertainties or major risk exposure to adverse
conditions.
D In default.
Fitch IBCA, Inc. AAA Highest quality; obligor has exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA Very high quality; obligor's ability to pay interest and repay principal is
very strong. Because bonds rated in the AAA and AA categories are not
significantly vulnerable to foreseeable future developments, short-term debt
of these issuers is generally rated F-1+.
A High quality; obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than higher-rated bonds.
BBB Satisfactory credit quality; obligor's ability to pay interest and repay
principal is considered adequate. Unfavorable changes in economic conditions
and circumstances are more likely to adversely affect these bonds and impair
timely payment. The likelihood that the ratings of these bonds will fall
below investment grade is higher than for higher-rated bonds.
BB, Not investment grade; predominantly speculative with respect to the issuer's
CCC, capacity to repay interest and repay principal in accordance with the terms
CC, C of the obligation for bond issues not in default. BB is the least speculative. C
is the most speculative.
</TABLE>
<TABLE>
<CAPTION>
Commercial Paper
Moody's S&P Fitch
<S> <C> <C> <C> <C> <C>
P-1 Superior A-1+ Extremely strong F-1+ Exceptionally strong quality
- -------------------------------------------------------------------------------------------------------------
quality quality
- -------------------------------------------------------
A-1 Strong quality F-1 Very strong quality
- ----------------------------------------------------------------------------------------------------
</TABLE>
-78-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
P-2 Strong quality A-2 Satisfactory quality F-2 Good credit quality
P-3 Acceptable quality A-3 Adequate quality F-3 Fair quality
B Speculative quality F-S Weak credit quality
C Doubtful quality
State and Municipal Notes
Moody's S&P Fitch
MIG1/
VMIG1 Best quality SP1+ Very strong quality F-1+ Exceptionally strong quality
SP1 Strong grade F-1 Very strong quality
MIG2/
VMIG2 High quality SP2 Satisfactory grade F-2 Good credit quality
MIG3/
VMIG3 Favorable quality F-3 Fair credit quality
MIG4/
VMIG4 Adequate quality
SG Speculative quality SP3 Speculative grade F-S Weak credit quality
</TABLE>
-79-
<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
800-523-4640.
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 Trust
Voyageur Investment Trust II
Voyageur Mutual Funds, Inc.
Voyageur Mutual Funds II, Inc.
- -------------------------------------------------------------------------------
A CLASS
- -------------------------------------------------------------------------------
B CLASS
- -------------------------------------------------------------------------------
C CLASS
- -------------------------------------------------------------------------------
PART B
STATEMENT OF
ADDITIONAL INFORMATION
- -------------------------------------------------------------------------------
April 30, 1998
DELAWARE
INVESTMENTS
===========
<PAGE>
- --------------------------------------------------------------------------------
PART B--STATEMENT OF ADDITIONAL INFORMATION
April 30, 1998
- --------------------------------------------------------------------------------
Voyageur Tax Free Funds, Inc.
Voyageur Intermediate Tax-Free Funds, Inc.
Voyageur Insured Funds, Inc.
Voyageur Investment Trust
Voyageur Investment Trust II
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 800-523-4640
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
- --------------------------------------------------------------------------------
<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 Tax-Free Missouri Insured Fund
Delaware-Voyageur Tax-Free California Insured Fund Delaware-Voyageur Tax-Free New Mexico Fund
Delaware-Voyageur Tax-Free California Fund Delaware-Voyageur Tax-Free New York Fund
Delaware-Voyageur Tax-Free Colorado Intermediate Fund Delaware-Voyageur Tax-Free North Dakota Fund
Delaware-Voyageur Tax-Free Colorado Insured Fund Delaware-Voyageur Tax-Free Oregon Insured Fund
Delaware-Voyageur Tax-Free Colorado Fund Delaware-Voyageur Tax-Free Utah Fund
Delaware-Voyageur Tax-Free Florida Intermediate Fund Delaware-Voyageur Tax-Free Washington Insured Fund
Delaware-Voyageur Tax-Free Florida Insured Fund Delaware-Voyageur Tax-Free Wisconsin Fund
Delaware-Voyageur Tax-Free Florida Fund
Delaware-Voyageur Tax-Free Idaho 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 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 April 30, 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.
<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 investment restrictions apply to Tax-Free Arizona Insured
Fund, Tax-Free California Insured Fund, Tax-Free Colorado Fund, Tax-Free Florida
Insured Fund, Tax-Free Kansas Fund, Minnesota Insured Fund, Tax-Free Minnesota
Intermediate Fund, Tax-Free Minnesota Fund, Tax-Free Missouri Insured Fund,
Tax-Free New Mexico Fund, Tax-Free North Dakota 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.)
<PAGE>
(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:
(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 apply 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 Intermediate Fund, Tax-Free Florida Fund, Tax-Free Idaho
Fund and Tax-Free New York Fund. No such Fund will:
<PAGE>
(1) Borrow money (provided that such Fund may enter into reverse repurchase
agreements), 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, 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) 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.)
(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).
(8) With respect to Tax-Free Florida Intermediate Fund only, pledge,
hypothecate, mortgage or otherwise incumber its assets in excess of 10% of its
total assets (taken at the lower of cost or current value). For the purposes of
this restriction, collateral arrangements for margin deposits on futures
contracts with respect to the writing of options, with respect to reverse
repurchase agreements or with respect to similar investment techniques are not
deemed to be a pledge of assets.
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.
<PAGE>
(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
Intermediate Fund, Tax-Free Florida Fund, Tax-Free Idaho 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.
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 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 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 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.
<PAGE>
Floating and Variable Rate Demand Notes. The Funds may purchase floating
and variable rate demand notes. Generally, such notes are secured by letters of
credit or other credit support arrangements provided by banks. Such notes
normally have a stated long-term maturity but permit the holder to tender the
note for purchase and payment of principal and accrued interest upon a specified
number of days' notice. The issuer of floating and variable rate demand notes
normally has a corresponding right, after a given period, to prepay in its
discretion the outstanding principal amount of the note plus accrued interest
upon a specified number of days' notice to the noteholders. The interest rate on
a floating rate demand note is based on a specified interest index, such as a
bank's prime rate, and is adjusted automatically each time such index is
adjusted. The interest rate on a variable rate demand note is adjusted at
specified intervals, based upon current market conditions. The Manager monitors
the creditworthiness of issuers of floating and variable rate demand notes in
each Fund's portfolio.
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 Constitution and statutes of many states contain requirements with
which the state and municipalities must comply whenever incurring debt. These
requirements may include approving voter referendums, debt limits, interest rate
limits and public sale requirements. Leases have evolved as a means for public
bodies to acquire property and equipment without needing to comply with all of
the constitutional and statutory requirements for the issuance of debt. The
debt-issuance limitations may be inapplicable for one or more of the following
reasons: (1) the inclusion in many leases or contracts of "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.
<PAGE>
Concentration Policy. As set forth in the Funds' Prospectus, 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 Intermediate 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. 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 re3demption 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, 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.
<PAGE>
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.
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 Funds' 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 the Federal National Mortgage Association, are supported by the
discretionary authority of the U.S. government to purchase certain obligations
of the agency or instrumentality; and other obligations, such as those issued by
the Student Loan Marketing Association, are supported only by the credit of the
instrumentality itself. Although the U.S. government provides financial support
to such U.S. government-sponsored agencies or instrumentalities, no assurance
can be given that it will always do so, since it is not so obligated by law. The
Funds will invest in such securities only when the Manager is satisfied that the
credit risk with respect to the issuer is minimal.
<PAGE>
Repurchase Agreements. The Funds may invest in repurchase agreements. 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).
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.
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. 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.
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.
<PAGE>
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.
Securities Index Option Trading. The Funds 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.
<PAGE>
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.
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.
<PAGE>
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.
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.
<PAGE>
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 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.
<PAGE>
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 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, 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. 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.)
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.
<PAGE>
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.
For purposes of such diversification, 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 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.
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."
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.
<PAGE>
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
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 December 31, 1997, the total admitted assets of AMBAC were
approximately $8.2 billion with statutory capital of approximately $1.7
billion. Statutory capital consists of the AMBAC's statutory contingency reserve
and policyholders' surplus.
As of December 31, 1997, the total admitted assets (unaudited) of MBIA
were approximately $9.8 billion with statutory capital of approximately $5
billion.
As of December 31, 1997, the total admitted assets (unaudited) of FGIC
were approximately $2.5 billion total capital and surplus (unaudited)
approximately $1.8 billion.
As of December 31, 1997, admitted assets of FSA were approximately $1.9
billion with statutory capital of approximately $782 million.
None of AMBAC, MBIA, FGIC and FSA or any associate thereof, has any
material business relationship, direct or indirect, with the Funds.
<PAGE>
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.
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.
<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
applicable to only certain redemptions of those shares will not be deducted from
any computation of total return. See the Prospectus for the Classes for a
description of the Limited CDSC and the limited instances in which it applies.
All references to a CDSC in this Performance Information section will apply to
Class B Shares or Class C Shares.
The average annual total rate of return for a Class is based on a
hypothetical $1,000 investment that includes capital appreciation and
depreciation during the stated periods. The following formula will be used for
the actual computations:
n
P(1+T) = ERV
Where P = a hypothetical initial purchase order of $1,000 from which,
in the case of only Class A Shares, the maximum front-end
sales charge is deducted;
T = average annual total return;
n = number of years; and
ERV = redeemable value of the hypothetical $1,000 purchase at the
end of the period after the deduction of the applicable
CDSC, if any, with respect to Class B Shares and Class C
Shares.
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.
<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 December 31, 1997, 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 December 31, 1997. The
average annual total return for Class B Shares and Class C Shares excluding
deferred sales charge assumes the shares were not redeemed at December 31,
1997 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.
<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
12/31/97 5.91% 10.07% 12/31/97 5.34% 9.34% 12/31/97 8.32% 9.32%
-------- ----- ------ -------- ----- ----- -------- ----- -----
Period Period Period
3/2/95(1) 6/29/95(1) 5/13/95(1)
through through through
12/31/97 8.66% 10.14% 12/31/97 7.72% 8.78% 12/31/97 8.91% 8.91%
- -------- ----- ------ -------- ----- ----- -------- ----- -----
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)
1 year 1 year 1 year
ended ended ended
12/31/97 4.88% 8.96% 12/31/97 4.06% 8.06% 12/31/97 7.05% 8.05%
-------- ----- ----- -------- ----- ----- -------- ----- -----
Period
3 years 3/10/95(1) 3 years
ended through ended
12/31/97 9.15% 10.54% 12/31/97 6.76% 7.70% 12/31/97 9.60% 9.60%
- -------- ----- ------ -------- ----- ----- -------- ----- -----
Period
5 years 5/26/94(1)
ended through
12/31/97 6.27% 7.09% 12/31/97 7.08% 7.08%
- -------- ----- ----- -------- ----- -----
Period
4/1/91(1)
through
12/31/97 7.58% 8.19%
-------- ----- -----
</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; and (iv) 1% if shares are redeemed during the sixth year
following purchase. 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.
<PAGE>
<TABLE>
<CAPTION>
Average Annual Total Return
Tax-Free California Fund(3)
<S> <C> <C> <C> <C> <C> <C>
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)
1 year 1 year 1 year
ended ended ended
12/31/97 8.18% 12.43% 12/31/97 7.91% 11.91% 12/31/97 10.69% 11.69%
-------- ----- ------ -------- ----- ------ -------- ------ ------
Period Period Period
3/3/95(1) 8/23/95(1) 4/9/96(1)
through through through
12/31/97 8.57% 10.05% 12/31/97 9.63% 10.77% 12/31/97 11.20% 11.20%
- -------- ----- ------ -------- ----- ------ -------- ------ ------
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)
1 year 1 year 1 year
ended ended ended
12/31/97 5.65% 9.78% 12/31/97 5.29% 9.29% 12/31/97 7.98% 8.98%
-------- ----- ----- -------- ----- ----- -------- ----- -----
Period
3 years 3 years 4/12/95(1)
ended ended through
12/31/97 9.69% 11.08% 12/31/97 9.79% 10.62% 12/31/97 7.04% 7.04%
- -------- ----- ------ -------- ----- ------ -------- ----- -----
Period
5 years 3/1/94(1)
ended through
12/31/97 5.88% 6.70% 12/31/97 4.98% 5.66%
- -------- ----- ----- -------- ----- -----
Period
10/15/92(1)
through
12/31/97 6.67% 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; and (iv) 1% if shares are redeemed during the sixth year
following purchase. 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.
<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
12/31/97 7.23% 11.40% 12/31/97 6.47% 10.47% 12/31/97 9.47% 10.47%
- -------- ----- ------ -------- ----- ------ -------- ----- ------
Period
3 years 3/22/95(1) 3 years
ended through ended
12/31/97 10.39% 11.80% 12/31/97 7.53% 8.47% 12/31/97 10.82% 10.82%
- -------- ------ ------ -------- ----- ----- -------- ------ ------
Period
5 years 5/6/94(1)
ended through
12/31/97 6.81% 7.63% 12/31/97 7.67% 7.67%
- -------- ----- ----- -------- ----- -----
10 years
ended
12/31/97 8.31% 8.73%
- -------- ----- -----
Period
4/23/87(1)
through
12/31/97 8.08% 8.47%
- -------- ----- -----
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)
1 year 1 year 1 year
ended ended ended
12/31/97 6.77% 10.93% 12/31/97 6.35% 10.35% 12/31/97 9.09% 10.09%
- -------- ----- ------ -------- ----- ------ -------- ----- ------
Period Period Period
3/2/95(1) 9/15/95(1) 4/22/95(1)
through through through
12/31/97 8.07% 9.53% 12/31/97 7.10% 8.29% 12/31/97 8.12% 8.12%
-------- ----- ----- -------- ----- ----- -------- ----- -----
</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; and (iv) 1% if shares are redeemed during the sixth year
following purchase. 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.
<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
12/31/97 6.25% 10.42% 12/31/97 5.58% 9.58%
3 years 3 years
ended ended
12/31/97 9.85% 11.26% 12/31/97 9.83% 10.65%
- -------- ----- ------ -------- ----- ------
Period
5 years 3/11/94(1)
ended through
12/31/97 6.41% 7.24% 12/31/97 5.66% 6.33%
-------- ----- ----- -------- ----- -----
Period
1/1/92(1)
through
12/31/97 7.21% 7.90%
- -------- ----- -----
Average Annual Total Return
Tax-Free Florida Intermediate 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)(4) CDSC) CDSC)(5) CDSC)
1 year 1 year 1 year
ended ended ended
12/31/97 4.34% 7.25% 12/31/97 4.50% 6.50% 12/31/97 5.43% 6.43%
-------- ----- ----- -------- ----- ----- -------- ----- -----
Period Period
3 years 9/15/95(1) 3/23/95(1)
ended through through
12/31/97 7.47% 8.46% 12/31/97 4.02% 4.44% 12/31/97 6.01% 6.01%
-------- ----- ----- -------- ----- ----- -------- ----- -----
Period
5/1/94(1)
through
12/31/97 5.62% 6.41%
- -------- ----- -----
</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; and (iv) 1% if shares are redeemed during the sixth year
following purchase. 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 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.
(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.
<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
12/31/97 6.23% 10.41% 12/31/97 5.87% 9.87% 12/31/97 8.49% 9.49%
-------- ----- ------ -------- ----- ----- -------- ----- -----
Period Period Period
1/4/95(1) 3/16/95(1) 1/11/95(1)
through through through
12/31/97 9.25% 10.65% 12/31/97 7.44% 8.38% 12/31/97 9.57% 9.57%
- -------- ----- ------ -------- ----- ----- -------- ----- -----
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)
1 year 1 year 1 year
ended ended ended
12/31/97 5.43% 9.49% 12/31/97 4.75% 8.75% 12/31/97 7.68% 8.68%
-------- ----- ----- -------- ----- ----- -------- ----- -----
Period Period
3 years 3/24/95(1) 1/4/95(1)
ended through through
12/31/97 9.30% 10.69% 12/31/97 6.59% 7.55% 12/31/97 9.74% 9.74%
-------- ----- ------ -------- ----- ----- -------- ----- -----
Period
9/1/93(1)
through
12/31/97 4.22% 5.14%
-------- ----- -----
</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; and (iv) 1% if shares are redeemed during the sixth year
following purchase. 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.
<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>
ended ended ended
12/31/97 5.95% 10.06% 12/31/97 5.28% 9.28% 12/31/97 8.17% 9.17%
-------- ----- ------ -------- ----- ----- -------- ----- -----
Period Period
3 years 4/8/95(1) 4/12/95(1)
ended through through
12/31/97 9.28% 10.68% 12/31/97 6.59% 7.56% 12/31/97 7.32% 7.32%
- -------- ----- ------ -------- ----- ----- -------- ----- -----
5 years
ended
12/31/97 6.81% 7.63%
- -------- ----- -----
Period
11/30/92(1)
through
12/31/97 6.80% 7.61%
- -------- ----- -----
</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; and (iv) 1% if shares are redeemed during the sixth year
following purchase. 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.
<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
12/31/97 5.59% 9.68% 12/31/97 4.95% 8.95% 12/31/97 7.82% 8.82%
-------- ----- ----- -------- ----- ----- -------- ----- -----
Period
3 years 3/11/95(1) 3 years
ended through ended
12/31/97 8.62% 10.01% 12/31/97 6.76% 7.70% 12/31/97 9.21% 9.21%
- -------- ----- ------ -------- ----- ----- -------- ----- -----
Period
5 years 5/4/94(1)
ended through
12/31/97 6.13% 6.95% 12/31/97 6.79% 6.79%
-------- ----- ----- -------- ----- -----
10 years
ended
12/31/97 7.60% 8.01%
-------- ----- -----
Period
2/27/84(1)
through
12/31/97 8.77% 9.08%
-------- ----- -----
</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; and (iv) 1% if shares are redeemed during the sixth year
following purchase. 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.
<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
12/31/97 4.45% 8.49% 12/31/97 3.77% 7.77% 12/31/97 6.66% 7.66%
-------- ----- ----- -------- ----- ----- -------- ----- -----
Period
3 years 3/7/95(1) 3 years
ended through ended
12/31/97 8.39% 9.77% 12/31/97 6.26% 7.20% 12/31/97 8.94% 8.94%
- -------- ----- ----- -------- ----- ----- -------- ----- -----
Period
5 years 5/4/94(1)
ended through
12/31/97 5.94% 6.76% 12/31/97 6.34% 6.34%
-------- ----- ----- -------- ----- -----
10 years
ended
12/31/97 7.60% 8.01%
-------- ----- -----
Period
5/1/87(1)
through
12/31/97 7.25% 7.64%
-------- ----- -----
</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; and (iv) 1% if shares are redeemed during the sixth year
following purchase. 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.
<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
12/31/97 3.76% 6.69% 12/31/97 3.84% 5.84% 12/31/97 4.84% 5.84%
-------- ----- ----- -------- ----- ----- -------- ----- -----
Period
3 years 8/15/95(1) 3 years
ended through ended
12/31/97 6.00% 7.00% 12/31/97 4.58% 4.98% 12/31/97 6.19% 6.19%
- -------- ----- ----- -------- ----- ----- -------- ----- -----
Period
5 years 5/4/94(1)
ended through
12/31/97 4.74% 5.33% 12/31/97 5.03% 5.03%
-------- ----- ----- -------- ----- -----
10 years
ended
12/31/97 5.81% 6.11%
-------- ----- -----
Period
10/27/85(1)
through
12/31/97 5.99% 6.23%
-------- ----- -----
</TABLE>
(1) Date of initial public offering.
(2) 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.
(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.
<PAGE>
<TABLE>
<CAPTION>
Average Annual Total Return
Tax-Free Missouri 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
12/31/97 5.36% 9.43% 12/31/97 4.66% 8.66% 12/31/97 7.49% 8.49%
-------- ----- ----- -------- ----- ----- -------- ----- -----
Period
3 years 3 years 11/11/95(1)
ended ended through
12/31/97 9.32% 10.72% 12/31/97 9.21% 10.05% 12/31/97 6.15% 6.15%
- -------- ----- ------ -------- ----- ------ -------- ----- -----
Period
5 years 3/12/94(1)
ended through
12/31/97 6.34% 7.15% 12/31/97 5.34% 6.01%
- -------- ----- ----- -------- ----- -----
Period
11/2/92(1)
through
12/31/97 6.34% 7.13%
- -------- ----- -----
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)
1 year 1 year 1 year
ended ended ended
12/31/97 5.89% 10.01% 12/31/97 5.24% 9.24% 12/31/97 8.06% 9.06%
- -------- ----- ------ -------- ----- ----- -------- ----- -----
Period
3 years 3 years 5/7/96(1)
ended ended through
12/31/97 9.68% 11.07% 12/31/97 9.47% 10.30% 12/31/97 9.35% 9.35%
- -------- ----- ------ -------- ----- ------ -------- ----- -----
Period
5 years 3/3/94(1)
ended through
12/31/97 6.65% 7.47% 12/31/97 5.35% 6.01%
-------- ----- ----- -------- ----- -----
Period
10/5/92(1)
through
12/31/97 7.05% 7.84%
-------- ----- -----
</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; and (iv) 1% if shares are redeemed during the sixth year
following purchase. 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.
<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
12/31/97 3.04% 7.09% 12/31/97 2.41% 6.39% 12/31/97 5.29% 6.29%
-------- ----- ----- -------- ----- ----- -------- ----- -----
Period
3 years 3 years 4/26/95(1)
ended ended through
12/31/97 5.54% 6.89% 12/31/97 5.03% 5.93% 12/31/97 4.83% 4.83%
- -------- ----- ----- -------- ----- ----- -------- ----- -----
Period
5 years 11/14/94(1)
ended through
12/31/97 4.79% 5.59% 12/31/97 5.49% 6.34%
- -------- ----- ----- -------- ----- -----
10 years
ended
12/31/97 7.13% 7.54%
- -------- ----- -----
Period
11/6/87(1)
through
12/31/97 7.11% 7.52%
- -------- ----- -----
</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; and (iv) 1% if shares are redeemed during the sixth year
following purchase. 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.
<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
12/31/97 5.36% 9.43% 12/31/97 4.82% 8.82% 12/31/97 7.57% 8.57%
-------- ----- ----- -------- ----- ----- -------- ----- -----
Period
3 years 3 years 7/29/95(1)
ended ended through
12/31/97 8.84% 10.22% 12/31/97 8.83% 9.66% 12/31/97 7.37% 7.37%
- -------- ----- ------ -------- ----- ----- -------- ----- -----
Period
5 years 5/10/94(1)
ended through
12/31/97 6.27% 7.08% 12/31/97 7.22% 7.90%
- -------- ----- ----- -------- ----- -----
Period
4/1/91(1)
through
12/31/97 7.43% 8.04%
-------- ----- -----
</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; and (iv) 1% if shares are redeemed during the sixth year
following purchase. 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.
<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
12/31/97 5.59% 9.66% 12/31/97 4.90% 8.90% 12/31/97 7.75% 8.75%
-------- ----- ----- -------- ----- ----- -------- ----- -----
Period
3 years 3 years 7/5/95(1)
ended ended through
12/31/97 8.91% 10.32% 12/31/97 8.85% 9.68% 12/31/97 7.02% 7.02%
- -------- ----- ------ -------- ----- ----- -------- ----- -----
Period Period
8/1/93(1) 3/12/94(1)
through through
12/31/97 5.02% 5.93% 12/31/97 5.15% 5.83%
- -------- ----- ----- -------- ----- -----
Average Annual Total Return
Tax-Free Utah Fund(3)
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
12/31/97 5.98% 10.08% 12/31/97 5.28% 9.28%
Period
3 years 5/27/95(1)
ended through
12/31/97 9.25% 10.64% 12/31/97 6.00% 7.04%
- -------- ----- ------ -------- ----- -----
5 years
ended
12/31/97 6.83% 7.64%
- -------- ----- -----
Period
10/5/92(1)
through
12/31/97 7.44% 8.22%
-------- ----- -----
</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; and (iv) 1% if shares are redeemed during the sixth year
following purchase. 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.
<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
12/31/97 6.11% 10.23% 12/31/97 5.38% 9.38% 12/31/97 8.31% 9.31%
-------- ----- ------ -------- ----- ----- -------- ----- -----
Period Period
3 years 10/24/95(1) 4/21/95(1)
ended through through
12/31/97 9.77% 11.19% 12/31/97 6.05% 7.32% 12/31/97 7.61% 7.61%
-------- ----- ------ -------- ----- ----- -------- ----- -----
Period
8/1/93(1)
through
12/31/97 6.53% 7.46%
- -------- ----- -----
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)
--------
1 year 1 year 1 year
ended ended ended
12/31/97 4.93% 9.07% 12/31/97 4.27% 8.27% 12/31/97 7.16% 8.16%
-------- ----- ----- -------- ----- ----- -------- ----- -----
Period Period
3 years 4/22/95(1) 3/28/95(1)
ended through through
12/31/97 8.55% 9.94% 12/31/97 5.74% 6.74% 12/31/97 6.84% 6.84%
-------- ----- ----- -------- ----- ----- -------- ----- -----
Period
9/1/93(1)
through
12/31/97 4.23% 5.15%
-------- ----- -----
</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; and (iv) 1% if shares are redeemed during the sixth year
following purchase. 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.
<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
December 31, 1997 were as follows:
30-Day Yield at 12/31/97*
-------------------------
Tax-Free Arizona Insured Fund - Class A 4.16%
Tax-Free Arizona Insured Fund - Class B 3.57
Tax-Free Arizona Insured Fund - Class C 3.57
Tax-Free Arizona Fund - Class A 5.04
Tax-Free Arizona Fund - Class B 4.50
Tax-Free Arizona Fund - Class C 4.48
Tax-Free California Insured Fund - Class A 4.17
Tax-Free California Insured Fund - Class B 3.58
Tax-Free California Insured Fund - Class C 3.61
Tax-Free California Fund - Class A 4.97
Tax-Free California Fund - Class B 4.40
Tax-Free California Fund - Class C 4.20
Tax-Free Colorado Fund - Class A 4.47
Tax-Free Colorado Fund - Class B 3.89
Tax-Free Colorado Fund - Class C 3.89
* 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.
<PAGE>
30-Day Yield at 12/31/97*
-------------------------
Tax-Free Florida Insured Fund - Class A 4.25%
Tax-Free Florida Insured Fund - Class B 3.67
Tax-Free Florida Intermediate Fund - Class A 3.97
Tax-Free Florida Intermediate Fund - Class B 3.23
Tax-Free Florida Intermediate Fund - Class C 3.23
Tax-Free Florida Fund - Class A 4.88
Tax-Free Florida Fund - Class B 4.31
Tax-Free Florida Fund - Class C 4.32
Tax-Free Idaho Fund - Class A 4.49
Tax-Free Idaho Fund - Class B 3.92
Tax-Free Idaho Fund - Class C 3.93
Tax-Free Iowa Fund - Class A 4.09
Tax-Free Iowa Fund - Class B 3.50
Tax-Free Iowa Fund - Class C 3.50
Tax-Free Kansas Fund - Class A 4.25
Tax-Free Kansas Fund - Class B 3.66
Tax-Free Kansas Fund - Class C 3.67
Tax-Free Minnesota Insured Fund - Class A 4.05
Tax-Free Minnesota Insured Fund - Class B 3.47
Tax-Free Minnesota Insured Fund - Class C 3.46
Tax-Free Minnesota Intermediate Fund - Class A 3.77
Tax-Free Minnesota Intermediate Fund - Class B 3.03
Tax-Free Minnesota Intermediate Fund - Class C 3.63
Tax-Free Minnesota Fund - Class A 4.39
Tax-Free Minnesota Fund - Class B 3.81
Tax-Free Minnesota Fund - Class C 3.81
Tax-Free Missouri Insured Fund - Class A 4.04
Tax-Free Missouri Insured Fund - Class B 3.45
Tax-Free Missouri Insured Fund - Class C 3.45
Tax-Free New Mexico Fund - Class A 4.45
Tax-Free New Mexico Fund - Class B 3.91
Tax-Free New Mexico Fund - Class C 3.91
Tax-Free New York Fund - Class A 3.72
Tax-Free New York Fund - Class B 3.13
Tax-Free New York Fund - Class C 3.13
Tax-Free North Dakota Fund - Class A 4.20
Tax-Free North Dakota Fund - Class B 3.62
Tax-Free North Dakota Fund - Class C 3.62
* 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.
<PAGE>
30-Day Yield at 12/31/97*
-------------------------
Tax-Free Oregon Insured Fund - Class A 4.17%
Tax-Free Oregon Insured Fund - Class B 3.59
Tax-Free Oregon Insured Fund - Class C 3.59
Tax-Free Utah Fund - Class A 4.54
Tax-Free Utah Fund - Class B 3.96
Tax-Free Washington Insured Fund - Class A 4.57
Tax-Free Washington Insured Fund - Class B 4.00
Tax-Free Washington Insured Fund - Class C 4.00
Tax-Free Wisconsin Fund - Class A 4.15
Tax-Free Wisconsin Fund - Class B 3.57
Tax-Free Wisconsin Fund - Class C 3.56
* 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 contingent deferred sales charge. Actual
yield on Class A Shares may be affected by variations in front-end sales charges
on investments.
Taxable equivalent yield is computed by dividing that portion of the
yield of a Fund (as computed above) 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
December 31, 1997 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.
<TABLE>
<CAPTION>
ARIZONA(1)*
<S> <C> <C> <C> <C>
31.74% 34.59% 39.58% 42.98%
Tax-Free Arizona Insured Fund - Class A 6.09% 6.36% 6.89% 7.30%
Tax-Free Arizona Insured Fund - Class B 5.23 5.46 5.91 6.26
Tax-Free Arizona Insured Fund - Class C 5.23 5.46 5.91 6.26
Tax-Free Arizona Fund - Class A 7.38 7.71 8.34 8.84
Tax-Free Arizona Fund - Class B 6.59 6.88 7.45 7.89
Tax-Free Arizona Fund - Class C 6.56 6.85 7.41 7.86
</TABLE>
<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 6.34% 6.66% 7.18% 7.61%
Tax-Free California Insured Fund - Class B 5.48 5.72 6.17 6.54
Tax-Free California Insured Fund - Class C 5.53 5.77 6.22 6.59
Tax-Free California Fund - Class A 7.61 7.94 8.56 9.07
Tax-Free California Fund - Class B 6.74 7.03 7.58 8.03
Tax-Free California Fund - Class C
COLORADO (3)*
31.60% 34.45% 39.20% 42.62%
Tax-Free Colorado Fund - Class A 6.54% 6.82% 7.35% 7.79%
Tax-Free Colorado Fund - Class B 5.69 5.93 6.40 6.78
Tax-Free Colorado Fund - Class C 5.69 5.93 6.40 6.78
FLORIDA*
28.00% 31.00% 36.00% 39.60%
Tax-Free Florida Insured Fund - Class A 5.90% 6.16% 6.64% 7.04%
Tax-Free Florida Insured Fund - Class B 5.10 5.32 5.73 6.08
Tax-Free Florida Intermediate Fund - Class A 5.51 5.75 6.20 6.57
Tax-Free Florida Intermediate Fund - Class B 4.49 4.68 5.05 5.35
Tax-Free Florida Intermediate Fund - Class C 4.49 4.68 5.05 5.35
Tax-Free Florida Fund - Class A 6.78 7.07 7.63 8.08
Tax-Free Florida Fund - Class B 5.99 6.25 6.73 7.14
Tax-Free Florida Fund - Class C 6.00 6.26 6.75 7.15
IDAHO(4)*
33.90% 36.66% 41.25% 44.55%
Tax-Free Idaho Fund - Class A 6.79% 7.09% 7.64% 8.10%
Tax-Free Idaho Fund - Class B 5.93 6.19 6.67 7.07
Tax-Free Idaho Fund - Class C 5.95 6.20 6.69 7.09
IOWA (5)*
33.32% 35.90% 40.24% 43.39%
Tax-Free Iowa Fund - Class A 6.13% 6.38% 6.84% 7.22%
Tax-Free Iowa Fund - Class B 5.25 5.46 5.96 6.18
Tax-Free Iowa Fund - Class C 5.25 5.46 5.86 6.18
KANSAS (6)*
33.58% 36.35% 40.96% 44.28%
Tax-Free Kansas Fund - Class A 6.40% 6.68% 7.20% 7.63%
Tax-Free Kansas Fund - Class B 5.51 5.75 6.20 6.57
Tax-Free Kansas Fund - Class C 5.53 5.77 6.22 6.59
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MINNESOTA (7)*
<S> <C> <C> <C> <C>
34.12% 36.87% 41.44% 44.73%
Minnesota Insured Fund - Class A 6.15% 6.42% 6.92% 7.33%
Minnesota Insured Fund - Class B 5.27 6.50 5.93 6.28
Minnesota Insured Fund - Class C 5.25 5.48 5.91 6.26
Tax-Free Minnesota Intermediate Fund - Class A 5.72 5.97 6.44 6.82
Tax-Free Minnesota Intermediate Fund - Class B 4.60 4.80 5.17 5.48
Tax-Free Minnesota Intermediate Fund - Class C 4.60 4.80 5.17 5.48
Tax-Free Minnesota Fund - Class A 6.66 6.95 7.50 7.94
Tax-Free Minnesota Fund - Class B 5.78 6.04 6.51 6.89
Tax-Free Minnesota Fund - Class C 5.78 6.04 6.51 6.89
MISSOURI(8)*
31.16% 33.91% 38.51% 41.84%
Tax-Free Missouri Insured Fund - Class A 5.87% 6.11% 6.57% 6.95%
Tax-Free Missouri Insured Fund - Class B 5.01 5.22 5.61 5.93
Tax-Free Missouri Insured Fund - Class C 5.01 5.22 5.61 5.93
NEW MEXICO(9)*
33.69% 36.87% 41.44% 44.73%
Tax-Free New Mexico Fund - Class A 6.76% 7.10% 7.65% 8.11%
Tax-Free New Mexico Fund - Class B 5.90 6.19 6.68 7.07
Tax-Free New Mexico Fund - Class C 5.90 6.19 6.68 7.07
NEW YORK(10)*
33.13% 35.92% 40.56% 43.90%
Tax-Free New York Fund - Class A 5.56% 5.81% 6.26% 6.63%
Tax-Free New York Fund - Class B 4.68 4.88 5.27 5.58
Tax-Free New York Fund - Class C 4.68 4.88 5.27 5.58
NORTH DAKOTA(11)*
30.72% 33.87% 39,07% 42.77%
Tax-Free North Dakota Fund - Class A 6.06% 6.35% 6.89% 7.34%
Tax-Free North Dakota Fund - Class B 5.23 5.47 5.94 6.33
Tax-Free North Dakota Fund - Class C 5.23 5.47 5.94 6.33
OREGON(12)*
34.48% 37.21% 41.76% 45.04%
Tax-Free Oregon Insured Fund - Class A 6.36% 6.64% 7.16% 7.59%
Tax-Free Oregon Insured Fund - Class B 5.48 5.72 6.16 6.53
Tax-Free Oregon Insured Fund - Class C 5.48 5.72 6.16 6.53
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
UTAH(13)*
<S> <C> <C> <C> <C>
32.38% 35.13% 39.72% 43.04%
Tax-Free Utah Fund - Class A 6.71% 7.00% 7.53% 7.97%
Tax-Free Utah Fund - Class B 5.86 6.10 6.57 6.95
WASHINGTON*
28.00% 31.00% 36.00% 39.60%
Tax-Free Washington Insured Fund - Class A 6.35% 6.62% 7.14% 7.57%
Tax-Free Washington Insured Fund - Class B 5.56 5.80 6.25 6.62
Tax-Free Washington Insured Fund - Class C 5.56 5.80 6.25 6.62
WISCONSIN(14)*
32.99% 35.78% 40.44% 43.79%
Tax-Free Wisconsin Fund - Class A 6.19% 6.46% 6.77% 7.38%
Tax-Free Wisconsin Fund - Class B 5.33 5.56 5.99 6.35
Tax-Free Wisconsin Fund - Class C 5.31 5.54 5.98 6.33
</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.
(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.
<PAGE>
(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 actual total return and/or yield
performance for their Classes in advertising and other types of literature. This
information may be compared to that of other mutual funds with similar
investment objectives and to stock, bond 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.
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.
<PAGE>
Comparative information on the Consumer Price Index may also be
included in advertisements or other literature. The Consumer Price Index, as
prepared by the U.S. Bureau of Labor Statistics, is the most commonly used
measure of inflation. It indicates the cost fluctuations of a representative
group of consumer goods. It does not represent a return from an investment.
Ibbotson Associates of Chicago, Illinois ("Ibbotson") provides
historical returns of the capital markets in the United States, including common
stocks, small capitalization stocks, long-term corporate bonds,
intermediate-term government bonds, long-term government bonds, Treasury bills,
the U.S. rate of inflation (based on the Consumer Price Index), and combinations
of various capital markets. The performance of these capital markets is based on
the returns of different indices. The 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), economic and political conditions, the
relationship between sectors of the economy and the economy as a whole, the
effects of inflation and historical performance of various asset classes,
including but not limited to, stocks, bonds and Treasury bills. From time to
time advertisements, sales literature, communications to shareholders or other
materials may summarize the substance of information contained in shareholder
reports (including the investment composition of a Fund), as well as the views
as to current market, economic, trade and interest rate trends, legislative,
regulatory and monetary developments, investment strategies and related matters
believed to be of relevance to the Funds. In addition, selected indices may be
used to illustrate historic performance of selected asset classes. The Funds may
also include in advertisements, sales literature, communications to shareholders
or other materials, charts, graphs or drawings which illustrate the potential
risks and rewards of investment in various investment vehicles, including but
not limited to, domestic 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.
<PAGE>
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
December 31, 1997. The calculations assume the reinvestment of any 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 a Class'
results should not be considered as representative of future performance.
<PAGE>
Cumulative Total Return
Tax-Free Arizona Fund(3)
<TABLE>
<CAPTION>
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
12/31/97 (0.84%) 12/31/97 (1.14%) 2.86% 12/31/97 1.85% 2.85%
6 months 6 months 6 months
ended ended ended
12/31/97 2.21%(4) 12/31/97 1.90% 5.90% 12/31/97 4.89% 5.89%
9 months 9 months 9 months
ended ended ended
12/31/97 5.87% 12/31/97 5.37% 9.37% 12/31/97 8.46% 9.46%
1 year 1 year 1 year
ended ended ended
12/31/97 5.91% 12/31/97 5.34% 9.34% 12/31/97 8.32% 9.32%
Period Period Period
3/2/95(1) 6/29/95(1) 5/13/95(1)
through through through
12/31/97 26.57% 12/31/97 20.51% 23.51% 12/31/97 25.24% 25.24%
</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;
and (iv) 1% if shares are redeemed during the sixth year following purchase.
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) Cumulative total return at NAV for Class A Shares at December 31, 1997 was
6.20%.
(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.
<PAGE>
Cumulative Total Return
Tax-Free Arizona Insured Fund(3)
<TABLE>
<CAPTION>
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
12/31/97 (1.13%) 12/31/97 (1.56%) 2.44% 12/31/97 1.53% 2.53%
6 months 6 months 6 months
ended ended ended
12/31/97 1.74%(4) 12/31/97 1.17% 5.17% 12/31/97 4.26% 5.26%
9 months 9 months 9 months
ended ended ended
12/31/97 5.26% 12/31/97 4.67% 8.67% 12/31/97 7.66% 8.66%
1 year 1 year 1 year
ended ended ended
12/31/97 4.88% 12/31/97 4.06% 8.06% 12/31/97 7.08% 8.08%
Period
3 years 3/10/95(1) 3 years
ended through ended
12/31/97 30.05% 12/31/97 20.21% 23.21% 12/31/97 31.65% 31.65%
Period
5 years 5/26/94(1)
ended through
12/31/97 35.55% 12/31/97 27.93% 27.93%
Period
4/1/91(1)
through
12/31/97 63.75%
</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;
and (iv) 1% if shares are redeemed during the sixth year following purchase.
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) Cumulative total return at NAV for Class A Shares at December 31, 1997 was
5.68%.
(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.
<PAGE>
Cumulative Total Return
Tax-Free California Fund(3)
<TABLE>
<CAPTION>
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
12/31/97 (0.40%) 12/31/97 (0.75%) 3.25% 12/31/97 2.26% 3.26%
6 months 6 months 6 months
ended ended ended
12/31/97 3.91%(4) 12/31/97 3.56% 7.56% 12/31/97 6.54% 7.54%
9 months 9 months 9 months
ended ended ended
12/31/97 8.08% 12/31/97 7.82% 11.82% 12/31/97 10.66% 11.66%
1 year 1 year 1 year
ended ended ended
12/31/97 8.18% 12/31/97 7.91% 11.91% 12/31/97 10.69% 11.69%
Period Period Period
3/2/95(1) 8/23/95(1) 4/9/96(1)
through through through
12/31/97 26.27% 12/31/97 24.19% 27.19% 12/31/97 20.15% 20.15%
</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;
and (iv) 1% if shares are redeemed during the sixth year following purchase.
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) Cumulative total return at NAV for Class A Shares at December 31, 1997 was
7.95%.
(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.
<PAGE>
Cumulative Total Return
Tax-Free California Insured Fund(3)
<TABLE>
<CAPTION>
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
12/31/97 (1.00%) 12/31/97 (1.25%) 2.75% 12/31/97 1.67% 2.67%
6 months 6 months 6 months
ended ended ended
12/31/97 2.56%(4) 12/31/97 2.30% 6.30% 12/31/97 5.17% 6.17%
9 months 9 months 9 months
ended ended ended
12/31/97 6.01% 12/31/97 5.75% 9.75% 12/31/97 8.54% 9.54%
1 year 1 year 1 year
ended ended ended
12/31/97 5.65% 12/31/97 5.29% 9.29% 12/31/97 7.98% 8.98%
Period
3 years 3 years 4/12/95(1)
ended ended through
12/31/97 31.98% 12/31/97 32.35% 35.35% 12/31/97 20.35% 20.35%
Period
5 years 3/1/94(1)
ended through
12/31/97 33.05% 12/31/97 20.50% 23.50%
Period
10/15/92(1)
through
12/31/97 39.99%
</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;
and (iv) 1% if shares are redeemed during the sixth year following purchase.
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) Cumulative total return at NAV for Class A Shares at December 31, 1997 was
6.54%.
(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.
<PAGE>
Cumulative Total Return
Tax-Free Colorado Fund(3)
<TABLE>
<CAPTION>
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
12/31/97 (0.38%) 12/31/97 (0.73%) 3.27% 12/31/97 2.27% 3.27%
6 months 6 months 6 months
ended ended ended
12/31/97 3.29%(4) 12/31/97 2.85% 6.85% 12/31/97 5.85% 6.85%
9 months 9 months 9 months
ended ended ended
12/31/97 7.34% 12/31/97 6.79% 10.79% 12/31/97 9.79% 10.79%
1 year 1 year 1 year
ended ended ended
12/31/97 7.23% 12/31/97 6.47% 10.47% 12/31/97 9.47% 10.47%
Period
3 years 3/22/95(1) 3 years
ended through ended
12/31/97 34.52% 12/31/97 22.34% 25.34% 12/31/97 36.11% 36.11%
Period
5 years 5/6/94(1)
ended through
12/31/97 39.04% 12/31/97 31.02% 31.02%
10 years
ended
12/31/97 122.19%
Period
4/23/87(1)
through
12/31/97 129.56%
</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;
and (iv) 1% if shares are redeemed during the sixth year following purchase.
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) Cumulative total return at NAV for Class A Shares at December 31, 1997 was
7.28%.
(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.
<PAGE>
Cumulative Total Return
Tax-Free Florida Fund(3)
<TABLE>
<CAPTION>
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
12/31/97 (0.66%) 12/31/97 (1.01%) 2.99% 12/31/97 2.00% 3.00%
6 months 6 months 6 months
ended ended ended
12/31/97 2.71%(4) 12/31/97 2.43% 6.43% 12/31/97 5.27% 6.27%
9 months 9 months 9 months
ended ended ended
12/31/97 6.53% 12/31/97 6.27% 10.27% 12/31/97 9.02% 10.02%
1 year 1 year 1 year
ended ended ended
12/31/97 6.77% 12/31/97 6.35% 17.06% 12/31/97 9.09% 10.09%
Period Period Period
3/2/95(1) 9/15/95(1) 4/22/95(1)
through through through
12/31/97 24.60% 12/31/97 9.09% 23.43% 12/31/97 23.43% 23.43%
</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;
and (iv) 1% if shares are redeemed during the sixth year following purchase.
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) Cumulative total return at NAV for Class A Shares at December 31, 1997 was
6.67%.
(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.
<PAGE>
Cumulative Total Return
Tax-Free Florida Insured Fund(3)
<TABLE>
<CAPTION>
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
12/31/97 (0.81%) 12/31/97 (1.24%) 2.77%
6 months 6 months
ended ended
12/31/97 2.78%(4) 12/31/97 2.41% 6.41%
9 months 9 months
ended ended
12/31/97 6.65% 12/31/97 6.14% 10.14%
1 year 1 year
ended ended
12/31/97 6.25% 12/31/97 5.58% 9.58%
3 years 3 years
ended ended
12/31/97 32.56% 12/31/97 32.48% 35.48%
Period
5 years 3/11/94(1)
ended through
12/31/97 36.46% 12/31/97 23.34% 26.34%
Period
1/1/92(1)
through
12/31/97 51.88%
</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;
and (iv) 1% if shares are redeemed during the sixth year following purchase.
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) Cumulative total return at NAV for Class A Shares at December 31, 1997 was
6.78%.
<PAGE>
Cumulative Total Return
Tax-Free Florida Intermediate Fund(2)
<TABLE>
<CAPTION>
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
12/31/97 (0.75%) 12/31/97 (0.24%) 1.76% 12/31/97 0.86% 1.86%
6 months 6 months 6 months
ended ended ended
12/31/97 1.48%(4) 12/31/97 1.97% 3.97% 12/31/97 3.05% 4.05%
9 months 9 months 9 months
ended ended ended
12/31/97 3.94% 12/31/97 4.22% 6.22% 12/31/97 5.18% 6.18%
1 year 1 year 1 year
ended ended ended
12/31/97 4.34% 12/31/97 4.50% 6.50% 12/31/97 5.43% 6.43%
Period Period
3 years 9/15/95(1) 3/23/95(1)
ended through through
12/31/97 24.11% 12/31/97 9.48% 10.48% 12/31/97 17.61% 17.61%
Period
5/1/94(1)
through
12/31/97 22.21%
</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) Cumulative total return at NAV for Class A Shares at December 31, 1997 was
4.39%.
(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.
<PAGE>
Cumulative Total Return
Tax-Free Idaho Fund(3)
<TABLE>
<CAPTION>
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
12/31/97 (0.86%) 12/31/97 (1.18%) 2.82% 12/31/97 1.73% 2.73%
6 months 6 months 6 months
ended ended ended
12/31/97 2.56%(4) 12/31/97 2.22% 6.22% 12/31/97 5.08% 6.08%
9 months 9 months 9 months
ended ended ended
12/31/97 6.74% 12/31/97 6.43% 10.43% 12/31/97 9.12% 10.12%
1 year 1 year 1 year
ended ended ended
12/31/97 6.23% 12/31/97 5.87% 9.87% 12/31/97 8.49% 9.49%
Period Period Period
1/4/95(1) 3/16/95(1) 1/11/95(1)
through through through
12/31/97 30.29% 12/31/97 22.23% 25.23% 12/31/97 31.23% 31.23%
</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;
and (iv) 1% if shares are redeemed during the sixth year following purchase.
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) Cumulative total return at NAV for Class A Shares at December 31, 1997 was
6.57%.
(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.
<PAGE>
Cumulative Total Return
Tax-Free Iowa Fund(3)
<TABLE>
<CAPTION>
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
12/31/97 (1.18%) 12/31/97 (1.48%) 2.52% 12/31/97 1.52% 2.52%
6 months 6 months 6 months
ended ended ended
12/31/97 1.73%(4) 12/31/97 1.30% 5.30% 12/31/97 4.28% 5.28%
9 months 9 months 9 months
ended ended ended
12/31/97 6.02% 12/31/97 5.56% 9.56% 12/31/97 8.63% 9.63%
1 year 1 year 1 year
ended ended ended
12/31/97 5.43% 12/31/97 4.75% 8.75% 12/31/97 7.68% 8.68%
Period Period
3 years 3/24/95(1) 1/4/95(1)
ended through through
12/31/97 30.59% 12/31/97 19.38% 22.38% 12/31/97 32.07% 32.07%
Period
9/1/93(1)
through
12/31/97 19.61%
</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;
and (iv) 1% if shares are redeemed during the sixth year following purchase.
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) Cumulative total return at NAV for Class A Shares at December 31, 1997 was
5.70%.
(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.
<PAGE>
Cumulative Total Return
Tax-Free Kansas Fund(3)
<TABLE>
<CAPTION>
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
12/31/97 (0.78%) 12/31/97 (1.14%) 2.86% 12/31/97 1.86% 2.86%
6 months 6 months 6 months
ended ended ended
12/31/97 2.72%(4) 12/31/97 2.36% 6.36% 12/31/97 5.27% 6.27%
9 months 9 months 9 months
ended ended ended
12/31/97 6.37% 12/31/97 5.93% 9.93% 12/31/97 8.72% 9.72%
1 year 1 year 1 year
ended ended ended
12/31/97 5.95% 12/31/97 5.28% 9.28% 12/31/97 8.17% 9.17%
Period Period
3 years 4/8/95(1) 4/12/95(1)
ended through through
12/31/97 30.50% 12/31/97 19.06% 22.06% 12/31/97 21.20% 21.20%
5 years
ended
12/31/97 39.04%
Period
11/30/92(1)
through
12/31/97 39.77%
</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;
and (iv) 1% if shares are redeemed during the sixth year following purchase.
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) Cumulative total return at NAV for Class A Shares at December 31, 1997 was
6.68%.
(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.
<PAGE>
Cumulative Total Return
Tax-Free Minnesota Fund(3)
<TABLE>
<CAPTION>
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
12/31/97 (1.10%) 12/31/97 (1.40%) 2.60% 12/31/97 1.60% 2.60%
6 months 6 months 6 months
ended ended ended
12/31/97 2.10%(4) 12/31/97 1.74% 5.74% 12/31/97 4.79% 5.79%
9 months 9 months 9 months
ended ended ended
12/31/97 5.93% 12/31/97 5.47% 9.47% 12/31/97 8.37% 9.37%
1 year 1 year 1 year
ended ended ended
12/31/97 5.59% 12/31/97 4.95% 8.95% 12/31/97 7.82% 8.82%
Period
3 years 3/11/95(1) 3 years
ended through ended
12/31/97 28.15% 12/31/97 20.18% 23.18% 12/31/97 30.24% 30.24%
Period
5 years 5/4/94(1)
ended through
12/31/97 34.64% 12/31/97 27.23% 27.23%
10 years
ended
12/31/97 108.01%
Period
2/27/84(1)
through
12/31/97 220.37%
</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;
and (iv) 1% if shares are redeemed during the sixth year following purchase.
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) Cumulative total return at NAV for Class A Shares at December 31, 1997 was
6.11%.
(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.
<PAGE>
Cumulative Total Return
Minnesota Insured Fund(3)
<TABLE>
<CAPTION>
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
12/31/97 (1.32%) 12/31/97 (1.67%) 2.33% 12/31/97 1.32% 2.32%
6 months 6 months 6 months
ended ended ended
12/31/97 1.71%(4) 12/31/97 1.25% 5.25% 12/31/97 4.24% 5.24%
9 months 9 months 9 months
ended ended ended
12/31/97 5.15% 12/31/97 4.59% 8.59% 12/31/97 7.58% 8.58%
1 year 1 year 1 year
ended ended ended
12/31/97 4.45% 12/31/97 3.77% 7.77% 12/31/97 6.66% 7.66%
Period
3 years 3/7/95(1) 3 years
ended through ended
12/31/97 27.35% 2/31/97 18.68% 21.68% 12/31/97 29.28% 29.28%
Period
5 years 5/4/94(1)
ended through
12/31/97 33.47% 12/31/97 25.24% 25.24%
10 years
ended
12/31/97 107.98%
Period
5/1/87(1)
through
12/31/97 111.12%
</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; and (iv) 1% if shares are redeemed during the sixth year
following purchase. 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) Cumulative total return at NAV for Class A Shares at December 31, 1997 was
5.64%.
(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.
<PAGE>
Cumulative Total Return
Tax-Free Minnesota Intermediate Fund(2)
<TABLE>
<CAPTION>
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
12/31/97 (0.84%) 12/31/97 (0.29%) 1.71% 12/31/97 0.71% 1.71%
- -------- -------- -------- ------- ----- -------- ----- -----
6 months 6 months 6 months
ended ended ended
12/31/97 1.25%(4) 12/31/97 1.68% 3.68% 12/31/97 2.68% 3.68%
- -------- -------- -------- ------- ----- -------- ----- -----
9 months 9 months 9 months
ended ended ended
12/31/97 3.36% 12/31/97 3.57% 5.57% 12/31/97 4.66% 5.66%
- -------- -------- -------- ------- ----- -------- ----- -----
1 year 1 year 1 year
ended ended ended
12/31/97 3.76% 12/31/97 3.84% 5.84% 12/31/97 4.84% 5.84%
- -------- -------- -------- ------- ----- -------- ----- -----
Period
3 years 8/15/95(1) 3 years
ended through ended
- ----- ------- -----
12/31/97 19.10% 12/31/97 11.26% 12.26% 12/31/97 19.73% 19.73%
- -------- -------- -------- ------- ----- -------- ----- -----
Period
------
5 years 5/4/94(1)
ended through
12/31/97 26.06% 12/31/97 19.71% 19.71%
- -------- ------ -------- ------ ------
10 years
ended
12/31/97 75.85%
- -------- ------
Period
10/27/85(1)
through
12/31/97 103.10%
- -------- -------
</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) Cumulative total return at NAV for Class A Shares at December 31, 1997
was 4.11%.
(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.
<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)
3 months 3 months 3 months
ended ended ended
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/97 (0.94%) 12/31/97 (1.21%) 2.79% 12/31/97 1.69% 2.69%
- -------- ------- -------- ----- ----- -------- ----- -----
6 months 6 months 6 months
ended ended ended
12/31/97 1.99%(4) 12/31/97 1.71% 5.71% 12/31/97 4.57% 5.57%
- -------- ----- -------- ----- ----- -------- ----- -----
9 months 9 months 9 months
ended ended ended
12/31/97 5.54% 12/31/97 5.10% 9.10% 12/31/97 7.89% 8.89%
- -------- ----- -------- ----- ----- -------- ----- -----
1 year 1 year 1 year
ended ended ended
12/31/97 5.36% 12/31/97 4.66% 8.66% 12/31/97 7.49% 8.49%
- -------- ----- -------- ----- ----- -------- ----- -----
Period
3 years 3 years 11/11/95(1)
ended ended through
12/31/97 30.64% 12/31/97 30.27% 33.27% 12/31/97 13.62% 13.62%
- -------- ------ -------- ------ ------ -------- ------ ------
Period
5 years 3/12/94(1)
ended through
12/31/97 35.96% 12/31/97 21.91% 24.91%
- -------- ------ -------- ------ ------
Period
11/2/92(1)
through
12/31/97 37.38%
</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; and (iv) 1% if shares are redeemed during the sixth year
following purchase.
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) Cumulative total return at NAV for Class A Shares at December 31, 1997
was 5.99%.
(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.
<PAGE>
Cumulative Total Return
<TABLE>
<CAPTION>
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)
3 months 3 months 3 months
ended ended ended
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/97 (0.78%) 12/31/97 (1.03%) 2.97% 12/31/97 1.88% 2.88%
- -------- ------- -------- ------- ----- -------- ----- -----
6 months 6 months 6 months
ended ended ended
12/31/97 2.18%(4) 12/31/97 1.71% 5.71% 12/31/97 4.60% 5.60%
- -------- -------- -------- ----- ----- -------- ----- -----
9 months 9 months 9 months
ended ended ended
12/31/97 5.61% 12/31/97 5.23% 9.23% 12/31/97 8.08% 9.08%
- -------- ----- -------- ----- ----- -------- ----- -----
1 year 1 year 1 year
ended ended ended
12/31/97 5.89% 12/31/97 5.24% 9.24% 12/31/97 8.06% 9.06%
- -------- ----- -------- ----- ----- -------- ----- -----
Period
3 years 3 years 5/7/96(1)
ended ended through
12/31/97 31.94% 12/31/97 31.20% 34.20% 12/31/97 15.93% 15.93%
- -------- ------ -------- ------ ------ -------- ------ ------
Period
5 years 3/3/94(1)
ended through
12/31/97 37.97% 12/31/97 22.09% 25.09%
- -------- ------ -------- ------ ------
Period
10/5/92(1)
through
12/31/97 42.93%
- -------- ------
</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; and (iv) 1% if shares are redeemed during the sixth year
following purchase.
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) Cumulative total return at NAV for Class A Shares at December 31, 1997
was 6.12%.
(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.
<PAGE>
Cumulative Total Return
<TABLE>
<CAPTION>
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)
3 months 3 months 3 months
ended ended ended
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/97 (1.66%) 12/31/97 (2.05%) 1.91% 12/31/97 0.92% 1.91%
- -------- ------- -------- ------- ----- -------- ----- -----
6 months 6 months 6 months
ended ended ended
12/31/97 0.85%(4) 12/31/97 0.37% 4.37% 12/31/97 3.27% 4.27%
- -------- ------- -------- ------- ----- -------- ----- -----
9 months 9 months 9 months
ended ended ended
12/31/97 3.00% 12/31/97 2.43% 6.43% 12/31/97 5.33% 6.33%
- -------- ------- -------- ------- ----- -------- ----- -----
1 year 1 year 1 year
ended ended ended
12/31/97 3.04% 12/31/97 2.41% 6.39% 12/31/97 5.29% 6.29%
- -------- ------- -------- ------- ----- -------- ----- -----
Period
3 years 3 years 4/26/95(1)
ended ended through
12/31/97 17.54% 12/31/97 15.86% 18.86% 12/31/97 13.51% 13.51%
- -------- ------- -------- ------- ----- -------- ----- -----
Period
5 years 11/14/94(1)
ended through
12/31/97 26.36% 12/31/97 18.21% 21.21%
- -------- ------ -------- ------ ------
10 years
ended
12/31/97 99.17%
- -------- ------
Period
11/6/87(1)
through
12/31/97 100.94%
- -------- ------
</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; and (iv) 1% if shares are redeemed during the sixth year
following purchase.
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) Cumulative total return at NAV for Class A Shares at December 31, 1997
was 4.75%.
(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.
<PAGE>
Cumulative Total Return
Tax-Free North Dakota Fund(3)
<TABLE>
<CAPTION>
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)
3 months 3 months 3 months
ended ended ended
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/97 (1.05%) 12/31/97 (1.42%) 2.58% 12/31/97 1.67% 2.67%
- -------- ------- -------- ----- ----- -------- ----- -----
6 months 6 months 6 months
ended ended ended
12/31/97 1.81%(4) 12/31/97 1.46% 5.46% 12/31/97 4.47% 5.47%
- -------- -------- -------- ----- ----- -------- ----- -----
9 months 9 months 9 months
ended ended ended
12/31/97 5.56% 12/31/97 5.23% 9.23% 12/31/97 8.01% 9.01%
- -------- ----- -------- ----- ----- -------- ----- -----
1 year 1 year 1 year
ended ended ended
12/31/97 5.36% 12/31/97 4.82% 8.82% 12/31/97 7.57% 8.57%
- -------- ----- -------- ----- ----- -------- ----- -----
Period
3 years 3 years 7/29/95(1)
ended ended through
12/31/97 28.93% 12/31/97 28.88% 31.88% 12/31/97 18.84% 18.84%
- -------- ------ -------- ------ ------ -------- ------ ------
Period
5 years 5/10/94(1)
ended through
12/31/97 35.53% 12/31/97 28.96% 31.96%
- -------- ------ -------- ------ ------
Period
4/1/91(1)
through
12/31/97 62.29%
</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; and (iv) 1% if shares are redeemed during the sixth year
following purchase.
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) Cumulative total return at NAV for Class A Shares at December 31, 1997
was 5.80%.
(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.
<PAGE>
Cumulative Total Return
Tax-Free Oregon Insured Fund(3)
<TABLE>
<CAPTION>
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)
3 months 3 months 3 months
ended ended ended
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/97 (0.50%) 12/31/97 (0.96%) 3.04% 12/31/97 2.14% 3.14%
- -------- ------- -------- ------- ----- -------- ----- -----
6 months 6 months 6 months
ended ended ended
12/31/97 2.44%(4) 12/31/97 2.10% 6.10% 12/31/97 5.05% 6.05%
- -------- -------- -------- ----- ----- -------- ----- -----
9 months 9 months 9 months
ended ended ended
12/31/97 6.05% 12/31/97 5.53% 9.53% 12/31/97 8.54% 9.54%
- -------- ----- -------- ----- ----- -------- ----- -----
1 year 1 year 1 year
ended ended ended
12/31/97 5.59% 12/31/97 4.90% 8.90% 12/31/97 7.75% 8.75%
- -------- ----- -------- ----- ----- -------- ----- -----
Period
3 years 3 years 7/7/95(1)
ended ended through
12/31/97 29.18% 12/31/97 28.95% 31.95% 12/31/97 18.39% 18.39%
- -------- ------ -------- ------ ------ -------- ------ ------
Period Period
8/1/93(1) 3/12/94(1)
through through
12/31/97 24.16% 12/31/97 21.08% 24.08%
- -------- ------ -------- ------ ------
</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; and (iv) 1% if shares are redeemed during the sixth year
following purchase.
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) Cumulative total return at NAV for Class A Shares at December 31, 1997
was 6.48%.
(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.
<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
12/31/97 (0.57%) 12/31/97 (0.91%) 3.09%
6 months 6 months
ended ended
12/31/97 2.47%(4) 12/31/97 2.09% 6.09%
9 months 9 months
ended ended
12/31/97 6.50% 12/31/97 5.94% 9.94%
- -------- ----- -------- ----- -----
1 year 1 year
ended ended
12/31/97 5.98% 12/31/97 5.28% 9.28%
- -------- ----- -------- ----- -----
Period
3 years 5/27/95(1)
ended through
12/31/97 30.38% 12/31/97 16.36% 19.36%
- -------- ------ -------- ------ ------
5 years
ended
12/31/97 39.15%
Period
10/5/92(1)
through
12/31/97 45.73%
(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; and (iv) 1% if shares are redeemed during the sixth year
following purchase.
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) Cumulative total return at NAV for Class A Shares at December 31, 1997
was 6.50%.
<PAGE>
Cumulative Total Return
Tax-Free Washington Insured Fund(3)
<TABLE>
<CAPTION>
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)
3 months 3 months 3 months
ended ended ended
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/97 (0.56%) 12/31/97 (0.89%) 3.11% 12/31/97 2.11% 3.11%
- -------- ------- ------- ------- ----- -------- ----- -----
6 months 6 months 6 months
ended ended ended
12/31/97 2.61%(4) 12/31/97 2.16% 6.16% 12/31/97 5.15% 6.15%
- -------- -------- -------- ----- ----- -------- ----- -----
9 months 9 months 9 months
ended ended ended
12/31/97 6.51% 12/31/97 5.98% 9.98% 12/31/97 8.94% 9.94%
- -------- ----- -------- ----- ----- -------- ----- -----
1 year 1 year 1 year
ended ended ended
12/31/97 6.11% 12/31/97 5.38% 9.38% 12/31/97 8.31% 9.31%
- -------- ----- -------- ----- ----- -------- ----- -----
Period Period
3 years 10/24/95(1) 4/21/95(1)
ended through through
12/31/97 32.28% 12/31/97 13.73% 16.73% 12/31/97 21.89% 21.89%
- -------- ------ -------- ------ ------ -------- ------ ------
Period
8/1/93(1)
through
12/31/97 32.27%
- -------- ------
(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; and (iv) 1% if shares are redeemed during the sixth year
following purchase.
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) Cumulative total return at NAV for Class A Shares at December 31, 1997
was 6.57%.
(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.
</TABLE>
<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)
3 months 3 months 3 months
ended ended ended
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/97 (1.00%) 12/31/97 (1.37%) 2.63% 12/31/97 1.62% 2.62%
- -------- ------- -------- ------- ----- -------- ----- -----
6 months 6 months 6 months
ended ended ended
12/31/97 1.80%(4) 12/31/97 1.41% 5.41% 12/31/97 4.37% 5.37%
- -------- -------- -------- ----- ----- -------- ----- -----
9 months 9 months 9 months
ended ended ended
12/31/97 5.13% 12/31/97 4.65% 8.65% 12/31/97 7.45% 8.45%
- -------- ----- -------- ----- ----- -------- ----- -----
1 year 1 year 1 year
ended ended ended
12/31/97 4.93% 12/31/97 4.27% 8.27% 12/31/97 7.16% 8.16%
- -------- ----- -------- ----- ----- -------- ----- -----
Period Period
3 years 4/22/95(1) 3/28/95(1)
ended through through
12/31/97 27.90% 12/31/97 16.23% 19.23% 12/31/97 20.08% 20.08%
- -------- ------ -------- ------ ------ -------- ------ ------
Period
9/1/93(1)
through
12/31/97 19.68%
- -------- ------
</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; and (iv) 1% if shares are redeemed during the sixth year
following purchase.
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) Cumulative total return at NAV for Class A Shares at December 31, 1997
was 5.80%.
(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.
<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 their
objectives. The Distributor may also from time to time cite general or specific
information about the institutional clients of the Manager, including the number
of such clients serviced by the Manager.
Dollar-Cost Averaging
For many people, deciding when to invest can be a difficult decision.
Security prices tend to move up and down over various market cycles and logic
says to invest when prices are low. However, even experts can't always pick the
highs and the lows. By using a strategy known as dollar-cost averaging, you
schedule your investments ahead of time. If you invest a set amount on a regular
basis, that money will always buy more shares when the price is low and fewer
when the price is high. You can choose to invest at any regular interval--for
example, monthly or quarterly--as long as you stick to your regular schedule.
Dollar-cost averaging looks simple and it is, but there are important things to
remember.
Dollar-cost averaging works best over longer time periods, and it
doesn't guarantee a profit or protect against losses in declining markets. If
you need to sell your investment when prices are low, you may not realize a
profit no matter what investment strategy you utilize. That's why dollar-cost
averaging can make sense for long-term goals. Since the potential success of a
dollar-cost averaging program depends on continuous investing, even through
periods of fluctuating prices, you should consider your dollar-cost averaging
program a long-term commitment and invest an amount you can afford and probably
won't need to withdraw. You also should consider your financial ability to
continue to purchase shares during periods of high fund share prices. Delaware
Investments offers three services -- Automatic Investing Plan, Direct Deposit
Purchase Plan and the Wealth Builder Option -- that can help to keep your
regular investment program on track. See Investing by Electronic Fund Transfer -
Direct Deposit Purchase Plan and Automatic Investing Plan under Investment Plans
and Wealth Builder Option under Investment Plans for a complete description of
these services, including restrictions or limitations.
<PAGE>
The example below illustrates how dollar-cost averaging can work. In a
fluctuating market, the average cost per share over a period of time will be
lower than the average price per share for the same time period.
Number
Investment Price Per of Shares
Amount Share Purchased
Month 1 $100 $10.00 10
Month 2 $100 $12.50 8
Month 3 $100 $ 5.00 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.
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.
<PAGE>
TRADING PRACTICES AND BROKERAGE
Banks, brokers or dealers are selected to execute transactions on
behalf of a Fund for the purchase or sale of portfolio securities on the basis
of the Manager's judgment of their professional capability to provide the
service. The primary consideration is to have banks, brokers or dealers execute
transactions at best price and execution. Best price and execution refers to
many factors, including the price paid or received for a security, the
commission charged, the promptness and reliability of execution, the
confidentiality and placement accorded the order and other factors affecting the
overall benefit obtained by the account on the transaction. In nearly all
instances, trades are made on a net basis where a Fund either buys the
securities directly from the dealer or sells them to the dealer. In these
instances, there is no direct commission charged but there is a spread (the
difference between the buy and sell price) which is the equivalent of a
commission. When a commission is paid, 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.
During the fiscal years ended December 31, 1995 , 1996 and 1997, 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, there were no portfolio
transactions of any Fund resulting in brokerage commissions directed to brokers
for brokerage and research services.
As provided in the Securities Exchange Act of 1934 (the "1934 Act") and
the Investment Management Agreement for each Fund, higher commissions are
permitted to be paid to broker/dealers who provide brokerage and research
services than to broker/dealers who do not provide such services if such higher
commissions are deemed reasonable in relation to the value of the brokerage and
research services provided. Although transactions are directed to broker/dealers
who provide such brokerage and research services, the Funds believe that the
commissions paid to such broker/dealers are not, in general, higher than
commissions that would be paid to broker/dealers not providing such services and
that such commissions are reasonable in relation to the value of the brokerage
and research services provided. In some instances, services may be provided to
the Manager which constitute in some part brokerage and research services used
by the Manager in connection with its investment decision-making process and
constitute in some part services used by the Manager in connection with
administrative or other functions not related to its investment decision-making
process. In such cases, the Manager will make a good faith allocation of
brokerage and research services and will pay out of its own resources for
services used by the Manager in connection with administrative or other
functions not related to its investment decision-making process. In addition, so
long as no fund is disadvantaged, portfolio transactions which generate
commissions or their equivalent are allocated to broker/dealers who provide
daily portfolio pricing services to the Funds and to other funds in the Delaware
Investments family. Subject to best price and execution, commissions allocated
to brokers providing such pricing services may or may not be generated by the
funds receiving the pricing service.
<PAGE>
The Manager may place a combined order for two or more accounts or
funds engaged in the purchase or sale of the same security if, in its judgment,
joint execution is in the best interest of each participant and will result in
best price and execution. Transactions involving commingled orders are allocated
in a manner deemed equitable to each account or fund. When a combined order is
executed in a series of transactions at different prices, each account
participating in the order may be allocated an average price obtained from the
executing broker. It is believed that the ability of the accounts to participate
in volume transactions will generally be beneficial to the accounts and funds.
Although it is recognized that, in some cases, the joint execution of orders
could adversely affect the price or volume of the security that a particular
account or fund may obtain, it is the opinion of the Manager and 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 such funds 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, 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.
<PAGE>
The portfolio turnover rates for each Fund for the past two fiscal
years were as follows:
Fund 1996 1997
Tax-Free Arizona Insured Fund 42% 42%
Tax-Free Arizona Fund 70 39
Tax-Free California Insured Fund 55 63
Tax-Free California Fund 8 17
Tax-Free Colorado Fund 40 54
Tax-Free Florida Intermediate Fund 63 20
Tax-Free Florida Insured Fund 57 15
Tax-Free Florida Fund 70 19
Tax-Free Idaho Fund 35 19
Tax-Free Iowa Fund 14 14
Tax-Free Kansas Fund 56 30
Tax-Free Minnesota Intermediate Fund 28 21
Minnesota Insured Fund 14 21
Tax-Free Minnesota Fund 28 19
Tax-Free Missouri Insured Fund 28 12
Tax-Free New Mexico Fund 42 28
Tax-Free New York Fund 5(1) 30
Tax-Free North Dakota Fund 58 41
Tax-Free Oregon Insured Fund 40 5
Tax-Free Utah Fund 39 39
Tax-Free Washington Insured Fund 33 20
Tax-Free Wisconsin Fund 38 30
- -----------------
(1) For the period October 1, 1996 through December 31, 1996. For the period
October 1, 1995 through September 30, 1996, the portfolio turnover rate
was 12%.
<PAGE>
PURCHASING SHARES
The Distributor serves as the national distributor for each Fund's
shares and has agreed to use its best efforts to sell shares of each Fund. See
the Prospectus for additional information on how to invest. Shares of each Fund
are offered on a continuous basis and may be purchased through authorized
investment dealers or directly by contacting a Fund or the Distributor.
The minimum initial investment generally is $1,000 for each Class of
each Fund. Subsequent purchases 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, and
that Class A Shares are subject to lower annual 12b-1 Plan expenses than Class B
Shares and Class C Shares and generally are not subject to a CDSC.
Selling dealers have the responsibility of transmitting orders
promptly. 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, as amended,
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 and Insured Funds 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. See the tables below. 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.
Class B Shares of Tax-Free Funds and Insured Funds are purchased at net
asset value and are subject to a CDSC of: (i) 4% if shares are redeemed within
two years of purchase; (ii) 3% if shares are redeemed during the third or fourth
year following purchase; (iii) 2% if shares are redeemed during the fifth year
following purchase; and (iv) 1% if shares are redeemed during the sixth year
following purchase. Shares of 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 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; and (ii) 1% if shares are redeemed during the third year
following purchase. 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. See
Automatic Conversion of Class B Shares under Classes of Shares in the
Prospectus.
<PAGE>
Class C Shares of each Fund are purchased at net asset value and are
subject to a CDSC of 1% if shares are redeemed within 12 months following
purchase. Class C Shares are also subject to annual 12b-1 Plan expenses for the
life of the investment which are equal to those to which Class B Shares are
subject.
See Determining Offering Price and Net Asset Value and Plans Under Rule
12b-1 in this Part B.
Certificates representing shares purchased are not ordinarily issued
unless, 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 that is permitted to obtain a certificate may receive a
certificate representing full share denominations purchased by sending a letter
signed by each owner of the account to the Transfer Agent requesting the
certificate. No charge is assessed by 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 any of their shares
may only redeem those shares by written request. The investor's certificate(s)
must accompany such request.
Alternative Purchase Arrangements
The alternative purchase arrangements of Class A, Class B and Class C
Shares permit investors to choose the method of purchasing shares that is most
suitable for their needs given the amount of their purchase, the length of time
they expect to hold their shares and other relevant circumstances. Investors
should determine whether, given their particular circumstances, it is more
advantageous to purchase Class A Shares and incur a front-end sales charge and
annual 12b-1 Plan expenses of up to a maximum of 0.25% 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.
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.
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 and Insured 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, in the Prospectus. Such conversion will constitute
a tax-free exchange for federal income tax purposes. See Taxes in the
Prospectus.
<PAGE>
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.
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 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 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.
<PAGE>
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 with respect to a Class 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 Class' outstanding voting securities. Any
amendment materially increasing the percentage payable under the Plans must
likewise be approved by a majority vote of the relevant Class' outstanding
voting securities, as well as by a majority vote of those directors 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.
For the fiscal year ended December 31, 1997, Rule 12b-1 fees (after any
waivers) for each Fund are set forth below:
December 31, 1997
12b-1Fee
-----------------
Tax-Free Arizona Insured Fund
Class A 337,821
Class B 35,640
Class C 5,503
Tax-Free Arizona Fund
Class A 25,718
Class B 36,439
Class C 2,011
Tax-Free California Insured Fund
Class A 71,106
Class B 50,795
Class C 1,034
<PAGE>
December 31, 1997
12b-1Fee
-----------------
Tax-Free California Fund
Class A 5,217
Class B 25,186
Class C 1,147
Tax-Free Colorado Fund
Class A 616,352
Class B 58,187
Class C 16,057
Tax-Free Florida Intermediate Fund
Class A 4,708
Class B 8,644
Class C 546
Tax-Free Florida Insured Fund
Class A 179,913
Class B 29,295
Class C -0-
Tax-Free Florida Fund
Class A 14,944
Class B 15,807
Class C 712
Tax-Free Idaho Fund
Class A 76,921
Class B 51,360
Class C 9,244
Tax-Free Iowa Fund
Class A 65,031
Class B 21,059
Class C 7,473
Tax-Free Kansas Fund
Class A 19,275
Class B 28,727
Class C 1,015
Tax-Free Minnesota Intermediate Fund
Class A 129,873
Class B 6,601
Class C 13,011
Minnesota Insured Fund
Class A 725,726
Class B 77,272
Class C 31,944
Tax-Free Minnesota Fund
Class A 1,038,908
Class B 68,042
Class C 27,108
<PAGE>
December 31, 1997
12b-1Fee
-----------------
Tax-Free Missouri Insured Fund
Class A 75,244
Class B 94,459
Class C 1,978
Tax-Free New Mexico Fund
Class A 28,619
Class B 8,301
Class C 2,940
Tax-Free New York Fund
Class A 24,333
Class B 1,738
Class C 540
Tax-Free North Dakota Fund
Class A 39,918
Class B 5,749
Class C 402
Tax-Free Oregon Insured Fund
Class A 40,206
Class B 47,211
Class C 4,271
Tax-Free Utah Fund
Class A 4,039
Class B 4,513
Tax-Free Washington Insured Fund
Class A 4,120
Class B 6,478
Class C 424
Tax-Free Wisconsin Fund
Class A 56,159
Class B 14,616
Class C 6,601
For the period May 1, 1997 through December 31, 1997, payments from
each Class of each Fund were used for the following purposes:
<PAGE>
<TABLE>
<CAPTION>
Interest
Annual/ on
Semi- Broker Dealer Broker Commissions
Annual Broker Sales Service Sales to
Advertising Reports Trails Charges Expenses Charges Wholesalers
----------- ------- ------ ------- -------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Tax-Free Arizona Insured Fund
Class A $0,000 $7,926 $106,426 $0,000 $31,927 $0,000 $24,445
Class B $0,000 $0,000 $6,113 $12,558 $345 $6,132 $155
Class C $0,000 $0,000 $1,185 $2,570 $42 $186 $0,000
Tax-Free Arizona Fund
Class A $0,000 $247 $19,264 $0,000 $0,000 $0,000 $0,000
Class B $0,000 $0,000 $6,066 $11,869 $140 $6,273 $504
Class C $0,000 $0,000 $145 $1,341 $0,000 $364 $0,000
Tax-Free California Insured Fund
Class A $0,000 $117 $48,106 $0,000 $0,000 $0,000 $0,000
Class B $0,000 $0,000 $10,384 $19,748 $251 $7,691 $0,000
Class C $0,000 $0,000 $357 $413 $0,000 $174 $0,000
Tax-Free California Fund
Class A $0,000 $201 $4,101 $0,000 $0,000 $0,000 $46
Class B $0,000 $0,000 $6,066 $14,043 $431 $3,673 $0,000
Class C $0,000 $0,000 $344 $555 $0,000 $109 $0,000
Tax-Free Colorado Fund
Class A $0,000 $6,778 $292,347 $0,000 $35,606 $0,000 $50,393
Class B $0,000 $0,000 $10,519 $19,501 $253 $11,609 $1,388
Class C $0,000 $0,000 $3,190 $7,030 $440 $824 $1,159
Tax-Free Florida Intermediate Fund
Class A $0,000 $101 $1,672 $0,000 $0,000 $0,000 $0,000
Class B $0,000 $0,000 $913 $4,559 $80 $0,000 $20
Class C $0,000 $0,000 $400 $1,656 $0,000 $376 $0,000
Tax-Free Florida Insured Fund
Class A $0,000 $5,749 $145,473 $0,000 $22,642 $0,000 $18,104
Class B $0,000 $0,000 $4,105 $14,018 $714 $4,920 $1,361
Class C $0,000 $0,000 $0,000 $0,000 $0,000 $0,000 $0,000
Tax-Free Florida Fund
Class A $0,000 $1,160 $48,465 $0,000 $0,000 $0,000 $0,000
Class B $0,000 $0,000 $3,435 $6,262 $80 $4,263 $712
Class C $0,000 $0,000 $491 $3,008 $30 $902 $146
Tax-Free Idaho Fund
Class A $0,000 $1,516 $57,785 $0,000 $0,000 $0,000 $0,000
Class B $0,000 $0,000 $10,889 $24,191 $255 $7,251 $863
Class C $0,000 $0,000 $1,789 $3,046 $102 $1,524 $1,092
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Promotional-
Broker Promotional- Prospectus Wholesaler
Meetings Other Printing Telephone Expenses Other
------------ ------------ ----------- --------- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
Tax-Free Arizona Insured Fund
Class A $16,483 $6,580 $5,924 $7,343 $102,069 $0,000
Class B $263 $0,000 $0,000 $46 $1,088 $0,000
Class C $138 $0,000 $0,000 $35 $736 $0,000
Tax-Free Arizona Fund
Class A $0,000 $19 $0,000 $0,000 $0,000 $0,000
Class B $238 $0,000 $0,000 $43 $783 $0,000
Class C $0,000 $0,000 $0,000 $3 $76 $0,000
Tax-Free California Insured Fund
Class A $0,000 $0,000 $0,000 $0,000 $244 $0,000
Class B $204 $0,000 $0,000 $38 $883 $0,000
Class C $0,000 $0,000 $0,000 $0,000 $9 $0,000
Tax-Free California Fund
Class A $162 $0,000 $300 $0,000 $0,000 $0,000
Class B $421 $0,000 $0,000 $60 $613 $0,000
Class C $4 $0,000 $0,000 $0,000 $0,000 $0,000
Tax-Free Colorado Fund
Class A $23,056 $5,447 $2,588 $4,281 $119,775 $0,000
Class B $396 $0,000 $0,000 $38 $739 $0,000
Class C $461 $0,000 $0,000 $42 $1,105 $0,000
Tax-Free Florida Intermediate Fund
Class A $0,000 $686 $205 $0,000 $0,000 $0,000
Class B $62 $0,000 $0,000 $12 871 $0,000
Class C $1 $0,000 $0,000 $0,000 $15 $0,000
Tax-Free Florida Insured Fund
Class A $11,267 $3,376 $1,348 $2,043 $56,910 $0,000
Class B $342 $0,000 $0,000 $81 $1,512 $0,000
Class C $0,000 $0,000 $0,000 $0,000 $0,000 $0,000
Tax-Free Florida Fund
Class A $0,000 $607 $0,000 $0,000 $0,000 $0,000
Class B $62 $0,000 $0,000 $12 $211 $0,000
Class C $4 $0,000 $0,000 $0,000 $42 $0,000
Tax-Free Idaho Fund
Class A $0,000 $0,000 $213 $0,000 $0,000 $0,000
Class B $437 $0,000 $0,000 $81 $949 $0,000
Class C $67 $0,000 $0,000 $6 $186 $0,000
</TABLE>
<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 Iowa Fund
Class A $175 $7,914 $38,912 $0,000 $0,000 $0,000 $4,374 $2,595
Class B $0,000 $0,000 $3,754 $8,167 $96 $3,772 $863 $154
Class C $0,000 $0,000 $3,077 $2,395 $22 $277 $42 $156
Tax-Free Kansas Fund
Class A $0,000 $0,000 $10,191 $0,000 $0,000 $0,000 $0,000 $0,000
Class B $0,000 $0,000 $5,200 $10,424 $125 $4,867 $522 $214
Class C $0,000 $0,000 $300 $501 $0,000 $0,000 $0,000 $0,000
Tax-Free Minnesota Intermediate Fund
Class A $911 $675 $57,869 $0,000 $0,000 $0,000 $10,353 $3,933
Class B $0,000 $0,000 $1,053 $2,542 $28 $1,029 $302 $44
Class C $0,000 $0,000 $3,258 $4,777 $160 $639 $710 $276
Minnesota Insured Fund
Class A $0,000 $580 $525,321 $0,000 $0,000 $0,000 $5,467 $0,000
Class B $0,000 $0,000 $13,361 $26,678 $318 $12,582 $1,533 $549
Class C $0,000 $0,000 $16,170 $6,123 $641 $1,046 $917 $222
Tax-Free Minnesota Fund
Class A $0,000 $3,481 $622,130 $0,000 $0,000 $0,000 $36,629 $24,878
Class B $0,000 $0,000 $9,872 $25,502 $372 $13,590 $2,147 $324
Class C $0,000 $0,000 $10,883 $5,203 $0,000 $1,603 $170 $69
Tax-Free Missouri Insured Fund
Class A $0,000 $5,924 $47,325 $0,000 $0,000 $0,000 $5,053 $3,270
Class B $0,000 $0,000 $15,607 $38,015 $1,528 $15,489 $1,275 $1,153
Class C $0,000 $0,000 $275 $993 $0,000 $124 $0,000 $30
Tax-Free New Mexico Fund
Class A $0,000 $433 $16,131 $0,000 $0,000 $0,000 $1,977 $1,292
Class B $0,000 $0,000 $1,422 $3,311 $38 $1,486 $368 $61
Class C $0,000 $0,000 $1,292 $825 $36 $349 $11 $16
Tax-Free New York Fund
Class A $0,000 $708 $17,224 $0,000 $0,000 $0,000 $0,000 $0,000
Class B $0,000 $0,000 $223 $525 $6 $73 $0,000 $9
Class C $0,000 $0,000 $322 $1,675 $0,000 $418 $0,000 $0,000
</TABLE>
<TABLE>
<CAPTION>
Promotional- Prospectus Wholesaler
Other Printing Telephone Expenses Other
<S> <C> <C> <C> <C> <C>
Tax-Free Iowa Fund
Class A $1,711 $656 $470 $7,580 $0,000
Class B $0,000 $0,000 $14 $235 $0,000
Class C $0,000 $0,000 $91 $419 $0,000
Tax-Free Kansas Fund
Class A $0,000 $247 $0,000 $202 $0,000
Class B $0,000 $0,000 $40 $452 $0,000
Class C $0,000 $0,000 $0,000 $28 $0,000
Tax-Free Minnesota Intermediate Fund
Class A $2,105 $656 $715 $12,438 $0,000
Class B $0,000 $0,000 $4 $100 $0,000
Class C $0,000 $0,000 $19 $830 $0,000
Minnesota Insured Fund
Class A $0,000 $0,000 $0,000 $2,482 $0,000
Class B $0,000 $0,000 $48 $1,016 $0,000
Class C $0,000 $0,000 $170 $1,010 $0,000
Tax-Free Minnesota Fund
Class A $2,087 $351 $0,000 $17,332 $0,000
Class B $217 $0,000 $101 $3,721 $0,000
Class C $0,000 $0,000 $0,000 $0,000 $0,000
Tax-Free Missouri Insured Fund
Class A $1,244 $656 $595 $8,530 $0,000
Class B $0,000 $0,000 $238 $3,130 $0,000
Class C $0,000 $0,000 $0,000 $292 $0,000
Tax-Free New Mexico Fund
Class A $701 $424 $235 $3,835 $0,000
Class B $0,000 $0,000 $6 $160 $0,000
Class C $0,000 $0,000 $0,000 $46 $0,000
Tax-Free New York Fund
Class A $79 $0,000 $0,000 $0,000 $0,000
Class B $0,000 $0,000 $0,000 $18 $0,000
Class C $0,000 $0,000 $0,000 $0,000 $0,000
</TABLE>
<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 $708 $23,477 $0,000 $4,213 $0,000 $2,980 $2,088
Class B $0,000 $0,000 $1,209 $2,399 $33 $1,344 $19 $58
Class C $0,000 $0,000 $74 $159 $0,000 $86 $0,000 $0,000
Tax-Free Oregon Insured Fund
Class A $0,000 $183 $27,920 $0,000 $0,000 $0,000 $0,000 $0,000
Class B $0,000 $0,000 $7,474 $17,397 $803 $8,857 $605 $390
Class C $0,000 $0,000 $1,409 $1,448 $0,000 $335 $0,000 $390
Tax-Free Utah Fund
Class A $0,000 $165 $1,654 $0,000 $197 $0,000 $429 $219
Class B $0,000 $0,000 $565 $2,497 $72 $245 $152 $107
Tax-Free Washington Insured Fund
Class A $0,000 $410 $2,702 $0,000 $0,000 $0,000 $0,000 $0,000
Class B $0,000 $0,000 $1,145 $1,637 $29 $1,511 $60 $24
Class C $0,000 $0,000 $77 $79 $0,000 $167 $0,000 $0,000
Tax-Free Wisconsin Fund
Class A $0,000 $705 $38,522 $0,000 $0,000 $0,000 $0,000 $0,000
Class B $0,000 $0,000 $2,570 $4,654 $66 $2,436 $109 $103
Class C $0,000 $0,000 $1,917 $2,407 $80 $369 $32 $208
</TABLE>
<TABLE>
<CAPTION>
Promotional- Prospectus Wholesaler
Other Printing Telephone Expenses Other
<S> <C> <C> <C> <C> <C>
Tax-Free North Dakota Fund
Class A $816 $540 $380 $10,581 $0,000
Class B $0,000 $0,000 $0,000 $278 $0,000
Class C $0,000 $0,000 $0,000 $0,000 $0,000
Tax-Free Oregon Insured Fund
Class A $0,000 $0,000 $34 $778 $0,000
Class B $0,000 $0,000 $121 $1,858 $0,000
Class C $0,000 $0,000 $0,000 $195 $0,000
Tax-Free Utah Fund
Class A $481 $425 $39 $1,100 $0,000
Class B $0,000 $0,000 $67 $213 $0,000
Tax-Free Washington Insured Fund
Class A $90 $0,000 $0,000 $0,000 $0,000
Class B $0,000 $0,000 $4 $86 $0,000
Class C $0,000 $0,000 $0,000 $17 $0,000
Tax-Free Wisconsin Fund
Class A $10 $0,000 $0,000 $0,000 $0,000
Class B $0,000 $0,000 $10 $182 $0,000
Class C $0,000 $0,000 $13 $202 $0,000
</TABLE>
<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 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.
<PAGE>
Letter of Intention
The reduced front-end sales charges described above with respect to
Class A Shares are also applicable to the aggregate amount of purchases made by
any such purchaser previously enumerated within a 13-month period pursuant to a
written Letter of Intention provided by the Distributor and signed by the
purchaser, and not legally binding on the signer or the 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.
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 fund
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). 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.
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 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.
<PAGE>
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.
<PAGE>
INVESTMENT PLANS
Reinvestment Plan/Open Account
Unless otherwise designated by shareholders in writing, dividends from
net investment income and distributions from realized securities profits, if
any, will be automatically reinvested in additional shares of the respective
Classes in which an investor has an account (based on the net asset value of
that Fund in effect on the reinvestment date) and will be credited to the
shareholder's account on that date. Confirmations of each dividend payment from
net investment income will be mailed to shareholders quarterly. A confirmation
of each distribution from realized securities profits, if any, will be mailed to
shareholders in the first quarter of the fiscal year.
Under the Reinvestment Plan/Open Account, shareholders may purchase and
add full and fractional shares to their plan accounts at any time either through
their investment dealers or by sending a check or money order to the specific
Fund and Class in which shares are being purchased. Such purchases, which must
meet the minimum subsequent purchase requirements set forth in the Prospectus
and this Part B, are made for Class A Shares at the public offering price and
for Class B Shares and Class C Shares at the net asset value, at the end of the
day of receipt. A reinvestment plan may be terminated at any time. This plan
does not assure a profit nor protect against depreciation in a declining market.
Reinvestment of Dividends in Other Funds in the Delaware Investments Family
Subject to applicable eligibility and minimum initial purchase
requirements, and the limitations set forth below, holders of Class A 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 or service
fee. Nor will such investments be subject to a CDSC or Limited CDSC. The
shareholder must notify the Transfer Agent in writing and must have established
an account in the fund into which the dividends and/or distributions are to be
invested. Any reinvestment directed to a fund in which the investor does not
then have an account will be treated like all other initial purchases of a
fund's shares. Consequently, an investor should obtain and read carefully the
prospectus for the fund in which the investment is intended to be made before
investing or sending money. The prospectus contains more complete information
about the fund, including charges and expenses. See also Additional Methods of
Adding to Your Investment - Dividend Reinvestment Plan under How to Buy Shares
in the Prospectus.
Subject to the following limitations, dividends and/or distributions
from other funds in the Delaware Investments family may be invested in shares
of the Funds at net asset value, provided an account has been established.
Dividends from Class A Shares may not be directed to Class B Shares or Class C
Shares. Dividends from Class B Shares may only be directed to other Class B
Shares, and dividends from Class C Shares may only be directed to other Class C
Shares.
Investing by Electronic Fund Transfer
Direct Deposit Purchase Plan--Investors may arrange for a Fund to
accept for investment in Class A Shares, Class B Shares or Class C Shares,
through an agent bank, preauthorized government or private recurring payments.
This method of investment assures the timely credit to the shareholder's account
of payments such as social security, veterans' pension or compensation benefits,
federal salaries, Railroad Retirement benefits, private payroll checks,
dividends, and disability or pension fund benefits. It also eliminates lost,
stolen and delayed checks.
<PAGE>
Automatic Investing Plan--Shareholders of Class A Shares, Class B
Shares and Class C Shares may make automatic investments by authorizing, in
advance, monthly payments directly from their checking account for deposit into
their Fund account. This type of investment will be handled in either of the
following ways. (1) If the shareholder's bank is a member of the National
Automated Clearing House Association ("NACHA"), the amount of the investment
will be electronically deducted from his or her account by Electronic Fund
Transfer ("EFT"). The shareholder's checking account will reflect a debit each
month at a specified date, although no check is required to initiate the
transaction. (2) If the shareholder's bank is not a member of NACHA, deductions
will be made by preauthorized checks, known as Depository Transfer Checks.
Should the shareholder's bank become a member of NACHA in the future, his or her
investments would be handled electronically through EFT.
* * *
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
in the Delaware Investments family. Shareholders of each Class may also elect
to invest in one or more of the other mutual funds in the Delaware Investments
family through our Wealth Builder Option. See Wealth Builder Option and
Redemption and Exchange in the Prospectus.
Under this automatic exchange program, shareholders can authorize
regular monthly investments (minimum of $100 per fund) to be liquidated from
their account and invested automatically into other mutual funds in the Delaware
Investments family, subject to the conditions and limitations set forth in the
Prospectus. The investment will be made on the 20th day of each month (or, if
the fund selected is not open that day, the next business day) at the public
offering price or net asset value, as applicable, of the fund selected on the
date of investment. No investment will be made for any month if the value of the
shareholder's account is less than the amount specified for investment.
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.
<PAGE>
Asset Planner
To invest in funds in the Delaware Investments family using the Asset
Planner asset allocation service, you should complete an Asset Planner Account
Registration Form, which is available only from a financial adviser or
investment dealer. Effective September 1, 1997, the Asset Planner Service is
only available to financial advisers or investment dealers who have previously
used this service. The Asset Planner service offers a choice of four predesigned
asset allocation strategies (each with a different risk/reward profile) in
predetermined percentages in funds in the Delaware Investments family. With the
help of a financial adviser, you may also design a customized asset allocation
strategy.
The sales charge on an investment through the Asset Planner service is
determined by the individual sales charges of the underlying funds and their
percentage allocation in the selected Strategy. Exchanges from existing accounts
in the Delaware Investments family into the Asset Planner service may be made at
net asset value under the circumstances described under Investing by Exchange in
the Prospectus. Also see Buying Class A Shares at Net Asset Value under Classes
of Shares. The minimum initial investment per Strategy is $2,000; subsequent
investments must be at least $100. Individual fund minimums do not apply to
investments made using the Asset Planner service. Class A Shares, Class B Shares
and Class C Shares are available through the Asset Planner service. Generally,
only shares within the same class may be used within the same Strategy. However,
Class A Shares of a Fund and of other funds available from the Delaware
Investments family may be used in the same Strategy with consultant class shares
that are offered by certain other funds in the Delaware Investments family.
An annual maintenance fee, currently $35 per Strategy, is due at the
time of initial investment and by September 30 of each subsequent year. The fee,
payable to Delaware Service Company, Inc. to defray extra costs associated with
administering the Asset Planner service, will be deducted automatically from one
of the funds within your Asset Planner account if not paid by September 30.
However, effective November 1, 1996, the annual maintenance fee is waived until
further notice. Investors who utilize the Asset Planner for an IRA will continue
to pay an annual IRA fee of $15 per Social Security number. Investors will
receive a customized quarterly Strategy Report summarizing all Asset Planner
investment performance and account activity during the prior period.
Confirmation statements will be sent following all transactions other than those
involving a reinvestment of distributions.
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.
<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 or its agent. Orders for purchases of Class
B Shares and Class C Shares of each Fund are effected at the net asset value per
share next calculated by the Fund in which shares are being purchased after
receipt of the order by 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 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, 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.
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 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.
<PAGE>
REDEMPTION AND REPURCHASE
Any shareholder may require his or her Fund to redeem shares by sending
a written request, signed by the record owner or owners exactly as the shares
are registered, to 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. Each
signature guarantee must be supplied by an eligible guarantor institution. Each
Fund reserves the right to reject a signature guarantee supplied by an eligible
institution based on its creditworthiness. The Funds may request further
documentation from corporations, retirement plans, executors, administrators,
trustees or guardians.
In addition to redemption of Fund shares, the Distributor, acting as
agent of the Funds, offers to repurchase Fund shares from broker/dealers acting
on behalf of shareholders. The redemption or repurchase price, which may be more
or less than the shareholder's cost, is the net asset value per share next
determined after receipt of the request in good order by the respective Fund or
its agent less any applicable CDSC or Limited CDSC. This is computed and
effective at the time the offering price and net asset value are determined. See
Determining Offering Price and Net Asset Value. The 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 and
Insured Funds are subject to a CDSC of: (i) 4% if shares are redeemed within
two years of purchase; (ii) 3% if shares are redeemed during the third or fourth
year following purchase; (iii) 2% if shares are redeemed during the fifth year
following purchase; and (iv) 1% if shares are redeemed during the sixth year
following purchase. 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; and (ii)
1% if shares are redeemed during the third year following purchase. See
Automatic Conversion of Class B Shares under Classes of Shares. Except for the
applicable CDSC or Limited CDSC, and with respect to the expedited payment by
wire for which there is currently a $7.50 bank wiring cost, there is no fee
charged for redemptions or repurchases, but such fees could be charged at any
time in the future.
Payment for shares redeemed will ordinarily be mailed the next business
day, but in no case later than seven days, after receipt of a redemption request
in good order; provided, however, that each commitment to mail or wire
redemption proceeds by a certain time, as described below, is modified by the
qualifications described in the next paragraph.
<PAGE>
Each Fund will process written or telephone redemption requests to the
extent that the purchase orders for the shares being redeemed have already
settled. A Fund will honor redemption requests as to shares for which a check
was tendered as payment, but a Fund will not mail or wire the proceeds until it
is reasonably satisfied that the check has cleared. This potential delay can be
avoided by making investments by wiring Federal Funds.
If a shareholder has been credited with a purchase by a check which is
subsequently returned unpaid for insufficient funds or for any other reason, the
Fund involved will automatically redeem from the shareholder's account the Fund
shares purchased by the check plus any dividends earned thereon. Shareholders
may be responsible for any losses to 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 listed in the relevant Prospectus, has remained below the
minimum amounts required by the Funds' Prospectus and sends the proceeds to the
shareholder, the shareholder will be notified in writing that the value of the
shares in the account is less than the minimum required and will be allowed 60
days from the date of notice to make an additional investment to meet the
required minimum. See The Conditions of Your Purchase under How to Buy Shares in
the Funds' Prospectus. Any redemption in an inactive account established with a
minimum investment may trigger mandatory redemption. No CDSC or Limited CDSC
will apply to the redemptions described in this paragraph.
* * *
Each Fund has made available certain redemption privileges, as
described below. The Funds reserve the right to suspend or terminate these
expedited payment procedures upon 60 days written notice to shareholders.
Expedited Telephone Redemptions
Shareholders or their investment dealers of record wishing to redeem an
amount of Fund shares of $50,000 or less for which certificates have not been
issued may call the Shareholders Service Center at 800-523-1918 prior to the
time the offering price and net asset value are determined, as noted above, and
have the proceeds mailed to them at the record address. Checks payable to the
shareholder(s) of record will normally be mailed the next business day, but no
later than seven days, after the receipt of the redemption request. This option
is only available to individual, joint and individual fiduciary-type accounts.
<PAGE>
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 CoreStates Bank, N.A.
which will be deducted from the withdrawal proceeds each time the shareholder
requests a redemption. If the proceeds are wired to the shareholder's account at
a bank which is not a member of the Federal Reserve System, there could be a
delay in the crediting of the funds to the shareholder's bank account.
2. Payment by Check: Request a check be mailed to the bank account
designated on the authorization form. Redemption proceeds will normally be
mailed the next business day, but no later than seven days, after the date of
the telephone request. This procedure will take longer than the Payment by Wire
option (1 above) because of the extra time necessary for the mailing and
clearing of the check after the bank receives it.
Redemption Requirements: In order to change the name of the bank and
the account number it will be necessary to send a written request to the
relevant Fund and a signature guarantee may be required. Each signature
guarantee must be supplied by an eligible guarantor institution. The Funds
reserve the right to reject a signature guarantee supplied by an eligible
institution based on its creditworthiness.
To reduce the shareholder's risk of attempted fraudulent use of the
telephone redemption procedure, payment will be made only to the bank account
designated on the authorization form.
If expedited payment under these procedures could adversely affect a
Fund, that Fund may take up to seven days to pay the shareholder.
Neither the Funds nor the Funds' Transfer Agent is responsible for any
shareholder loss incurred in acting upon written or telephone instructions for
redemption or exchange of Fund shares which are reasonably believed to be
genuine. With respect to such telephone transactions, 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.
<PAGE>
The sale of shares for withdrawal payments constitutes a taxable event
and a shareholder may incur a capital gain or loss for federal income tax
purposes. This gain or loss may be long-term or short-term depending on the
holding period for the specific shares liquidated.
Withdrawals under this plan made concurrently with the purchase of
additional shares may be disadvantageous to the shareholder. Purchases of Class
A Shares through a periodic investment program in a fund managed by the Manager
must be terminated before a Systematic Withdrawal Plan with respect to such
shares can take effect, except if the shareholder is a participant in one of our
retirement plans or is investing in funds in the Delaware Investments family
which do not carry a sales charge. Redemptions of Class A Shares pursuant to a
Systematic Withdrawal Plan may be subject to a Limited CDSC if the purchase was
made at net asset value and a dealer's commission has been paid on that
purchase. Redemptions of Class B Shares or Class C Shares pursuant to a
Systematic Withdrawal Plan may be subject to a CDSC, unless the annual amount
selected to be withdrawn is less than 12% of the account balance on the date
that the Systematic Withdrawal Plan was established. See Waiver of Contingent
Deferred Sales Charge - Class B 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 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.
<PAGE>
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. Payment by check of cash dividends
will ordinarily be mailed within three business days after the payable date. In
determining daily dividends, the amount of net investment income for each Fund
will be determined at the time the offering price and net asset value are
determined (see Determining Offering Price and Net Asset Value) and shall
include investment income accrued by the respective Fund, less the estimated
expenses of that Fund incurred since the last determination of net asset value.
Gross investment income consists principally of interest accrued and, where
applicable, net pro-rata amortization of premiums and discounts since the last
determination. The dividend declared, as noted above, will be deducted
immediately before the net asset value calculation is made. Net investment
income earned on days when each Fund is not open will be declared as a
dividend on the next business day.
Purchases of Fund shares by wire begin earning dividends when converted
into Federal Funds and available for investment, normally the next business day
after receipt. However, if a Fund is given prior notice of Federal Funds wire
and an acceptable written guarantee of timely receipt from an investor
satisfying 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
Plans.
Dividends are automatically reinvested in additional shares of the
paying Fund at net asset value, unless an election to receive dividends in cash
has been made. Dividend payments of $1.00 or less will be automatically
reinvested, notwithstanding a shareholder's election to receive dividends in
cash. If such a shareholder's dividends increase to greater than $1.00, the
shareholder would have to file a new election in order to begin receiving
dividends in cash again. If a shareholder redeems an entire account, all
dividends accrued to the time of the withdrawal will be paid by separate check
at the end of that particular monthly dividend period, consistent with the
payment and mailing schedule described above.
Any distributions from net realized securities profits will be made
annually during the quarter following the close of the fiscal year. Such
distributions will be reinvested in shares, unless the shareholder elects to
receive them in cash. 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.
Each Fund anticipates that most of its dividends paid to shareholders
will be exempt from federal income taxes.
<PAGE>
Under the Taxpayer Relief act of 1997 (the "1997 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:
"Pre-Act long-term capital gains" or "28 percent rate gain": securities
sold by a Fund before May 7, 1997, that were held for more than 12
months. These gains will be taxable to individual investors at a
maximum rate of 28%.
"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. 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 as though purchased
after December 31, 2000. These gains will be taxable to individual
investors at a maximum rate of 18% for investors in the 28% or higher
federal income tax brackets, and at a maximum rate of 8% for investors
in the 15% federal income tax bracket when sold after the 5 year
holding period.
<PAGE>
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.
95
<PAGE>
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.
96
<PAGE>
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 December 31, 1997, the Manager
and its affiliates within the Delaware Investments family, including Delaware
International Advisers Ltd., were managing in the aggregate more than $40
billion in assets in the various institutional or separately managed
(approximately $23,719,810,000) and investment company (approximately
$16,805,290,000) 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.
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.
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. On May 30, 1997, Voyageur was merged into the Manager and the
Manager became the investment manager for these 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 have 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 trustees of the Funds or by the
Manager. Each Agreement will terminate automatically in the event of its
assignment.
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. 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.
97
<PAGE>
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
byeach 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 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 December 31, 1997, the total net assets of each Fund were as
follows:
Tax-Free Arizona Insured Fund $190,818,171
Tax-Free Arizona Fund $14,959,325
Tax-Free California Insured Fund $34,028,062
Tax-Free California Fund $10,069,875
Tax-Free Colorado Fund $367,488,122
Tax-Free Florida Insured Fund $166,040,156
Tax-Free Florida Intermediate Fund $4,146,689
Tax-Free Florida Fund $10,323,858
Tax-Free Idaho Fund $41,741,018
Tax-Free Iowa Fund $42,124,438
Tax-Free Kansas Fund $14,222,842
Minnesota Insured Fund $300,515,516
Tax-Free Minnesota Intermediate Fund $59,946,356
Tax-Free Minnesota Fund $428,662,263
Tax-Free Missouri Insured Fund $60,296,949
Tax-Free New Mexico Fund $20,338,436
Tax-Free New York Fund $9,785,875
Tax-Free North Dakota Fund $31,894,833
Tax-Free Oregon Insured Fund $29,064,437
Tax-Free Utah Fund $3,780,649
Tax-Free Washington Insured Fund $3,403,972
Tax-Free Wisconsin Fund $33,499,274
98
<PAGE>
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
Incurred Paid Expenses Paid
<S> <C> <C> <C>
Tax-Free Arizona Insured Fund
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
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
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
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
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
Tax-Free Florida Intermediate Fund
5/1/97-12/31/97 $10,592 None $13,590
1/1/97-4/30/97 $5,339 None $15,077
1/1/96-12/31/96 $11,429 None $32,941
1/1/95-12/31/95 $2,665 None $13,660
</TABLE>
99
<PAGE>
<TABLE>
<CAPTION>
Investment Investment Fees
Advisory Fees Advisory Fees Waived and
Incurred Paid Expenses Paid
<S> <C> <C> <C>
Tax-Free Florida Insured Fund
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
5/1/97-12/31/97 $12,388 None $15,477
1/1/97-4/30/97 $36,650 None $39,378
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
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
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
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
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
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>
100
<PAGE>
<TABLE>
<CAPTION>
Investment Investment Fees
Advisory Fees Advisory Fees Waived and
Incurred Paid Expenses Paid
<S> <C> <C> <C>
Tax-Free Minnesota Fund
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
Tax-Free Missouri Insured Fund
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
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
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
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
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
Tax-Free Utah Fund
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
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
</TABLE>
101
<PAGE>
<TABLE>
<CAPTION>
Investment Investment Fees
Advisory Fees Advisory Fees Waived and
Incurred Paid Expenses Paid
<S> <C> <C> <C>
Tax-Free Wisconsin Fund
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.
Each Fund also had an Administrative Services Agreement with Voyageur
through April 30, 1997. Set forth below is information regarding the amount of
administrative services fees incurred, paid and waived, if any, by each Fund to
Voyageur during the indicated periods.
Administrative
Services Fees
Paid
Tax-Free Arizona Insured Fund
1/1/97-4/30/97 $99,048
1/1/96-12/31/96 $307,939
1/1/95-12/31/95 $299,757
Tax-Free Arizona Fund
1/1/97-4/30/97 $12,692
1/1/96-12/31/96 $36,595
3/2/95-12/31/95(1) $15,541
Tax-Free California Insured Fund
1/1/97-4/30/97 $25,183
1/1/96-12/31/96 $75,853
1/1/95-12/31/95 $67,135
Tax-Free California Fund
1/1/97-4/30/97 $4,502
1/1/96-12/31/96 $21,559
3/3/95-12/31/95(1) $13,974
Tax-Free Colorado Fund
1/1/97-4/30/97 $142,453
1/1/96-12/31/96 $426,237
1/1/95-12/31/95 $441,178
Tax-Free Florida Intermediate Fund
1/1/97-4/30/97 $6,898
1/1/96-12/31/96 $21,512
1/1/95-12/31/95 $10,995
102
<PAGE>
Administrative
Services Fees
Paid
Tax-Free Florida Insured Fund
1/1/97-4/30/97 $98,135
1/1/96-12/31/96 $314,165
1/1/95-12/31/95 $325,819
Tax-Free Florida Fund
1/1/97-4/30/97 $8,517
1/1/96-12/31/96 $30,812
3/2/95-12/31/95(1) $15,010
Tax-Free Idaho Fund
1/1/97-4/30/97 $24,482
1/1/96-12/31/96 $62,657
1/4/95-12/31/95(1) $29,996
Tax-Free Iowa Fund
1/1/97-4/30/97 $31,466
1/1/96-12/31/96 $93,979
1/1/95-12/31/95 $85,579
Tax-Free Kansas Fund
1/1/97-4/30/97 $9,480
1/1/96-12/31/96 $39,146
1/1/95-12/31/95 $14,005
Tax-Free Minnesota Intermediate Fund
1/1/97-4/30/97 $37,565
1/1/96-12/31/96 $110,484
1/1/95-12/31/95 $114,999
Minnesota Insured Fund
1/1/97-4/30/97 $125,163
1/1/96-12/31/96 $355,578
1/1/95-12/31/95 $329,546
Tax-Free Minnesota Fund
1/1/97-4/30/97 $167,828
1/1/96-12/31/96 $472,689
1/1/95-12/31/95 $499,083
Tax-Free Missouri Insured Fund
1/1/97-4/30/97 $41,314
1/1/96-12/31/96 $125,437
1/1/95-12/31/95 $111,588
Tax-Free New Mexico Fund
1/1/97-4/30/97 $14,065
1/1/96-12/31/96 $51,384
1/1/95-12/31/95 $46,835
103
<PAGE>
Administrative
Services Fees
Paid
Tax-Free New York Fund
1/1/97-4/30/97 $10,685
10/1/96-12/31/96(2) $5,447
10/1/95-9/30/96 N/A
10/1/94-9/30/95 N/A
Tax-Free North Dakota Fund
1/1/97-4/30/97 $26,554
1/1/96-12/31/96 $86,034
1/1/95-12/31/95 $75,910
Tax-Free Oregon Insured Fund
1/1/97-4/30/97 $23,056
1/1/96-12/31/96 $59,737
1/1/95-12/31/95 $42,931
Tax-Free Utah Fund
1/1/97-4/30/97 $35,716
1/1/96-12/31/96 $25,695
1/1/95-12/31/95 $18,829
Tax-Free Washington Insured Fund
1/1/97-4/30/97 $5,762
1/1/96-12/31/96 $21,966
1/1/95-12/31/95 $12,752
Tax-Free Wisconsin Fund
1/1/97-4/30/97 $20,269
1/1/96-12/31/96 $67,833
1/1/95-12/31/95 $49,595
(1) Commencement of operations.
(2) Effective December 31, 1996, Tax-Free New York Fund changed its fiscal
year from September 30 to December 31.
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. (which formerly conducted
business as Delaware Distributors, Inc.), located at 1818 Market Street,
Philadelphia, PA 19103, serves as the national distributor of each Fund's shares
under separate Distribution Agreements dated 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 Plans for each such Class.
The Transfer Agent, Delaware Service Company, Inc., another affiliate of
the Manager located at 1818 Market Street, Philadelphia, PA 19103, serves as
each Fund's shareholder servicing, dividend disbursing and transfer agent
pursuant to a Shareholders Services Agreement dated 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.
104
<PAGE>
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.
105
<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
February 28, 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 February 28, 1998, management believes the following accounts
held 5% or more of a Class of shares of a Fund:
<TABLE>
<CAPTION>
Class Name and Address of Account Share Amount Percentage
- ----- --------------------------- ------------ ----------
<S> <C> <C> <C>
Tax-Free Arizona Merrill Lynch, Pierce, Fenner & Smith 1,428,358 8.94%
Insured Fund Class A Shares For the Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, Third Floor
Jacksonville, FL 32246
Tax-Free Arizona Robert D Wickwire TTEE 42,035 12.59%
Insured Fund Class B Shares Robert D. Wickwire Rev
6050 N. Camino Esplendora
Tucson, AZ 85718
BA Investment Services, Inc. 23,217 6.95%
185 Berry St., Third Floor, #2640
San Francisco, CA 94107
Vivian G. Finkelman TTEE 18,156 5.43%
Vivian G. Finkelman Trust
8989 Gainey Center Drive, #105
Scottsdale, AZ 85258
Tax-Free Arizona Dean Witter for the Benefit of the 19,929 34.99%
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. 11,001 19.31%
185 Berry St., Third Floor #2640
San Francisco, CA 94107
BT Alex Brown Incorporated 5,865 10.29%
P.O. Box 1346
Baltimore, MD 21203
</TABLE>
106
<PAGE>
<TABLE>
<CAPTION>
Class Name and Address of Account Share Amount Percentage
- ----- --------------------------- ------------ ----------
<S> <C> <C> <C>
Tax-Free Arizona Roy L. Carson & 4,059 7.12%
Insured Fund Class C Shares Marian L. Carson JT TEN
2116 W. Comstock
Chandler, AZ 85224
Harriet J. Welch TTEE 3,801 6.67%
The Welch Family Trust
15612 East Willis
Gilbert, AZ 85296
Tax-Free Arizona Fund Dain Rauscher Incorporated. 179,725 18.41%
Class A Shares FBO Gaylord Rubin & Beverly Rubin CO-TTEES
Gaylord & Beverly Rubin Family Trust
4712 East Palo Verde Drive
Phoenix, AZ 85018
Dorothy H. Green TTEE 76,873 7.87%
Green Family Trust
5002 E. Mesquite Wood Court, Ste . 700
Phoenix, AZ 85044
Merrill Lynch, Pierce Fenner & Smith 49,983 5.12%
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 26,312 7.87%
Class B Shares FBO Gaylord Rubin & Beverly Rubin CO-TTEES
Gaylord & Beverly Rubin Family Trust
4712 East Palo Verde Drive
Phoenix, AZ 85018
Dain Rauscher Incorporated 24,874 7.44%
FBO Virginia Strickland TTEE
Strickland Family Trust
7500 N. Calle Sin Envidia
Tucson, AZ 85718
PaineWebber FBO Gilberth Barnes 17,876 5.35%
& Clare Collord Barnes TTEE
210 West Palmaire Avenue
Phoenix, AZ 85021
</TABLE>
107
<PAGE>
<TABLE>
<CAPTION>
Class Name and Address of Account Share Amount Percentage
- ----- --------------------------- ------------ ----------
<S> <C> <C> <C>
Tax-Free Arizona Fund Margaret L. Minder Urban TTEE 22,446 53.96%
Class C Shares Margaret L. Minder Urban REV TRUST
6710 Mamaronick Drive
Tucson, AZ 85718
PaineWebber 4,601 11.06%
FBO Carol J. Griffin and
Dale Griffin JT/WROS
6738 North Shadow Run Drive
Tucson, AZ 85704
Tax-Free California Insured Merrill Lynch, Pierce, Fenner & Smith 131,479 5.60%
Fund Class A Shares For the Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, Third Floor
Jacksonville, FL 32246
Tax-Free California Insured Donaldson Lufkin Jenrette 34,404 78.97%
Fund Class C Shares Securities Corporation, Inc.
P.O. Box 2052
Jersey City, NJ 07303
BT Alex Brown Incorporated 4,428 10.16%
P.O. Box 1346
Baltimore, MD 21203
C. Robert Tyler 2,752 6.31%
Elizabeth A. Tyler JT TEN
P.O. Box 1194
Grass Valley, CA 95945
Tax-Free California Fund PaineWebber 50,267 12.34%
Class A Shares FBO Michael Alan Knott
59926 Comstock Road
Cove, OR 97824
Diane Severns 31,613 7.76%
2537 Lariat Lane
Walnut Creek, CA 94596
Dain Bosworth Inc. FBO 29,668 7.28%
William C. Johnson
P.O. Box 7106
Rancho Santa Fe, CA 92067
</TABLE>
108
<PAGE>
<TABLE>
<CAPTION>
Class Name and Address of Account Share Amount Percentage
- ----- --------------------------- ------------ ----------
<S> <C> <C> <C>
Tax-Free California Fund Thelma Beam & Edith Ramsey TTEES 25,662 6.29%
Class A Shares Beam Family Trust
250 Raylow Avenue
Manteca, CA 95336
Tax-Free California Fund Robert W. Oates 4,511 30.29%
Class C Shares and Cynthia S. Oates JT WROS
656 West School Street
Cotati, CA 94931
Long Q. Nguyen 3,360 22.56%
Thoa K. Nguyen JT TEN
3229 Adelanto Lane
San Jose, CA 95135
PaineWebber 2,488 16.71%
FBO John R. Pruett &
Yvonne M. Pruett JTWROS
219 Forest Creek Lane
San Ramon, CA 94583
Alan M. Frankel and 2,299 15.44%
Carol S. Frankel JT WROS
9591 Jura Drive
Huntington Beach, CA 92646
BT Alex Brown Incorporated 1,109 7.45%
P.O. Box 1346
Baltimore, MD 21203
Tax-Free Colorado Fund Marjorie J. Ottino TTEE 9,242 5.45%
Class C Shares Joseph W. Ottino TTEE
Joseph W. & Marjorie J. Ottino Trust
4258 South Shore Court
Fort Collins, CO 80524
Dorothy E. Radant TTEE 8,801 5.19%
1332 Cresent Dr.
Wausau, WI 54401
Dean Witter 8,787 5.18%
FBO Bette J. Storms &
William W. Storms JTTEN
3855 Hermitage Ave.
Colorado Springs, CO 80906
</TABLE>
109
<PAGE>
<TABLE>
<CAPTION>
Class Name and Address of Account Share Amount Percentage
- ----- --------------------------- ------------ ----------
<S> <C> <C> <C>
Tax-Free Florida Merrill Lynch, Pierce, Fenner & Smith 34,924 13.00%
Intermediate Fund For the Sole Benefit of its Customers
Class A Shares Attn: Fund Administration
4800 Deer Lake Drive East, Third Floor
Jacksonville, FL 32246
Donaldson Lufkin Jenrette 19,240 7.16%
Securities Corporation Inc.
P.O. Box 2052
Jersey City, NJ 07303
Tax-Free Florida Smith Barney, Inc. 9,833 10.99%
Intermediate Fund 388 Greenwich St.
Class B Shares New York, NY 10013
John A. Dragseth TTEE 7,538 8.42%
John A. Dragseth Trust
3623 South East Old St. Lucie Blvd.
Stuart, FL 34996
Smith Barney, Inc. 5,672 6.33%
388 Greenwich Street
New York, NY 10013
WCG Investment Partnership 5,619 6.27%
Attn: Howard Wolofsky
c/o Reflections
3400 North East 34th Street, Ste. 1010
Ft. Lauderdale, FL 33308
Pauline B. Butler 5,610 6.26%
450 Avenue F, South East
Winter Haven, FL 33880
Tax-Free Florida Prudential Securities, Inc. 5,209 100.00%
Intermediate Fund FBO Mrs. Jun L. Mason
Class C Shares Jun L. Mason REV LIV TRUST
1180 Reef Road, Apt. A19
Vero Beach FL 32963
Tax-Free Florida Insured Merrill Lynch, Pierce, Fenner & Smith 1,639,216 11.60%
Fund Class A Shares For the Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, Third Floor
Jacksonville, FL 32246
</TABLE>
110
<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 27,428 7.80%
Fund Class B Shares For the Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, Third Floor
Jacksonville, FL 32246
Tax-Free Florida Fund SunTrust Bank Tampa Bay 68,829 8.85%
Class A Shares FBO Ron Slivka
Donna Slivka
P.O. Box 105870
Atlanta, GA 30348
Tax-Free Florida Fund Merrill Lynch, Pierce, Fenner & Smith 45,423 18.97%
Class B Shares For the Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, Third Floor
Jacksonville, FL 32246
PaineWebber 21,052 8.79%
FBO Anne Shtulman REV TRUST
7406 Fairfax Drive, Apt. 109D
Tamarac, FL 33321
Anita R. Alexander & John E. Alexander 19,683 8.22%
259 Courtyard Blvd. Box 259-102
Sun City Center, FL 33573
Robert K. Sedgwick TTEE 14,032 5.85%
7711 Sundown Court
Bayonet Point, FL 34667
Tax-Free Florida Fund Mary J. Manns 10,648 50.35%
C Shares 3629 Killarney Plaza Court
Tallahassee, FL 32308
Jack C. Shaw and Lula A. Shaw 9,017 42.64%
2156 Northeast 24th Street
Wilton Manors, FL 33305
Prudential Securities Inc. FBO 1,428 7.00%
Anna DeMaio
2100 Springdale Blvd., Apt. Y 215
Palm Springs, FL 33461
</TABLE>
111
<PAGE>
<TABLE>
<CAPTION>
Class Name and Address of Account Share Amount Percentage
- ----- --------------------------- ------------ ----------
<S> <C> <C> <C>
Tax-Free Idaho Fund Merrill Lynch, Pierce, Fenner & Smith 622,163 19.31%
Class A Shares For the Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, Third Floor
Jacksonville, FL 32246
Audrey Ann Shayne 191,628 5.95%
4760 Rivervista Place
Boise, ID 83703
Tax-Free Idaho Fund Merrill Lynch, Pierce, Fenner & Smith 255,874 40.76%
Class B Shares For the Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, Third Floor
Jacksonville, FL 32246
Tax-Free Idaho Fund Joseph Daltoso 10,755 9.10%
Class C Shares 1225 Warm Spring Ave.
Boise, ID 83712
Archie Lurus & Georgia Lurus JT/WROS 10,230 8.65%
2391 N. 55th East
Idaho Falls, ID 83401
Key Clearing Corp. 8,732 7.38%
4900 Tiedeman Road
Brooklyn, OH 44144
Ray L. Spencer and Donna Spencer JT WROS 6,450 5.45%
9626 West Victory Road
Boise, ID 83709
Herbert W. Runner 5,995 5.02%
Rosamond S. Runner JT TEN
828 Wade Circle
Boise, ID 83705
Tax-Free Iowa Fund Alex P. Despenas 65,727 21.46%
Class B Shares Ethel Despenas TEN COM
960 Briarstone
Mason City, IA 50401
Garry L. Waline 16,088 5.25%
Kathleen A. Waline JTTN
301 C Street Apt. 2
Toledo, IA 52342
</TABLE>
112
<PAGE>
<TABLE>
<CAPTION>
Class Name and Address of Account Share Amount Percentage
- ----- --------------------------- ------------ ----------
<S> <C> <C> <C>
Tax-Free Iowa Fund PaineWebber 15,322 5.00%
Class B Shares FBO Maxine V. Royer and
Judy A. Reves and
Janet S. Fricke JT WROS
2825 190th Street
Dallas Center, IA 50063
Tax-Free Iowa Fund Donald R. Kurtz 10,775 12.51%
Class C Shares Mildred Kurtz JTTEN
1010 Plane Street
Burlington, IA 52601
David W. Oberbroeckling and 10,601 12.30%
Julia A. Oberbroeckling JT WROS
3702 Wisconsin Avenue
Davenport, IA 52806
Mary E. Aringdale 5,413 6.28%
Robert F. Aringdale JT TEN
2924 Sunnyside Avenue
Burlington, IA 52601
Fern L. Morrison 4,803 5.57%
Doyle D. Morrison POA
TOD Doyle D. Morrison Delores J. Reed
421 Leffler
West Burlington, IA 52655
Marian W. Palmer 4,571 5.30%
TOD Sara Beth Palmer
904 Oak Street
Burlington, IA 52601
John A. Reid 4,367 5.06%
Box 219
Greene, IA 50636
Tax-Free Kansas Fund Thomas B. Robinson 57,302 5.91%
Class A Shares 6401 Norwood Drive
Shawnee Mission, KS 66208
Merrill Lynch, Pierce, Fenner & Smith 54,909 5.66%
For the Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, Third Floor
Jacksonville, FL 32246
</TABLE>
113
<PAGE>
<TABLE>
<CAPTION>
Class Name and Address of Account Share Amount Percentage
- ----- --------------------------- ------------ ----------
<S> <C> <C> <C>
Tax-Free Kansas Fund Merrill Lynch, Pierce, Fenner & Smith 25,214 7.65%
Class B Shares For the Sole Benefit of its Customers
Attn Fund Administration
4800 Deer Lake Drive East, Third Floor
Jacksonville, FL 32246
William T. Martin TTEE 23,324 7.07%
William T. Martin TR
The Forum, Apt. 124
3501 West 95th Street
OP KS 66206
Prudential Securities, Inc. 23,258 7.06%
FBO Frank F. Castellano and
Patricia J. Castellano JT WROS
14032 Hayes Street
Overland Park, KS 66221
Tax-Free Kansas Fund Gilbert O. Sears 4,054 48.41%
Class C Shares TOD Megan R. Fishpool
Lisa Papadopoulos
Tricia R. Sears
213 East Parliament
Smith Center, KS 66967
Harold L. Smith 2,575 30.74%
TOD Sheryl S. Olson
David A. Smith
Jayne A. Radley & Marcia L. Vaughn
1708 Arrowhead
Derby, KS 67037
Richard L. McClelland 1,001 11.95%
Nyllia Jo McClelland JT TEN
15405 West 144th Terrace
Olathe, KS 66062
Randall L. Hockett 513 6.12%
1721 North 73rd Terrace, #8
Kansas City, KS 66112
Tax-Free Minnesota Merrill Lynch, Pierce, Fenner & Smith 437,581 8.68%
Intermediate Fund For the Sole Benefit of its Customers
Class A Shares Attn Fund Administration
4800 Deer Lake Drive East, Third Floor
Jacksonville, FL 32246
</TABLE>
114
<PAGE>
<TABLE>
<CAPTION>
Class Name and Address of Account Share Amount Percentage
- ----- --------------------------- ------------ ----------
<S> <C> <C> <C>
Tax-Free Minnesota Larry C. Jordan 9,829 9.90%
Intermediate Fund 1633 Eustis
Class B Shares St Paul, MN 55108
Sophie G. Bishoff 9,353 9.41%
2221 Youngman Avenue
St Paul, MN 55116
Merrill Lynch 8,920 8.97%
4800 Deer Lake Drive East, Third Floor
Jacksonville, FL 32246
Marjorie Grills Cons 7,583 7.63%
FBO Eunice G. Ryan
440 Cherokee Avenue
St. Paul, MN 55107
Norwest Investment Services, Inc. 6,548 6.59%
FBO 021704701
Northstar Building East - 8th Floor
608 Second Avenue, South
Minneapolis, MN 55479
Tax-Free Minnesota Bradley E. Bakken TTEE 17,181 12.56%
Intermediate Fund Bradley E. Bakken Revocable Trust
Class C Shares 10100 Windsor Lane
Minnetonka, MN 55343
Merrill Lynch, Pierce, Fenner & Smith 11,176 8.17%
For the Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, Third Floor
Jacksonville, FL 32246
Nicholas Edloff 10,867 7.94%
Mary Edloff JT TEN
1315 Goodrich
St Paul, MN 55105
Allen J. and Diane K. Volkenant TTEES 9,106 6.65%
Allen J. Volkenant REV TRUST
808 Coventry Place
Edina, MN 55435
Donaldson Lufkin Jenrette 7,161 5.23%
Securities Corporation Inc
P.O. Box 2052
Jersey City, NJ 07303
</TABLE>
115
<PAGE>
<TABLE>
<CAPTION>
Class Name and Address of Account Share Amount Percentage
- ----- --------------------------- ------------ ----------
<S> <C> <C> <C>
Minnesota Insured Fund The Drifter Family Limited Partnership 28,226 9.78%
Class C Shares Gopher Macine & Eng. Co. General Partner
c/o Firstar Ctr - Attn. George Benz
101 East 5th Street, Suite 2104
Saint Paul, MN 55101
Lucille P. Weimert 18,989 6.58%
238 North Plainview Ave
Mankato, MN 56001
Tax-Free Minnesota Merrill Lynch, Pierce, Fenner & Smith 2,199,573 6.82%
Fund Class A Shares For the Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, Third Floor
Jacksonville, FL 32246
Tax-Free Minnesota Donaldson Lufkin Jenrette 46,516 16.67%
Fund Class C Shares Securities Corporation, Inc.
P.O. Box 2052
Jersey City, NJ 07303
Merrill Lynch, Pierce, Fenner & Smith 30,835 11.05%
For the Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, Third Floor
Jacksonville, FL 32246
Tax-Free Missouri Insured Merrill Lynch, Pierce, Fenner & Smith 245,303 5.54%
Fund Class A Shares For the Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, Third Floor
Jacksonville, FL 32246
Tax-Free Missouri Insured Walter A. Gawrych 10,065 44.63%
Fund Class C Shares Wendy D. Gawrych JT TEN
12816 Pointe Drive
St Louis, MO 63127
George A. Rhodes 5,000 22.17%
TOD Russell G. Rhodes
1359 East Stoneridge Dr.
Springfield, MO 65803
Bryan E. Jaynes 3,071 13.16%
6434 Alamo Avenue, Apt #2W
St Louis, MO 63105
James M. Brown 2,137 9.47%
2624 Park Avenue
St Louis, MO 63104
</TABLE>
116
<PAGE>
<TABLE>
<CAPTION>
Class Name and Address of Account Share Amount Percentage
- ----- --------------------------- ------------ ----------
<S> <C> <C> <C>
Tax-Free Missouri Insured Maida Ann VanPelt 1,834 8.13%
Fund C Class Shares Donald Lee VanPelt
2401 Still Meadows Lane
Blue Springs, MO 64015
Tax-Free New Mexico Fund Merrill Lynch, Pierce, Fenner & Smith 361,397 20.70%
Class A Shares For the Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, Third Floor
Jacksonville, FL 32246
Donaldson Lufkin Jenrette 88,168 5.04%
Securities Corporation, Inc.
P.O. Box 2052
Jersey City, NJ 07303
Tax-Free New Mexico Fund Arnold A. Elsbernd & Helen G. Elsbernd TTEES 11,841 11.03%
Class B Shares Elsbernd Family Trust
5525 Edwards Dr., NE
Albuquerque, NM 87111
Edward D. Jones and Co. F/A/O 9,998 9.31%
Jeanne Chintis and Nicholas Chintis TTEES
P.O. Box 2500
Maryland Heights, MO 63043
J. Thomas Brewer 8,437 7.86%
Nona Brewer JT TEN
2102 Runyan Avenue
Artesia, NM 88210
Adele A. Anderson TTEE 7,484 6.97%
For the Adele A. Anderson REV LIV TR
2916 Cutler Avenue NE
Albuquerque, NM 87106
Byrd T. Mooney 7,437 6.93%
610 E 16th Street
Farmington, NM 87401
Donaldson Lufkin Jenrette 6,759 6.29%
Securities Corporation, Inc.
P.O. Box 2052
Jersey City, NJ 07303
Newell T. Reynolds and 6,157 5.73%
Bella Lewitzky TTEES
N. Reynolds and B. Lewitzky Family Trust
3594 Multiview Drive
Los Angeles, CA 90068
</TABLE>
117
<PAGE>
<TABLE>
<CAPTION>
Class Name and Address of Account Share Amount Percentage
- ----- --------------------------- ------------ ----------
<S> <C> <C> <C>
Tax-Free New Mexico Fund Norwest Investment Services, Inc. 5,441 5.06%
Class B Shares Northstar Building East, 8th Floor
608 Second Avenue South
Minneapolis, MN 55479
PaineWebber 5,417 5.04%
FBO Lewis G. Helm
Berry J Helm JT WROS
8213 Cherry Hills Drive NE
Albuquerque, NM 87111
Tax-Free New Mexico Fund Donaldson Lufkin Jenrette 6,867 24.37%
Class C Shares Securities Corporation, Inc.
P.O. Box 2052
Jersey City, NJ 07303
R. Harold Wingo 3,573 12.68%
Ethel J. Wingo JT TEN
TOD David N. Wingo & Raymond M. Wingo
725 Collier Avenue
Raton, NM 87740
Bob Harris 3,211 11.39%
Kathy R. Harris
712 South 5th Street
Raton, NM 87740
Title Services, Inc 3,040 10.79%
Attn: Bob Harris
P.O. Box 696
Raton, NM 87740
Donaldson Lufkin Jenrette 2,888 10.25%
Securities Corporation, Inc.
P.O. Box 2052
Jersey City, NJ 07303
Kathleen Porter Harris 2,032 7.21%
TOD Bob Harris
712 South 5th Street
Raton, NM 87740
Donaldson Lufkin Jenrette 1,803 6.40%
Securities Corporation, Inc.
P.O. Box 2052
Jersey City, NJ 07303
Tax-Free New York Fund Claudia Schellenberg 2,804 17.57%
Class B Shares 3243 90th Street, Apt. 202
Flushing, NY 11369
</TABLE>
118
<PAGE>
<TABLE>
<CAPTION>
Class Name and Address of Account Share Amount Percentage
- ----- --------------------------- ------------ ----------
<S> <C> <C> <C>
Tax-Free New York Fund Ann Dexter Jones 2,445 15.32%
279 Central Park West
New York, NY 10024
Donaldson Lufkin Jenrette 1,530 9.58%
Securities Corporation, Inc.
P.O. Box 2052
Jersey City, NJ 07303
Ralph L. Warren 1,428 8.94%
Anne C. Warren JT WROS
980 State Highway 205
Oneonta, NY 13820
Lewco Securities Corp. 1,101 6.89%
34 Exchange Place, Fourth Floor
Jersey City, NJ 07302
Lewco Securities Corp 1,101 6.89%
34 Exchange Place 4th Floor
Jersey City, NJ 07302
Arthur T. Weinisch 1,077 6.74%
Deborah A. Weinisch JT WROS
27 Beachview Place
Ronkonkoma, NY 11779
Key Clearing Corp 1,046 6.55%
P.O. Box 93971
Cleveland, OH 44101
John Mitchell 977 6.12%
Madeleine Mitchell JT WROS
155 South Fordham Road
Hicksville, NY 11801
Angelo Nicosia 966 6.05%
Helen Nicosia JT TEN
1667 Hemlock Farms
Hawley, PA 18428
Tax-Free New York Fund Donaldson Lufkin Jenrette 5,322 99.99%
Class C Shares Securities Corporation, Inc.
P.O. Box 2052
Jersey City, NJ 07303
Tax-Free North Dakota Wilkota and Company 209,618 7.65%
Fund Class A Shares 1st Nat'l Bank & Trust Co. of Williston
P.O. Box 1827
Williston, ND 58802
</TABLE>
119
<PAGE>
<TABLE>
<CAPTION>
Class Name and Address of Account Share Amount Percentage
- ----- --------------------------- ------------ ----------
<S> <C> <C> <C>
Tax-Free North Dakota Merrill Lynch, Pierce, Fenner & Smith 9,725 12.18%
Fund Class B Shares For The Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, Third Floor
Jacksonville, FL 32246
Edward D Jones & Co F/A/O 9,298 11.64%
Arthur N. Lee
P.O. Box 2500
Maryland Heights, MO 63043
Susan K Krueger 4,732 5.92%
P.O. Box 716
West Fargo, ND 58078
Wesley W. Weeding 4,683 5.86%
Geraldine M. Weeding JTTEN
331 West 6th Street
West Fargo, ND 58078
Paula Shermoen 4,026 5.04%
RR 1, Box 54A
Gilby, ND 58235
Roberta J. Mohagen 4,009 5.02%
104 Prairiewood Drive
Fargo, ND 58103
Tax-Free North Dakota Jacob N. Gust 2,419 66.57%
Fund Class C Shares Barbara A. Olive JT TEN
4614 81st N
Fargo, ND 58102
Debbie S. Kolegraf 1,090 30.01%
Kim M. Kolegraf JT TEN
4473 97th Avenue, NE
Bismarck, ND 58501
Tax-Free Oregon Insured Merrill Lynch, Pierce, Fenner & Smith 114,697 5.30%
Class A Shares For the Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, Third Floor
Jacksonville, FL 32246
Tax-Free Oregon Insured Dorothy McCue 63,961 10.16%
Fund Class B Shares 2098 Law Lane
Eugene, OR 97401
</TABLE>
120
<PAGE>
<TABLE>
<CAPTION>
Class Name and Address of Account Share Amount Percentage
- ----- --------------------------- ------------ ----------
<S> <C> <C> <C>
Tax-Free Oregon Insured PaineWebber 15,093 30.92%
Class C Shares FBO Herbert Bodner TR
FBO The Bodner Family Trust
1419 NW 14th
Portland, OR 97209
PaineWebber 10,615 21.74%
FBO Daniel Oseran & Tracy Oseran JT TEN 4500
SW Humphrey Portland, OR 97221
Kenneth E. Hansen and 7,713 15.80%
Melanie L. Hansen JT WROS
1444 4th Street
Astoria, OR 97103
Edward D Jones and Co. F/A/O 3,721 7.62%
Carol Roesch
P.O. Box 2500
Maryland Heights, MO 63043
Tax-Free Utah Fund Merrill Lynch, Pierce, Fenner & Smith 21,504 7.62%
Class A Shares For The Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, Third Floor
Jacksonvile, FL 32246
Smith Barney Inc. 19,293 6.83%
388 Greenwich Street
New York, NY 10013
Prudential Securities 14,842 5.26%
FBO Janet G. Parberry TTEE
Arden B. Gundersen and
Valoise Gundersen Trust
3276 English Way
Sandy, UT 84093
Tax-Free Utah Fund Prudential Securities FBO 24,048 48.58%
Class B Shares William T. Logan & Sally M. Logan JT TEN
1216 Aerie Drive
Park City, UT 84068
Smith Barney Inc. 11,179 22.58%
388 Greenwich Street
New York, NY 10013
</TABLE>
121
<PAGE>
<TABLE>
<CAPTION>
Class Name and Address of Account Share Amount Percentage
- ----- --------------------------- ------------ ----------
<S> <C> <C> <C>
Tax-Free Utah Fund Prudential Securities Inc. 9,279 18.74%
Class B Shares FBO Frank Mensel SUCC TTEE
Revocable Inter Vivos Trust
1270 N Cottonwood Circle
Heber, UT 84032
John E. Boyer, Jr. 2,567 5.18%
3347 North 900 East
Ogden, UT 84414
Tax-Free Washington Smith Barney, Inc. 13,619 6.19%
Insured Fund Class A 388 Greenwich Street
Shares New York, NY 10013
Raymond James & Assoc., Inc. 11,650 5.29%
James & Geneva Kirkland TTEES
2802 Ocean Beach Highway
Longview, WA 98632
Edward D. Jones and Co. 11,388 5.17%
Elsie H. Hansch
P.O. Box 2500
Maryland Heights, MO 63043
Tax-Free Washington PaineWebber 22,537 21.51%
Insured Fund Class B FBO Hogin Family Trust
Shares Richard D. Hogin & Mariann Hogin TTEES
7624 North Panorama Drive
Spokane, WA 99208
PaineWebber 10,044 9.59%
FBO Arne L. Filan
40 South Division
Walla Walla, WA 99362
PaineWebber 5,815 5.57%
FBO Adrien L. Casey &
Virginia P Casey JTWROS
1934 Scarpelli Drive
Walla Walla, WA 99362
PaineWebber 5,683 5.44%
FBO David H. Olson &
Evis Olson TTES
1231 South 2nd Avenue
Walla Walla, WA 99362
</TABLE>
122
<PAGE>
<TABLE>
<CAPTION>
Class Name and Address of Account Share Amount Percentage
- ----- --------------------------- ------------ ----------
<S> <C> <C> <C>
Tax-Free Washington PaineWebber 5,242 5.02%
Insured Fund Class FBO Loraine W. Schempp &
B Shares Irma G. Schempp JT TEN
8538 RD T NW
Quincy, WA 98848
Tax-Free Washington PaineWebber 4,270 51.33%
Insured Fund Class FBO Leonard F. Jansen
C Shares 2027 East Upriver Drive, Apt. S-31
Spokane, WA 99207
Walter G. Neiman 2,024 24.33%
2041 Cloverdale Rd
Kalama, WA 98625
PaineWebber 2,024 24.33%
FBO Delbert L. Moore
1702 Moore Road
Colfax, WA 99111
Tax-Free Wisconsin Fund Bayban 388,303 12.42%
Class A Shares c/o First St. Bank of Bayport
950 North Highway 95
Bayport, MN 55003
Tax-Free Wisconsin Fund Dean G. Thomas 14,904 6.67%
Class B Shares c/o Carl Pieper
P.O. Box 177
Stoughton, WI 53589
James Kadlec TTEE 14,383 6.43%
Kadlec Qualified Terminable Interest Trust
3720 Elm Drive
La Crosse, WI 54601
Joyce M. Weigel 11,887 5.31%
5387 Mariners Cove Drive, Apt. 309
Madison, WI 53704
Reynalda Ricco, Exec. 11,470 5.12%
Lydia M. Aschenbrener Estate
5935 Glen haven Drive
Greendale, WI 53129
</TABLE>
123
<PAGE>
<TABLE>
<CAPTION>
Class Name and Address of Account Share Amount Percentage
- ----- --------------------------- ------------ ----------
<S> <C> <C> <C>
Tax-Free Wisconsin Fund Everen Clearing Corp. 19,946 19.64%
Class C Shares Beverly Humleker Calhoun Trust
111 East Kilbourn Avenue
Milwaukee, WI 53202
Everen Clearing Corp. 17,383 17.12%
Alan R. Hyman and Harriet S. Hyman
111 East Kilbourn Avenue
Milwaukee, WI 53202
Dean Witter 9,834 9.68%
FBO Eugene Cudewicz
3856 East Somens Avenue
Cudahy , WI 53110
Everen Clearing Corp. 8,775 8.64%
Robert P. Fahey
111 East Kilbourn Avenue
Milwaukee, WI 53202
Everen Clearing Corp. 6,780 6.67%
Harry A. Palmiter
111 East Kilbourn Avenue
Milwaukee, WI 53202
Beverly Kneebone 5,536 5.45%
1505 Stemp Terrace
Madison, WI 53711
</TABLE>
124
<PAGE>
DMH Corp., Delvoy, Inc., Delaware Management Company, Inc., Delaware
Management Business Trust, Delaware Management Company and Delaware Investment
Advisers, both 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.
As noted under Investment Management Agreements, after the close of
business on April 30, 1997, Voyageur became an indirect, wholly owned subsidiary
of Lincoln National as a result of Lincoln National's acquisition of DFG.
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.
125
<PAGE>
*Wayne A. Stork (60)
Chairman and Director and/or Trustee of each of the seven investment
companies, 27 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 Delaware Investment &
Retirement 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 seven investment companies and 27 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
From 1992 to 1996, Mr. Nick was Managing Director of Lincoln
National UK plc and from 1989 to 1992, he was Senior Vice
President responsible for corporate planning and development
for Lincoln National Corporation.
Richard G. Unruh, Jr. (58)
President of Delaware Investment Advisers (a series of Delaware
Management Business Trust) Executive Vice President of each
of the seven investment companies and 27 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.
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.
- ----------------------
* Director affiliated with the Fund's investment manager and considered an
"interested person" as defined in the 1940 Act.
<PAGE>
Paul E. Suckow (50)
Executive Vice President/Chief Investment Officer, Fixed Income of each
of the seven investment companies and 27 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.
David K. Downes (58)
Executive Vice President, Chief Operating Officer, Chief Financial
Officer of each of the seven investment companies and 27 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 Delaware Investment & Retirement 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 (70)
Director and/or Trustee of each of the seven investment companies and
27 other investment companies in the Delaware Investments
family
460 North Gulph Road, King of Prussia, PA 19406
Board Chairman, Citadel Constructors, Inc.
From 1986 to 1988, Mr. Babich was a partner of Irwin & Leighton and
from 1988 to 1991, he was a partner of I&L Investors.
<PAGE>
Anthony D. Knerr (59)
Director and/or Trustee of each of the seven investment companies and
27 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 seven investment companies and
27 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 seven investment companies and
27 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 seven investment companies and
27 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 seven investment companies and
27 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.
<PAGE>
George M. Chamberlain, Jr. (51)
Senior Vice President, Secretary and General Counsel of each of the
seven investment companies and 27 other investment
companies in the Delaware Investments family, 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, General Counsel and Director/Trustee
of DMH Corp., Delaware Management Company, Inc., Delaware
Distributors, Inc., Delaware Service Company, Inc., Founders
Holdings, Inc., Delaware Investment & Retirement Services,
Inc. , Delaware Capital Management, Inc., Delvoy, Inc.
and Delaware Management Business Trust
Executive Vice President, Secretary, General Counsel 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 seven
investment companies and 27 other investment companies in the
Delaware Investments family and Founders Holdings, Inc.
Senior Vice President/Corporate Controller and Treasurer of Delaware
Management Holdings, Inc., DMH Corp., Delaware Management
Company, Inc., Delaware Management Company (a series of
Delaware Management Business Trust), Delaware Distributors,
L.P., Delaware Distributors, Inc., Delaware Service Company,
Inc., Delaware Capital Management, Inc. , Delaware
International Holdings Ltd., Delvoy, Inc. and Delaware
Management Business Trust
Chief Financial Officer/Treasurer of Delaware Investment &
Retirement 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.
<PAGE>
Michael P. Bishof (35)
Senior Vice President/Treasurer of each of the seven investment
companies and 27 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.
John B. Fields (52)
Vice President/Senior Portfolio Manager of ten investment companies
in the Delaware Investments family, Delaware Capital
Management, Inc., Delaware Management Company, Inc, Delaware
Management Company (a series of Delaware Management Business
Trust) and Delaware Investment Advisers (a series of Delaware
Management Business Trust)
Trustee of Delaware Management Business Trust
Before joining Delaware Investments in 1992, Mr. Fields served as a
director of domestic equity risk management for DuPont,
Wilmington, DE.
Patrick P. Coyne (34)
Vice President/Senior Portfolio Manager of each of the seven
investment companies, 12 other investment companies in the
Delaware Investments family, Delaware Capital Management, Inc.
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 , each of the seven
investment companies, 12 other investment companies in the
Delaware Investments family, Delaware Capital Management, Inc.
and Delaware Investment Advisers (a series of Delaware
Management Business Trust)
Before joining Delaware Investments in 1997, Mr. Conery was an
investment officer with Travelers Insurance from 1995 through
1996 and a research analyst with CS First Boston from 1992 to
1995.
Elizabeth H. Howell (36)
Vice President/Senior Portfolio Manager of each of the seven
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.
<PAGE>
Andrew M. McCullagh, Jr. (49)
Vice President/Senior Portfolio Manager of each of the seven
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 Asset Management LLC.
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 year ended December 31, 1997 and an
estimate of annual benefits to be received upon retirement under the Delaware
Investments Retirement Plan for Directors or Trustees as of December 31, 1997.
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 Voyageur Investment
Tax Free Insured Invest- Inter. Tax Invest- Mutual Mutual Companies
Funds Funds ment Free Funds ment Funds Funds II of Delaware
Director/Trustee Inc.(1) Inc.(1) Trust(1) Inc.(1) Trust II(1) Inc.(1) Inc.(1) Investments(2)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
W. Thacher Longstreth $1,218 $1,271 $1,056 $658 $577 $879 $1,076 $59,827
Ann R. Leven $1,312 $1,373 $1,126 $670 $578 $924 $1,150 $65,160
Walter P. Babich $1,295 $1,355 $1,113 $668 $578 $916 $1,137 $64,160
Anthony D. Knerr $1,295 $1,355 $1,113 $668 $578 $916 $1,137 $64,160
Charles E. Peck $1,122 $1,176 $960 $562 $482 $784 $981 $56,682
Thomas F. Madison(3) $1,218 $1,271 $1,056 $658 $577 $879 $1,076 $43,537
</TABLE>
<TABLE>
<CAPTION>
Pension or Retirement Benefits Accrued
as Part of each Investment Company's Expenses
Voyageur Voyageur Voyageur Voyageur Voyageur Voyageur Voyageur
Tax Free Insured Invest- Inter. Tax Invest- Mutual Mutual
Funds Funds ment Free Funds ment Funds Funds II
Director Inc. Inc. Trust Inc. Trust II Inc. Inc.
<S> <C> <C> <C> <C> <C> <C> <C>
W. Thacher Longstreth none none none none none none none
Ann R. Leven none none none none none none none
Walter P. Babich none none none none none none none
Anthony D. Knerr none none none none none none none
Charles E. Peck none none none none none none none
Thomas F. Madison none 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 currently receives a total annual retainer fee of
$38,500 for serving as a director or trustee for all funds in Delaware
Investments, plus $3,145 for each Board Meeting attended. Ann R. Leven,
Walter P. Babich, and Anthony D. Knerr 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 funds,
with the exception of the chairperson, who receives $6,000.
<PAGE>
(3) Thomas F. Madison also received $15,000 for his service on the previous
Boards of Directors or Trustees during the last fiscal year.
<TABLE>
<CAPTION>
Estimated Annual Benefits Upon Retirement*
Voyageur Voyageur Voyageur Voyageur Voyageur Voyageur Voyageur
Tax Free Insured Invest- Inter. Tax Invest- Mutual Mutual
Funds Funds ment Free Funds ment Funds Funds II
Director Inc. Inc. Trust Inc. Trust II Inc. Inc.
<S> <C> 8 <C> <C> <C> <C> <C> <C>
W. Thacher Longstreth $38,500 $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 $38,500
Walter P. Babich $38,500 $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 $38,500
Charles E. Peck $38,500 $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 $38,500
</TABLE>
* Under the terms of the Delaware Investments Retirement Plan for Directors
or Trustees, each disinterested director who, at the time of his or her
retirement from the Board, has attained the age of 70 and served on the
Board for at least five continuous years, is entitled to receive payments
from each fund in the Delaware Investments family for a period equal to the
lesser of the number of years that such person served as a director or the
remainder of such person's life. The amount of such payments will be equal,
on an annual basis, to the amount of the annual retainer that is paid to
directors or trustees of each fund at the time of such person's retirement.
If an eligible director retired as of December 31, 1997, he or she would be
entitled to annual payments totaling $38,500, in the aggregate, from all of
the funds in the Delaware Investments family, based on the number of funds
in the Delaware Investments family as of that date.
<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 in the Delaware
Investments family. Exchange instructions must be signed by the record owner(s)
exactly as the shares are registered.
An exchange constitutes, for tax purposes, the sale of one fund and the
purchase of another. The sale may involve either a capital gain or loss to the
shareholder for federal income tax purposes.
In addition, investment advisers and dealers may make exchanges between
funds in the Delaware Investments family on behalf of their clients by
telephone or other expedited means. This service may be discontinued or revised
at any time by the Transfer Agent. Such exchange requests may be rejected if it
is determined that a particular request or the total requests at any time could
have an adverse effect on any of the Funds. Requests for expedited exchanges
may be submitted with a properly completed exchange authorization form, as
described above.
Telephone Exchange Privilege
Shareholders owning shares for which certificates have not been issued
or their investment dealers of record may exchange shares by telephone for
shares in other mutual funds in the Delaware Investments 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.
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.
<PAGE>
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, or (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.
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.
<PAGE>
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.
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. U.S. Government Money Fund seeks maximum
current income with preservation of principal and maintenance of liquidity by
investing only in short-term securities issued or guaranteed as to principal and
interest by the U.S. government, its agencies or instrumentalities, and
repurchase agreements collateralized by such securities, while maintaining a
stable net asset value.
Delaware Cash Reserve seeks the highest level of income consistent with
the preservation of capital and liquidity through investments in short-term
money market instruments, while maintaining a stable net asset value.
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 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.
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.
<PAGE>
International Equity Fund seeks to achieve long-term growth without
undue risk to principal by investing primarily in international securities that
provide the potential for capital appreciation and income. Global Bond Fund
seeks to achieve current income consistent with the preservation of principal by
investing primarily in global fixed-income securities that may also provide the
potential for capital appreciation. Global Assets Fund seeks to achieve
long-term total return by investing in global securities which will provide
higher current income than a portfolio comprised exclusively of equity
securities, along with the potential for capital growth. Emerging Markets Fund
seeks long-term capital appreciation by investing primarily in equity securities
of issuers located or operating in emerging countries.
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 15 funds available exclusively
as funding vehicles for certain insurance company separate accounts. Decatur
Total Return Series seeks the highest possible total rate of return by selecting
issues that exhibit the potential for capital appreciation while providing
higher than average dividend income. Delchester Series seeks as high a current
income as possible by investing in rated and unrated corporate bonds, U.S.
government securities and commercial paper. Capital Reserves Series seeks a high
stable level of current income while minimizing fluctuations in principal by
investing in a diversified portfolio of short- and intermediate-term securities.
Cash Reserve Series seeks the highest level of income consistent with
preservation of capital and liquidity through investments in short-term money
market instruments. DelCap Series seeks long-term capital appreciation by
investing its assets in a diversified portfolio of securities exhibiting the
potential for significant growth. Delaware Series seeks a balance of capital
appreciation, income and preservation of capital. It uses a dividend-oriented
valuation strategy to select securities issued by established companies that are
believed to demonstrate potential for income and capital growth. International
Equity Series seeks long-term growth without undue risk to principal by
investing primarily in equity securities of foreign issuers that provide the
potential for capital appreciation and income. Value Series seeks capital
appreciation by investing in small- to mid-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. Quantum 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.
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
<PAGE>
obligations issued or unconditionally guaranteed by the full faith and credit of
the U.S. Treasury, and repurchase agreements fully secured by such obligations.
Delaware-Voyageur Minnesota High Yield Municipal Bond Fund seeks to
provide a high level of current income exempt from federal income tax and the
Minnesota personal income tax primarily through investment in medium and lower
grade municipal obligations. National High Yield Municipal Fund seeks to provide
a high level of income exempt from federal income tax, primarily through
investment in medium and lower grade municipal obligations.
Aggressive Growth Fund seeks long-term capital appreciation, which the
Fund attempts to achieve by investing primarily in equity securities believed to
have the potential for high earnings growth. Although the Fund, in seeking its
objective, may receive current income from dividends and interest, income is
only an incidental consideration in the selection of the Fund's investments.
Growth Stock Fund has an objective of long-term capital appreciation. The Fund
seeks to achieve its objective from equity securities diversified among
individual companies and industries. Tax-Efficient Equity Fund seeks to obtain
for taxable investors a high total return on an after-tax basis. The Fund will
attempt to achieve this objective by seeking to provide a high long-term
after-tax total return through managing its portfolio in a manner that will
defer the realization of accrued capital gains and minimize dividend income.
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).
<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. 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, or its affiliate Delaware 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 15 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 Delaware Investments, 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 Distributors
("VFD") acted as national distributor(s) for each Fund. The Distributor and/or
VFD, whichever the case may be, received net commissions from each Fund, after
reallowances to dealers, as follows:
<PAGE>
<TABLE>
<CAPTION>
Underwriting Commissions
Total Underwriting Commissions Retained by Underwriter
Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal
year ended year ended year ended year ended year ended year ended
12/31/97 12/31/96 12/31/95 12/31/97 12/31/96 12/31/95
<S> <C> <C> <C> <C> <C> <C>
Tax-Free Arizona Insured Fund $162,464 $339,087 $804,383 $22,139 $40,338 $103,168
Tax-Free Arizona Fund 47,805 104,978 20,987 6,805 13,217 2,901
Tax-Free California Insured Fund 30,039 107,617 231,679 4,208 14,226 34,177
Tax-Free California Fund 16,692 11,751 19,639 2,201 1,641 2,554
Tax-Free Colorado Fund 453,936 525,069 721,452 79,332 68,666 117,743
Tax-Free Florida Intermediate Fund 7,005 6,853 3,866 988 1,233 741
Tax-Free Florida Insured Fund 93,605 174,064 357,154 12,762 20,261 48,112
Tax-Free Florida Fund 26,437 41,214 42,789 3,569 5,271 6,121
Tax-Free Idaho Fund 158,771 313,894 338,974 23,159 32,689 62,968
Tax-Free Iowa Fund 95,358 167,735 223,046 12,752 26,641 40,943
Tax-Free Kansas Fund 32,401 55,360 104,287 4,550 7,686 14,394
Tax-Free Minnesota Intermediate Fund 58,451 71,429 47,098 14,687 5,306 8,399
Underwriting Commissions
Total Underwriting Commissions Retained by Underwriter
------------------------------ -----------------------
Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal
year ended year ended year ended year ended year ended year ended
12/31/97 12/31/96 12/31/95 12/31/97 12/31/96 12/31/95
Tax-Free Minnesota Fund $428,428 $650,734 $812,687 $74,750 $69,682 $114,391
Minnesota Insured Fund 275,689 454,762 658,955 41,538 33,673 86,858
Tax-Free Missouri Insured Fund 59,498 211,558 316,387 8,119 29,607 53,274
Tax-Free New Mexico Fund 46,722 45,937 77,084 4,168 6,724 15,700
Tax-Free New York Fund 11,429 465 N/A 1,603 0 N/A
Tax-Free North Dakota Fund 9,217 38,688 65,566 1,251 5,425 10,960
Tax-Free Oregon Insured Fund 71,994 149,165 265,488 9,496 20,166 42,930
Tax-Free Utah Fund 0 4,575 10,693 0 800 1,782
Tax-Free Washington Insured Fund 9,330 17,167 26,941 1,272 2,196 3,915
Tax-Free Wisconsin Fund 60,987 107,671 139,886 8,433 11,170 25,338
</TABLE>
<PAGE>
The Distributor and/or VFD, whichever the case may be, received in the
aggregate Limited CDSC payments with respect to Class A Shares of each Fund as
follows:
<TABLE>
<CAPTION>
Limited CDSC Payments
Class A Shares
--------------
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
Fund 12/31/97 12/31/96 12/31/95
- ---- ----------------- ------------------ ------------------
<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- 200
Tax-Free California Fund -0- -0- -0-
Tax-Free Colorado Fund -0- -0- -0-
Tax-Free Florida Intermediate Fund -0- -0- -0-
Tax-Free Florida Insured Fund 2,443 -0- -0-
Tax-Free Florida Fund 600 -0- -0-
Tax-Free Idaho Fund 12,500 -0- -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 5,000 -0- -0-
Minnesota Insured 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>
<PAGE>
The Distributor and/or VFD, whichever the case may be, received in the
aggregate CDSC payments with respect to Class B Shares of each Fund as follows:
<TABLE>
<CAPTION>
CDSC Payments
Class B Shares
--------------
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
Fund 12/31/97 12/31/96 12/31/95
- ---- ----------------- ------------------ -----------------
<S> <C> <C> <C>
Tax-Free Arizona Insured Fund $27,983 $3,776 $206
Tax-Free Arizona Fund 20,921 5,674 -0-
Tax-Free California Insured Fund 17,873 4,911 4,513
Tax-Free California Fund 2,542 -0- -0-
Tax-Free Colorado Fund 15,156 12,013 1,904
Tax-Free Florida Intermediate Fund 1,478 -0- -0-
Tax-Free Florida Insured Fund 6,964 6,555 1,166
Tax-Free Florida Fund 7,251 199 -0-
Tax-Free Idaho Fund 14,466 47 -0-
Tax-Free Iowa Fund 3,628 -0- -0-
Tax-Free Kansas Fund 4,170 1,820 -0-
Tax-Free Minnesota Intermediate Fund 1,116 -0- -0-
Tax-Free Minnesota Fund 13,282 11,641 887
Minnesota Insured Fund 5,440 3,613 -0-
Tax-Free Missouri Insured Fund 35,076 16,189 9,542
Tax-Free New Mexico Fund 3,500 4,739 3,200
Tax-Free New York Fund -0- 2,119 -0-
Tax-Free North Dakota Fund 1,850 1,398 1,995
Tax-Free Oregon Insured Fund 1,587 12,186 3,587
Tax-Free Utah Fund 600 -0- -0-
Tax-Free Washington Insured Fund 1,372 317 -0-
Tax-Free Wisconsin Fund 4 -0- -0-
</TABLE>
<PAGE>
The Distributor and/or VFD, whichever the case may be, received in the
aggregate CDSC payments with respect to Class C Shares of each Fund as follows:
<TABLE>
<CAPTION>
CDSC Payments
Class C Shares
--------------
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
Fund 12/31/97 12/31/96 12/31/95
- ---- ------------------ ------------------ -----------------
<S> <C> <C> <C>
Tax-Free Arizona Insured Fund $-0- $-0- $160
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- 384 151
Tax-Free Florida Intermediate Fund -0- -0- -0-
Tax-Free Florida Insured Fund 217 -0- -0-
Tax-Free Florida Fund -0- -0- -0-
Tax-Free Idaho Fund 6 752 212
Tax-Free Iowa Fund -0- -0- -0-
Tax-Free Kansas Fund 433 -0- -0-
Tax-Free Minnesota Intermediate Fund 26 421 347
Tax-Free Minnesota Fund 753 16 980
Minnesota Insured Fund 497 411 737
Tax-Free Missouri Insured Fund -0- -0- -0-
Tax-Free New Mexico Fund 119 -0- -0-
Tax-Free New York Fund -0- -0- -0-
Tax-Free North Dakota Fund -0- -0- -0-
Tax-Free Oregon Insured Fund 182 232 -0-
Tax-Free Utah Fund -0- -0- -0-
Tax-Free Washington Insured Fund -0- -0- -0-
Tax-Free Wisconsin Fund 30 -0- -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 in the Delaware Investments family. The Transfer Agent is
paid a fee by each Fund for providing these services consisting of an annual per
account charge of $11.00 plus transaction charges for particular services
according to a schedule. Compensation is fixed each year and approved by the
Board of Directors 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 subject to a minimum fee calculated by
determining the total number of investment portfolios and associated classes.
<PAGE>
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
<PAGE>
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 Investment Trust and Voyageur Investment Trust II each 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, 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.
<PAGE>
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 Fund 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 Limited Term Tax Free Fund Delaware-Voyageur Tax-Free Florida Intermediate 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 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>
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.
<PAGE>
FINANCIAL STATEMENTS
Effective May 1, 1997, Ernst & Young 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,
Statement of Assets and Liabilities, Statement of Operations, Statement of
Changes in Net Assets, Financial Highlights and Notes to Financial Statements,
as well as the reports of Ernst & Young LLP for the fiscal year ended December
31, 1997 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 listed above 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 of the Funds for
fiscal years ending on or before December 31, 1996.
<PAGE>
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
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revenue jumped by 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 State of Arizona will be
affected by financial or other conditions of the State or of any entity located
within
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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.
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%.
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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 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.
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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 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.
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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 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.
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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
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
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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 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.
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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 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.
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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.
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
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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. 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
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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.
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,
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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.
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.
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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.
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
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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.
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.
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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.
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%.
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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 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
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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.
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
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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.
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
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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.
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
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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 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
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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 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
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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 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
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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.
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
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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 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.
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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 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.
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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.
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 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
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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.
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 the State dipped below the
national rate in the second half of 1981 and remained lower until 1991; since
then, it has been higher.
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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.
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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, 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 factors, actual results could
differ materially and adversely from the projections
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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<0- 32>31, 1997, $5.239
billion in bonds remained outstanding of the LGAC.
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,
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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
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.
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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 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
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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 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
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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. 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.
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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 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.
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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.
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
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$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 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
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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<0- 32>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 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
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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.
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.
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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.
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
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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.
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.
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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 $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
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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. 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
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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 stmulate 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. 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.
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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 Rco has also sought opportunities to realize debt
service savings by refunding outstanding debt with obligations bearing lower
interest rates.
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 imporant 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.
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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.
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
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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.
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.
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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 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
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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.
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
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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.
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
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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 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.
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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 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
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<PAGE>
issue up to $1,298.0 million 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 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.
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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.
Debt Administration and Limitation. At the inception of statehood,
constitutional limitations severely
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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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Delaware Investments includes funds with a wide range of investment
objectives. Stock funds, income funds, national and state-specific tax-exempt
funds, money market funds, global and international funds and closed-end funds
give investors the ability to create a portfolio that fits their personal
financial goals. For more information, contact your financial adviser or call
Delaware Investments at 800-523-4640.
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 55479
- -------------------------------------------------------------------------------
<PAGE>
- ----------------------------------------------
DELAWARE-VOYAGEUR MINNESOTA
HIGH YIELD MUNICIPAL BOND FUND
- ----------------------------------------------
A CLASS
B CLASS
C CLASS
- ----------------------------------------------
PROSPECTUS
- ----------------------------------------------
APRIL 30, 1998
DELAWARE
INVESTMENTS
-----------
<PAGE>
(DVMF-R)
PROSPECTUS
DELAWARE-VOYAGEUR MINNESOTA HIGH YIELD
MUNICIPAL BOND FUND APRIL 30, 1998
A CLASS SHARES
B CLASS SHARES
C CLASS SHARES
________________________________________
1818 Market Street, Philadelphia, PA 19103
For Prospectus and Performance:
Nationwide 800-523-4640
Information on Existing Accounts:
(SHAREHOLDERS ONLY)
Nationwide 800-523-1918
Dealer Services:
(BROKER/DEALERS ONLY)
Nationwide 800-362-7500
Representatives of Financial Institutions:
Nationwide 800-659-2265
This Prospectus describes the shares of the Delaware-Voyageur Minnesota
High Yield Municipal Bond Fund series (the "Fund") (formerly known as Voyageur
Minnesota High Yield Municipal Bond Fund) of Voyageur Mutual Funds, Inc.
("Mutual Funds, Inc."), a professionally-managed mutual fund of the series type.
The Fund offers Class A Shares, Class B Shares and Class C Shares. Each
class is referred to individually as a "Class" and collectively as the
"Classes."
The investment objective of the Fund is to seek a high 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 the
Fund is expected to be approximately 15 to 25 years. There is no assurance that
the Fund will achieve its investment objective.
The Fund may invest in medium- and lower-grade Municipal Obligations
rated between BBB and B-(inclusive) by Standard & Poor's Ratings Group ("S&P")
or Fitch IBCA, Inc. (formerly Fitch Investors Service, L.P.) ("Fitch"), Baa
and B3 (inclusive) by Moody's Investors Service, Inc. ("Moody's"), comparably
rated short-term Municipal Obligations and non-rated Municipal Obligations
determined by the Fund's investment adviser to be of comparable quality. The
Fund may also invest in higher rated securities. Investment in medium- and
lower-grade Municipal Obligations involves special risks as compared with
investment in higher-grade municipal securities, including potentially greater
sensitivity to a general economic downturn or to a significant increase in
interest rates, greater market price volatility and less liquid secondary market
trading. See Risk Considerations under Investment Objective and Policies.
Investment in the Fund may not be appropriate for all investors.
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<PAGE>
(DVMF-R)
This Prospectus sets forth certain information that you should read and
consider before you invest. Please retain it for future reference. The
Statement of Additional Information ("Part B" of Mutual Funds, Inc.'s
registration statement) dated April 30, 1998, as it may be amended from time to
time, contains additional information about the Fund 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
telephone numbers. The Fund's financial statements appear in its Annual
Report, which will accompany any response to requests for Part B. The SEC also
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 Objective and Policies Calculation of Offering Price and
Suitability Net Asset Value Per Share
Investment Strategy Management of the Fund
Risk Considerations
The Delaware Difference Other Investment Policies and
Plans and Services Risk Considerations
Classes of Shares Appendix A - Ratings
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 FUND 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 FUND ARE NOT BANK OR CREDIT UNION DEPOSITS.
-3-
<PAGE>
(DVMF-R)
SYNOPSIS
Investment Objective
The investment objective of the Fund is to seek a high 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 the
Fund is expected to be approximately 15-25 years.
Risk Factors and Special Considerations
The Fund is a nondiversified investment company under the Investment
Company Act of 1940 Act (the "1940 Act") and may be subject to greater risks
than if the Fund were diversified. See Diversification and State Considerations
under Investment Objective and Policies. The Fund invests primarily in high
yield securities, commonly known as "junk bonds," and greater risks may be
involved with an investment in the Fund than an investment in a mutual fund
comprised primarily of investment grade bonds. See Risk Considerations under
Investment Objective and Policies.
Investment Manager, Distributor and Transfer Agent
Delaware Management Company (the "Manager") furnishes investment
management services to the Fund, subject to the supervision and direction of
Mutual Funds, Inc.'s Board of Directors. The Manager also provides investment
management services to certain other funds available from the Delaware
Investments family. Delaware Distributors, L.P. (the "Distributor") is the
national distributor for the Fund and for all of the other mutual funds
available from the Delaware Investments family. Delaware Service Company, Inc.
(the "Transfer Agent") is the shareholder servicing, dividend disbursing,
accounting services and transfer agent for the Fund and for all of the other
mutual funds available from the Delaware Investments family.
See Summary of Expenses and Management of the Fund for further
information regarding the Manager and the fees payable under the Fund's
Investment Management Agreement.
Sales Charges
The price of Class A Shares of the Fund includes a maximum front-end
sales charge of 3.75% 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
(subject to a contingent deferred sales charge ("Limited CDSC") of 1% if shares
are redeemed within 12 months of purchase and if a dealer commission was paid in
connection with such purchase). Class A Shares are subject
to annual 12b-1 Plan expenses for the life of the investment.
The price of Class B Shares is equal to the net asset value per share.
Class B Shares are subject to a CDSC of: (i) 4% if shares are redeemed within
two years of purchase; (ii) 3% if shares are redeemed during the third or fourth
year following purchase; (iii) 2% if shares are redeemed during the fifth year
following purchase; (iv) 1% if shares are redeemed during the sixth year
following purchase; and (v) 0% thereafter. Class B Shares are subject to annual
12b-1 Plan expenses for approximately eight years after purchase.
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<PAGE>
(DVMF-R)
The price of Class C Shares is equal to the net asset value per share.
Class C Shares are subject to a CDSC of 1% if shares are redeemed within 12
months of purchase. Class C Shares are subject to annual 12b-1 Plan expenses for
the life of the investment.
See Classes of Shares, and Distribution (12b-1) and Service under
Management of the Fund.
Purchase Amounts
Generally, the minimum initial investment in any Class is $1,000.
Subsequent investments must generally be at least $100.
Each purchase of Class B Shares is subject to a maximum purchase
limitation of $250,000. For Class C Shares, each purchase must be in an amount
that is less than $1,000,000. An investor may exceed these maximum purchase
limitations for Class B Shares and Class C Shares by making cumulative purchases
over a period of time. An investor should keep in mind, however, that reduced
front-end sales charges apply to investments of $100,000 or more in Class A
Shares, and 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 the Fund may be redeemed or exchanged at the net
asset value calculated after receipt of the redemption or exchange request.
Neither the Fund nor the Distributor assesses a charge for redemptions or
exchanges of Class A Shares, except for certain redemptions of shares purchased
at net asset value, which may be subject to a CDSC if a dealer's commission was
paid in connection with such purchases. See Front-End Sales Charge Alternative -
Class A Shares under Classes of Shares.
Class B Shares and Class C Shares may be redeemed or exchanged at the
net asset value calculated after receipt of the redemption or exchange request
subject, in the case of redemptions, to any applicable CDSC. Neither the Fund
nor the Distributor assesses any charges other than the CDSC 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
Mutual Funds, Inc. is an open-end management investment company. The
Fund's portfolio of assets is nondiversified as defined by the 1940 Act. Mutual
Funds, Inc. was organized as a Minnesota corporation in April 1993. The Fund is
one of several series of Mutual Funds, Inc. See Shares under Management of the
Fund.
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<PAGE>
(DVMF-R)
SUMMARY OF EXPENSES
A general comparison of the sales arrangements and other expenses
applicable to Class A Shares, Class B Shares and Class C Shares follows:
<TABLE>
<CAPTION>
Class A Class B Class C
Shareholder Transaction Expenses Shares Shares Shares
- -------------------------------- --------- ---------- ------------
<S> <C> <C> <C>
Maximum Sales Charge Imposed on
Purchases (as a percentage of
offering price)................................. 3.75% None None
Maximum Sales Charge Imposed on
Reinvested Dividends (as a percentage of
offering price)................................. None None None
Maximum Contingent Deferred Sales Charge
(as a percentage of original purchase
price or redemption proceeds,
whichever is lower) (1)......................... None 4.00% 1.00%
--- ---- ----- -----
Redemption Fees (2).............................. None None None
</TABLE>
(1) Class A purchases of $1,000,000 or more may be made at net asset value.
However, if in connection with any such purchase a dealer commission is
paid to the financial adviser through whom such purchase is effected, a
CDSC of 1% will be imposed on certain redemptions within 12 months of
purchase. Additional Class A purchase options involving the imposition of a
CDSC may be permitted as described in the Prospectus from time to time.
Class B Shares of the 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 C Shares of the Fund are subject to a CDSC of 1% if shares are
redeemed within 12 months of purchase. See Contingent Deferred Sales Charge
for Certain Redemptions of Class A Shares Purchased at Net Asset Value
under Redemption and Exchange; and Deferred Sales Charge Alternative -
Class B Shares, Level Sales Charge Alternative--Class C Shares and
Contingent Deferred Sales Charge - Class B Shares and Class C Shares under
Classes of Shares.
(2) CoreStates Bank, N.A. currently charges $7.50 per redemption for
redemptions payable by wire.
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<PAGE>
Annual Operating Expenses
(as a percentage of
average daily net assets Class A Class B Class C
after fee waivers and payments) Shares Shares Shares
------ ------ ------
Management Fees
(after voluntary waivers)(4)............ 0.00% 0.00% 0.00%
----- ----- -----
12b-1 Plan Expenses
(including service fees) (3)............ 0.25% 1.00% 1.00%
----- ----- -----
Other Operating Expenses
(after any voluntary payments) (4)...... 0.25% 0.25% 0.25%
----- ----- -----
Total Operating Expenses
(after voluntary waivers
and voluntary payments) (4)............ 0.50% 1.25% 1.25%
===== ===== =====
(3) Class A Shares, Class B Shares and Class C Shares are subject to separate
12b-1 Plans. Long-term shareholders may pay more than the economic
equivalent of the maximum front-end sales charges permitted by rules of the
National Association of Securities Dealers, Inc. (the "NASD"). See
Distribution (12b-1) and Service under Management of the Fund.
(4) The Manager has elected voluntarily to waive that portion, if any, of the
annual management fees payable by the Fund and to pay certain expenses of
the Fund to the extent necessary to ensure that "Total Operating Expenses"
do not exceed 0.25% (exclusive of 12b-1 Plan expenses, taxes, interest,
brokerage commissions and extraordinary expenses) through December 31,
1998. The Annual Operating expenses for the Fund have been restated to
reflect this voluntary waiver and payment. If voluntary waivers and
payments were not in effect, it is estimated that "Total Operating
Expenses", as a percentage of average daily net assets, would be 1.39%,
2.14% and 2.14%, respectively, for Class A Shares, Class B Shares and Class
C Shares, reflecting management fees of 0.65%. See Expenses under
Management of the Fund for a discussion of the waivers that will remain in
place through April 30, 1999.
Investors utilizing the Asset Planner asset allocation service also
typically incur an annual maintenance fee of $35 per strategy. However,
effective November 1, 1996, the annual maintenance fee is waived until further
notice. See Asset Planner in Part B.
-7-
<PAGE>
The following example illustrates the expenses that an investor would
pay on a $1,000 investment over various time periods, assuming (1) a 5% annual
rate of return, (2) redemption and no redemption at the end of each time period
and (3) for Class B Shares and Class C Shares, payment of a CDSC at the time of
redemption, if applicable. The following example assumes the voluntary waiver of
the management fee 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>
Class A Shares $42(1) $63 $84 $98 $42 $53 $64 $98
Class B Shares 53 70 89 130(2) 13 40 69 130(2)
Class C Shares 23 40 69 151 13 40 69 151
</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 will
be automatically converted into Class A Shares. 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 year eight and
the expenses of Class A Shares for years nine and ten. See Automatic
Conversion of Class B Shares under Class of Shares for a description of the
automatic conversion feature.
The example should not be considered a representation of past or future
expenses. Actual expenses may be greater or less than those shown.
The purpose of the above tables is to assist the investor in
understanding the various costs and expenses they will bear directly or
indirectly in owning shares of each Fund.
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<PAGE>
(DVMF-R)
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The following financial highlights are derived from the financial
statements of Voyageur Mutual Funds, Inc. - Delaware-Voyageur Minnesota High
Yield Municipal Bond Fund and have been audited by Ernst & Young LLP,
independent auditors for the year ended December 31, 1997 and by the Fund's
previous independent auditors for the prior fiscal periods. The data for the
most recent fiscal year should be read in conjunction with the financial
statements, related notes, and the report of Ernst & Young LLP, all of which
are incorporated by reference into Part B. Further information about the Fund's
performance is contained in its Annual Report to shareholders. A copy of the
Fund's Annual Report (including the report of Ernst & Young LLP) may be
obtained from Mutual Funds, Inc. upon request at no charge.
- --------------------------------------------------------------------------------
-9-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Class A Shares Class B Shares Class C Shares
Period Period Period
Year 6/4/96(1) Year 6/12/96(1) Year 6/7/96(1)
Ended through Ended through Ended through
12/31/97(2) 12/31/96 12/31/97(2) 12/31/96 12/31/97 (212/31/96
Net Asset Value, Beginning of Period................. $10.180 $10.000 $10.190 $9.780 $10.180 $9.990
- ------------------------------------ ------- ------- ------- ------ ------- ------
Income From Investment Operations
Net Investment Income................................ 0.643 0.350 0.557 0.290 0.572 0.300
------- ------- ------- ------- ------- -------
Net Realized and Unrealized Gain from Investments.. 0.463 0.180 0.470 0.410 0.455 0.190
------- ------- ------- ------- ------- -------
Total From Investment Operations............ 1.106 0.530 1.027 0.700 1.027 0.490
------- ------- ------- ------- ------- -------
Less Dividends
--------------
Dividends From Net Investment Income................. (0.636) (0.350) (0.557) (0.290) (0.557) (0.300)
------- ------- ------- ------- ------- -------
Distributions From Net Realized Gain on Investments.. none none none none none none
------- ------- ------- ------- ------- -------
Total Dividends and Distributions............. (0.636) (0.350) (0.557) (0.290) (0.557) (0.300)
------- ------- ------- ------- ------- -------
Net Asset Value, End of Period....................... $10.650 $10.180 $10.660 $10.190 $10.650 $10.180
------- ------- ------- ------- ------- -------
Total Return(3)...................................... 11.26% 5.40% 10.41% 7.29% 10.41% 5.02%
------- ------- ------- ------- ------- -------
Ratios and Supplemental Data
- ----------------------------
Net Assets, End of Period (000's omitted)............ $19,017 $6,068 $8,201 $2,738 $3,178 $900
------- ------- ------ ------ ------ -------
Ratio of Expenses to Average Net Assets.............. 0.09% 0.24%(4) 0.85% 0.95%(4) 0.83% 0.99%(4)
------- ------- ------- ------- ------- -------
Ratio of Expenses to Average Net Assets
Prior to Expense Limitation................... 1.24% 1.25%(4) 2.00% 2.00%(4) 1.98% 2.00%(4)
------- ------- ------- ------- ------- -------
Ratio of Net Investment Income to Average Net Assets. 6.16% 5.78%(4) 5.40% 5.14%(4) 5.42% 4.90%(4)
------- ------- ------- ------- ------- -------
Ratio of Net Investment Income to Average Net Assets
Prior to Expense Limitation................... 5.01% 4.77%(4) 4.25% 4.09%(4) 4.27% 3.89%(4)
------- ------- ------- ------- ------- -------
Portfolio Turnover Rate ............................. 23% 15% 23% 15% 23% 157%
------- ------- ------- ------- ------- -------
</TABLE>
(1) Commencement of operations.
(2) Effective May 1, 1997, the Manager replaced Voyageur
Fund Managers, Inc. as the Fund's investment manager.
(3) Total investment return is based on the change in net asset value on a
share during the period and assumes reinvestment of distributions at net
asset value and does not reflect the impact of a sales charge. Total
return for periods less than 12 months have not been annualized.
(4) Annualized.
-10-
<PAGE>
(DVMF-R)
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to seek a high 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 the
Fund is expected to be approximately 15-25 years.
SUITABILITY
The Fund may be suitable for investors interested in high current income
flow exempt from federal income tax. The net asset value of each Class may
fluctuate in response to the condition of individual municipalities and general
market and economic conditions and, as a result, the Fund is not appropriate for
a short-term investor.
The types of securities in which the Fund invests are subject to price
fluctuations particularly due to changes in interest rates and economic
conditions. Investors should consider asset value fluctuation, as well as yield,
in making an investment decision. While investments in unrated, lower-rated and
restricted securities have the potential for higher yields, they are more
speculative and increase the credit risk of the Fund's portfolio. Changes in the
market value of the portfolio securities will not affect interest income from
such securities, but will be reflected in the Fund's net asset value. Investors
should be willing to accept the risks, including the risk of net asset value
fluctuations, associated with investing in these securities.
* * *
Ownership of shares of the Fund can reduce the bookkeeping and
administrative inconvenience that is typically connected with direct purchases
of the type of securities in which the Fund invests.
An investor should not consider a purchase of shares of the Fund 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 Fund will attempt to invest 100% (and as a matter of fundamental
policy during normal circumstances will invest at least 80%) of the value of its
net assets in Municipal Obligations, the interest on which is exempt from
regular federal income tax and from Minnesota personal income tax. The Fund may
invest without limit in securities that generate interest that is an item of tax
preference for purposes of federal and state alternative minimum tax ("AMT").
In normal circumstances the weighted average maturity of the investment
portfolio of the Fund is expected to be approximately 15 to 25 years. However,
if the Manager determines that market conditions warrant a shorter average
maturity, the Fund's investments will be adjusted accordingly. During times of
adverse market conditions when a defensive investment posture is warranted, the
Fund may temporarily select investments without regard to the foregoing
policies. The Fund will invest at least 65% of its total assets, except under
abnormal market or economic situations, in medium- and lower-grade Municipal
Obligations rated, at the time of investment, between BBB and B- (inclusive) by
S&P, Baa and B3 (inclusive) by Moody's , and BBB and B- (inclusive) by Fitch,
and Municipal Obligations determined by the Fund's investment adviser to be
of comparable quality.
Medium-grade Municipal Obligations are rated BBB by S&P or Fitch, Baa by
Moody's or determined by the Manager to be of comparable quality. Municipal
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
-11-
<PAGE>
(DVMF-R)
interest and repay principal as compared with higher rated Tax Exempt
Obligations. Municipal 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. In
Moody's view, such securities lack outstanding investment characteristics and
have speculative characteristics as well.
The Fund may invest in lower-grade Municipal Obligations rated, at the
time of investment, no lower than B- by S&P or Fitch or B3 by Moody's, and in
municipal securities determined by the Fund's investment adviser to be of
comparable quality. Municipal Obligations rated B by S&P or Fitch generally are
regarded by S&P or Fitch, on balance, as predominantly speculative with respect
to capacity to pay interest or repay principal in accordance with the terms of
the obligations. While such securities will likely have some quality and
protective characteristics, in S&P's or Fitch's view these are outweighed by
large uncertainties or major risk exposure to adverse conditions. Securities
rated B by Moody's are viewed by Moody's as generally lacking characteristics of
the desirable investment. In Moody's view, assurance of interest and principal
payments or of maintenance of other terms of the contract over any long period
of time may be small.
The Fund will not make initial investments in Municipal Obligations
rated, at the time of investment, below B- by S&P or Fitch or below B3 by
Moody's, or in Municipal Obligations determined by the Fund's investment adviser
to be of comparable quality. The Fund may retain Municipal Obligations which are
downgraded after investment. There is no minimum rating with respect to
securities that the Fund may hold if downgraded after investment. See Appendix A
to this Prospectus for a description of Municipal Obligations ratings.
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 Municipal Obligations make pursuing the Fund's basic investment
strategy of investing primarily in such Municipal Obligations inconsistent with
the best interests of shareholders. At such times, the Fund may invest all or a
portion of its assets in higher grade Municipal Obligations and in Municipal
Obligations determined by the Fund's investment adviser to be of comparable
quality. Although such higher grade Municipal Obligations generally entail less
credit risk, such higher grade Municipal Obligations may have a lower yield than
medium and lower grade Municipal Obligations, and investment in such higher
grade Municipal Obligations may result in a lower yield to Fund shareholders.
The Fund's investment adviser may also judge that conditions in the markets for
long- and intermediate-term Municipal Obligations in general make pursuing the
Fund's basic investment strategy inconsistent with the best interests of the
Fund's shareholders. At such times, the Fund may pursue strategies primarily
designed
-12-
<PAGE>
(DVMF-R)
to reduce fluctuations in the value of the Fund's assets, including investing
the Fund's assets in high-quality, short-term Municipal Obligations and in
high-quality, short-term taxable securities. See Taxes.
The Fund may invest without limitation in short term Municipal
Obligations or in taxable obligations on a temporary, defensive basis due to
market conditions or, with respect to taxable obligations, for liquidity
purposes. Such taxable obligations, whether purchased for liquidity purposes or
on a temporary, defensive basis, may include: obligations of the U.S.
government, its agencies or instrumentalities; other debt securities rated
within the three highest grades by either Moody's, Fitch or S&P; commercial
paper rated in the highest grade by any of such rating services (Prime-1, F-1+
or A-1, respectively); certificates of deposit and bankers' acceptances of
domestic banks which have capital, surplus and undivided profits of over $100
million; high-grade taxable municipal bonds; and repurchase agreements with
respect to any of the foregoing investments. The Fund also may hold its assets
in cash and in securities of tax-exempt money market mutual funds.
Diversification
The Fund is a nondiversified investment company. This means that the
Manager has the flexibility to invest as much as 50% of the Fund's assets in as
few as two issuers provided no single issuer accounts for more than 25% of the
portfolio. The remaining 50% of the portfolio must be diversified so that no
more than 5% of the Fund's assets is invested in the securities of a single
issuer. The Fund may invest without limitation in U.S. government and government
agency securities backed by the U.S. government, its agencies or
instrumentalities. Because the Fund may invest its assets in fewer issuers, the
value of Fund shares may increase or decrease more rapidly than if the Fund were
fully diversified. If the Fund were to invest more than 5% of its assets in a
single issuer, the Fund would be affected more than a fully-diversified fund in
the event that issuer encountered difficulties in satisfying its financial
obligations.
Risks Considerations
General
The yields on Municipal Obligations are dependent on a variety of
factors, including the financial condition of the issuer or other obligor
thereon or the revenue source from which debt service is payable, general
economic and monetary conditions, conditions in the relevant market, the size of
a particular issue, maturity of the obligation and the rating of the issue.
Generally, the value of Municipal Obligations will tend to fall as interest
rates rise and will tend to increase as interest rates decrease. In addition,
Municipal Obligations of longer maturity generally produce higher current yields
than Municipal Obligations with shorter maturities but are subject to greater
price fluctuation due to changes in interest rates, tax laws and other general
market factors. Lower rated Municipal Obligations generally produce a higher
yield than higher rated Municipal Obligations due to the perception of a greater
degree of risk as to the payment of principal and interest. Certain Municipal
Obligations held by the Fund may permit the issuer at its option to "call," or
redeem, its securities. If an issuer were to redeem securities held by the Fund
during a time of declining interest rates, the Fund might not be able to
reinvest the proceeds in securities providing the same investment return as the
securities redeemed.
Special Risk Considerations Regarding Medium- and Lower-Grade Municipal
Obligations
The Fund invests in medium- and lower-grade Municipal Obligations.
Municipal Obligations which are in the medium and lower grade categories
generally offer a higher current yield than is offered by higher-grade Municipal
Obligations but they also generally involve greater price volatility and greater
credit and market risk. Credit risk relates to the issuer's ability to make
timely payment of interest and principal when due. Market risk relates to the
changes in market value that occur as a result of variation in the level of
prevailing interest rates and yield relationships in the municipal securities
market. Debt securities rated BB or below by S&P or Fitch and B or below
-13-
<PAGE>
(DVMF-R)
by Moody's are commonly referred to as "junk bonds." Although the Fund primarily
will invest in medium- and lower-grade Municipal Obligations, the Fund may
invest in higher-grade Municipal Obligations for 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 Municipal Obligations are less sensitive to
changes in interest rates and are more sensitive to adverse economic changes or
individual issuer developments than are the secondary market prices of
higher-grade debt securities. Such events also could lead to a higher incidence
of defaults by issuers of medium- and lower-grade Municipal Obligations as
compared with historical default rates. In addition, changes in interest rates
and periods of economic uncertainty can be expected to result in increased
volatility in the market price of the Municipal Obligations in the Fund's
portfolio and thus in the net asset value of the Fund. Also, adverse publicity
and investor perceptions, whether or not based on rational analysis, may affect
the value and liquidity of medium- and lower-grade Municipal Obligations. The
secondary market value of Municipal Obligations structured as zero-coupon
securities and payment-in-kind securities may be more volatile in response to
changes in interest rates than debt securities which pay interest periodically
in cash. Investment in such securities also involves certain tax considerations.
Increases in interest rates and changes in the economy may adversely
affect the ability of issuers of medium-and lower-grade Municipal Obligations to
pay interest and to repay principal, to meet projected financial goals and to
obtain additional financing. In the event that an issuer of securities held by
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 Municipal Obligations in which the Fund may invest,
trading in such securities may be relatively inactive. The Fund's investment
adviser has contracted with Muller Data Corporation as pricing agent and the
investment adviser 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 Municipal 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 Municipal
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 quality of the issuer. The
Internal Revenue Code of 1986, as
-14-
<PAGE>
(DVMF-R)
amended, (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 Fund's investment adviser seeks to minimize the risks involved in
investing in medium- and lower-grade Municipal Obligations through multiple
portfolio holdings, careful investment analysis, and attention to current
developments and trends in the economy and financial and credit markets. The
Fund will rely on the investment adviser's judgment, analysis and experience in
evaluating the creditworthiness of an issue. In its analysis, the investment
adviser 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
Fund's investment adviser may consider the credit ratings of Moody's, Fitch, and
S&P in evaluating Municipal Obligations, although it does not rely primarily on
these ratings. Such ratings evaluate only the safety of principal and interest
payments, not market value risk. Additionally, because the creditworthiness of
an issuer may change more rapidly than is able to be timely reflected in changes
in credit ratings, the Fund's investment adviser continuously monitors the
issuers of Municipal Obligations held in the Fund's portfolio.
Municipal Obligations generally are not listed for trading on any
national securities exchange, and many issuers of medium- and lower-grade
Municipal Obligations choose not to have a rating assigned to their obligations
by any 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 Municipal 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 Municipal Obligations owned by the Fund may be adversely
affected by local political and economic conditions and developments within
Minnesota. Adverse conditions in an industry significant to the local economy
could have a correspondingly adverse effect on the financial condition of local
issuers. Other factors that could affect Municipal 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 (for example, legislation or court decisions reducing state aid to local
governments or mandatory additional services). A description of certain factors
affecting and statistics describing issuers of Municipal Obligations in
Minnesota is set forth in Part B. Generally, the structure of the State's
economy parallels the structure of the United States economy as a whole. There
are, however, employment concentrations in durable goods and non-durable goods
manufacturing, particularly industrial machinery, instruments and miscellaneous,
food, paper and related industries, and printing and publishing. 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.
Currently, Minnesota's general
-15-
<PAGE>
(DVMF-R)
obligation bonds are rated Aaa by Moody's, AAA by S&P and AAA by Fitch. See
Special Factors Affecting the Fund under Investment Restrictions and Policies in
Part B.
* * *
The Fund's investment objective and certain other investment policies
explicitly designated herein as such are fundamental, which means that they
cannot be changed without the vote of the Fund's shareholders as provided in the
1940 Act.
For additional information about the Fund's investment policies and
certain risks associated with investments in certain types of securities, see
Other Investment Policies and Risk Considerations in this Prospectus. Part B
provides more information concerning the Fund's investment policies,
restrictions and risk factors.
-16-
<PAGE>
(DVMF-R)
THE DELAWARE DIFFERENCE
PLANS AND SERVICES
The Delaware Difference is our commitment to provide you with superior
information and quality service on your investments in the Delaware
Investments family.
SHAREHOLDER PHONE DIRECTORY
Investor Information Center
800-523-4640
Fund Information; Literature Price; Yield and Performance Figures
Shareholder Service Center
800-523-1918
Information on Existing Regular Investment Accounts; Wire Investments;
Wire Liquidations; Telephone Liquidations and Telephone Exchanges
Delaphone
800-362-FUND
(800-362-3863)
Performance Information
You can call the Investor Information Center at any time for current
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. Our representatives can answer any questions about your account,
the Fund, various service features and other funds available from 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 Fund, as well as other funds available from the Delaware
Investments family. Delaphone is available seven days a week, 24 hours a day.
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
-17-
<PAGE>
(DVMF-R)
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, Mutual Funds, Inc. will mail to you information on the tax
status of your dividends and distributions.
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.
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 the Fund to accept such requests from you or your investment
dealer, funds will be withdrawn from (for share purchases) or deposited
to (for share redemptions) your predesignated bank account. Your
request will be processed the same day if you call prior to calculation
of net asset value on that day, normally 4 p.m., Eastern time. There is
a $25 minimum and a $50,000 maximum limit for MoneyLine(SM) On Demand
transactions.
For each MoneyLine(SM) Service, it may take up to four business days
for the transactions to be completed. You can initiate either service by
completing an Account Services form. If your name and address are not identical
to the name and address on your Fund account, you must have your signature
guaranteed. The Fund does not charge a fee for any MoneyLine(SM) Service;
however, your bank may charge a fee. Please call the Shareholder Service Center
for additional information about these services.
Right of Accumulation
With respect to Class A Shares, the Right of Accumulation feature
allows you to combine the value of your current holdings of Class A Shares,
Class B Shares and Class C Shares of the Fund with the dollar amount of new
purchases of Class A Shares to qualify for a reduced front-end sales charge on
such purchases of Class A Shares.
-18-
<PAGE>
(DVMF-R)
Under the Combined Purchases Privilege, you may also include certain shares that
you own in other funds available from 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 fund shares available from 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 shareholders to exchange all or part of
their shares into shares of the other funds available from 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 Fund through regular liquidations of
shares in your accounts in other funds available from 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 Fund
Each fiscal year, you will receive an audited annual report and an
unaudited semi-annual report. These reports provide detailed information about
the Fund's investments and performance. Mutual Funds, Inc.'s fiscal year ends on
December 31.
-19-
<PAGE>
(DVMF-R)
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 Fund.
Class B Shares. An investor who elects the deferred sales charge
alternative acquires Class B Shares, which do not incur a front-end sales charge
when they are purchased, but are subject to a contingent deferred sales charge
if they are redeemed within six years of purchase. 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
such shares for approximately eight 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. At the
end of approximately eight years after purchase, Class B Shares
automatically will be converted into Class A Shares and, thereafter, for the
remainder of the life of the investment, the annual 0.25% 12b-1 Plan fee for the
Class A Shares will apply. 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 the Fund with their investment being subject
to a CDSC if they redeem shares within six years of purchase, or purchase Class
C Shares and have the entire initial purchase amount invested in the 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
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no assurance as to the return, if any, that will be realized on such additional
money. In addition, the effect of any return earned on such additional money
will diminish over time. In comparing Class B Shares to Class C Shares,
investors should also consider the duration of the annual 12b-1 Plan expenses to
which each of these 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 Fund, 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 12b-1 Distribution Plans under Management of the Fund.
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, 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. Mutual Funds, Inc. and the Distributor intend to operate in
compliance with these rules.
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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%. See Calculation of Offering Price and
Net Asset Value Per Share.
Purchases of $100,000 or more carry a reduced front-end sales charge as
shown in the following table.
Class A Shares
- -------------------------------------------------------------------------------
Dealer's
Commission(1)
Front-End Sales Charge as % of as % of
Offering Amount Offering
Amount of Purchase Price Invested(2) Price
- -------------------------------------------------------------------------------
Less than $100,000 3.75% 3.85% 3.25%
$100,000 but under $250,000 3.00 3.10 2.50
$250,000 but under $500,000 2.50 2.54 2.00
$500,000 but under $1,000,000(3) 2.00 2.07 1.75
(1) Financial institutions or their affiliated brokers may receive an agency
transaction fee in the percentages set forth above.
(2) Based upon the net asset value of Class A Shares as of the Fund's most
recent fiscal year.
(3) 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 1%
Limited CDSC may apply upon redemption of such shares.
- -------------------------------------------------------------------------------
The 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 the 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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For initial purchases of Class A Shares of $1,000,000 or more, a
dealer's commission may be paid by the Distributor to financial advisers through
whom such purchases are made in accordance with the following schedule:
Dealer's Commission
(as a percentage of
Amount of Purchase amount purchased)
------------------ ---------------
Up to $2 million 1.00%
Next $1 million up to $3 million 0.75
Next $2 million up to $5 million 0.50
Amount over $5 million 0.25
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 available from
the Delaware Investments family as to which a Limited CDSC applies may be
aggregated with those of Class A Shares of the 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 available from the Delaware Investments
family will not qualify for payment of the dealer's commission, unless a
dealer's commission or similar payment has not been previously paid on the
assets being exchanged. The schedule and program for payment of the dealer's
commission are subject to change or termination at any time by the Distributor
at its discretion.
Redemptions of Class A Shares purchased at net asset value may result
in the imposition of a Limited CDSC if the dealer's commission described above
was paid in connection with the purchase of those shares. See Contingent
Deferred Sales Charge for Certain Redemptions of Class A Shares Purchased at Net
Asset Value under Redemption and Exchange.
Combined Purchases Privilege
By combining your holdings of Class A Shares with your holdings of
Class B Shares and/or Class C Shares of the Fund and shares of the other funds
available from 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 fund holdings in the Delaware Investments family. 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 available from 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.
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It also permits you to use these combinations under a Letter of
Intention. A Letter of Intention allows you to make purchases over a 13-month
period and qualify the entire purchase for a reduction in front-end sales
charges on Class A Shares.
Combined purchases of $1,000,000 or more, including certain purchases
made at net asset value pursuant to a Right of Accumulation or under a Letter of
Intention, may result in the payment of a dealer's commission and the
applicability of a Limited CDSC. Investors should consult their financial
advisers or the Shareholder Service Center about the operation of these
features. See Front-End Sales Charge Alternative - Class A Shares, above.
Buying Class A Shares at Net Asset Value
Class A Shares 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 and employees (and members of their families) of
the Manager, any affiliate, any of the funds available from 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 funds
available from 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.
Investors in Delaware Investments Unit Investment Trusts may reinvest
monthly dividend checks and/or repayment of invested capital into Class A Shares
of any of the funds available from the Delaware Investments family at net
asset value.
The Fund must be notified in advance that an investment qualifies for
purchase at net asset value.
Deferred Sales Charge Alternative - Class B Shares
Class B Shares may be purchased at net asset value without a front-end
sales charge and, as a result, the full amount of the investor's purchase
payment will be invested in Fund shares. The Distributor currently anticipates
compensating dealers or brokers for selling Class B Shares at the time of
purchase from its own assets in an amount equal to no more than 4% of the dollar
amount purchased. 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
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below, however, Class B Shares are subject to annual 12b-1 Plan expenses and, if
redeemed within six 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 the 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. Such 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, other than shares acquired through reinvestment of
dividends, held for eight 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 the eighth 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 the eighth anniversary occurs between Conversion Dates, an
investor's Class B Shares will be converted on the next Conversion Date after
such anniversary. Consequently, if a shareholder's eighth 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 the eighth anniversary of
purchase before the shares will automatically convert into Class A Shares.
Class B Shares of a fund acquired through a reinvestment of dividends
will convert to the corresponding Class A Shares of that fund (or, in the case
of Delaware Group Cash Reserve, Inc., the Delaware Cash Reserve Consultant
Class) pro-rata with Class B Shares of that fund not acquired through dividend
reinvestment.
All such automatic conversions of Class B Shares will constitute
tax-free exchanges for federal income tax purposes. See Taxes.
Level Sales Charge Alternative - Class C Shares
Class C Shares may be purchased at net asset value without a front-end
sales charge and, as a result, the full amount of the investor's purchase
payment will be invested in Fund shares. The Distributor currently anticipates
compensating dealers or brokers for selling Class C Shares at the time of
purchase from its own assets in an amount equal to no more than 1% of the dollar
amount purchased. As discussed below, 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, 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 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.
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Contingent Deferred Sales Charge - Class B Shares and Class C Shares
Class B Shares redeemed within six years of purchase may be subject to
a CDSC at the rates set forth below and Class C Shares redeemed within 12 months
of purchase may be subject to a CDSC of 1%. CDSCs are charged as a percentage of
the dollar amount subject to the CDSC. The charge will be assessed on an amount
equal to the lesser of the net asset value at the time of purchase of the shares
being redeemed or the net asset value of those shares at the time of redemption.
No CDSC will be imposed on increases in net asset value above the initial
purchase price, nor will a CDSC be assessed on redemptions of shares acquired
through reinvestments of dividends or capital gains distributions. For purposes
of this formula, the "net asset value at the time of purchase" will be the net
asset value at purchase of Class B Shares or Class C Shares of the Fund, as
the case may be, 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.
The following table sets forth the rates of the CDSC for Class B
Shares of the Fund:
Contingent Deferred
Sales Charge (as a
Percentage of
Dollar Amount
Year After Purchase Made Subject to Charge)
------------------------ ------------------
0-2 4%
3 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 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.
In determining whether a CDSC applies to a redemption of Class B
Shares, it will be assumed that shares held for more than six 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 period.
With respect to Class C Shares, it will be assumed that shares held for more
than 12 months are redeemed first followed by shares acquired through the
reinvestment of dividends or distributions, and finally by shares held for 12
months or less.
All investments made during a calendar month, regardless of what day of
the month the investment occurred, will age one month on the last day of that
month and each subsequent month.
The CDSC is waived on certain redemptions of Class B Shares and Class C
Shares. See Waiver of Contingent Deferred Sales Charge - Class B Shares and
Class C Shares under Redemption and Exchange.
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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 available from 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 fund shares available from 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 a Uniform Gifts to Minors
Act or Uniform Transfers to Minors Act or through an Automatic Investing Plan,
there is a minimum initial purchase of $250 and a minimum subsequent purchase of
$25.
There is a maximum purchase limitation of $250,000 on each purchase of
Class B Shares. For Class C Shares, each purchase must be in an amount that is
less than $1,000,000. An investor may exceed these maximum purchase limitations
by making cumulative purchases over a period of time. In doing so, an investor
should keep in mind that reduced front-end sales charges are available on
investments of $100,000 or more in Class A Shares, and that Class A Shares (i)
are subject to lower annual 12b-1 Plan expenses than Class B Shares and Class C
Shares and (ii) generally are not subject to a CDSC.
Investing through Your Investment Dealer
You can make a purchase of shares of the Fund 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 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 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 Mutual Funds, Inc. Use of this investment
slip can help expedite processing of your check when making additional
purchases. Your investment may be delayed if you send additional purchases by
certified mail.
Investing by Wire
You may purchase shares by requesting your bank to transmit funds by
wire to CoreStates Bank, N.A., ABA #031000011, account number 1412893401
(include your name(s) and your account number for the 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 to the 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 CoreStates Bank, N.A., 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 the 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 privilege.
Holders of Class A Shares may exchange all or part of their shares for
certain of the shares of other funds available from the Delaware Investments
family, including other Class A Shares, but may not exchange their Class A
Shares for Class B Shares or Class C Shares of the Fund or of any other fund
available from the Delaware Investments family. Holders of Class B Shares of
the Fund are permitted to exchange all or part of their Class B Shares only into
Class B Shares of other funds available from the Delaware Investments family.
Similarly, holders of Class C Shares of the Fund are permitted to exchange all
or part of their Class C Shares only into Class C Shares of other funds
available from the Delaware Investments family. Class B Shares of the Fund and
Class C Shares of the 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
the 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 the Fund.
Permissible exchanges into Class A Shares of the 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 the 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 Mutual Funds,
Inc. to transfer a designated amount monthly from your checking account to your
Fund account. Many shareholders use this as an automatic savings plan.
Shareholders should allow a reasonable amount of time for initial purchases and
changes to these plans to become effective.
2. Direct Deposit
You may have your employer or bank make regular investments directly to
your Fund account for you (for example: payroll deduction, pay by phone, annuity
payments). The 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, Mutual Funds, Inc. 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
the Fund.
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3. MoneyLine(SM) On Demand
Through the MoneyLine(SM) On Demand service, you or your investment
dealer may call the Fund to request a transfer of funds from your predesignated
bank account to your Fund account. See MoneyLine(SM) Services under The
Delaware Difference for additional information about this service.
4. Wealth Builder Option
You can use our Wealth Builder Option to invest in the 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
available from 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 available from 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 available from 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 the Fund or of
other funds available from the Delaware Investments family are made without a
front-end sales charge. Reinvestments of distributions into Class B Shares of
the Fund or of other funds in the Delaware Investments family or into Class C
Shares of the Fund or of other funds available from 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 the Fund may not reinvest their
distributions into Class B Shares or Class C Shares of any fund available from
the Delaware Investments family, including the Fund. Holders of Class B Shares
of the Fund may reinvest their distributions only into Class B Shares of the
funds available from the Delaware Investments family which offer that class
of shares. Similarly, holders of Class C Shares of the Fund may reinvest their
distributions only into Class C Shares of the funds available from 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 the 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.
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The effective date of a purchase 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.
The Conditions of Your Purchase
The 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. The 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. The 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.
The 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, the
Fund in which the account is held 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.
The Fund also reserves the right, upon 60 days' written notice, to
involuntarily redeem accounts that remain under the minimum initial purchase
amount as a result of redemptions. An investor making the minimum initial
investment may be subject to involuntary redemption without the imposition of a
CDSC or Limited CDSC if he or she redeems any portion of his or her account.
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REDEMPTION AND EXCHANGE
You can redeem or exchange your shares in a number of different ways.
The exchange service is useful if your investment requirements change and you
want an easy way to invest in other tax-advantaged funds, equity funds, bond
funds, or money market funds. This service is also useful if you are
anticipating a major expenditure and want to move a portion of your investment
into a fund that has the checkwriting feature. Exchanges are subject to the
requirements of each fund and all exchanges of shares constitute taxable events.
See Taxes. Further, in order for an exchange to be processed, shares of the fund
being acquired must be registered in the state where the acquiring shareholder
resides. You may want to consult your financial adviser or investment dealer to
discuss which funds in the Delaware Investments 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 the 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, and in the case of certain redemptions
from retirement plan accounts, the 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. The Fund
may suspend, terminate, or amend the terms of the exchange privilege upon 60
days' written notice to shareholders.
The Fund will process written and telephone redemption requests to the
extent that the purchase orders for the shares being redeemed have already
settled. The Fund will honor redemption requests as to shares for which a check
was tendered as payment, but the Fund will not mail or wire the proceeds until
it is reasonably satisfied that the check has cleared, 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. The 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.
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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.
Holders of Class B Shares or Class C Shares that exchange their shares
("Original Shares") for shares of other funds available from the Delaware
Investments family (in each case, "New Shares") in a permitted exchange, will
not be subject to a CDSC that might otherwise be due upon redemption of the
Original Shares. However, such shareholders will continue to be subject to the
CDSC and, in the case of Class B Shares, the automatic conversion schedule of
the Original Shares as described in this Prospectus and any CDSC assessed upon
redemption will be charged by the Fund from which the Original Shares were
exchanged. In an exchange of Class B Shares from the Fund, the Fund's CDSC
schedule may be higher than the CDSC schedule relating to the New Shares
acquired as a result of the exchange. For purposes of computing the CDSC that
may be payable upon a disposition of the New Shares, the period of time that an
investor held the Original Shares is added to the period of time that an
investor held the New Shares. With respect to Class B Shares, the automatic
conversion schedule of the Original Shares 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 the Fund 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 the Fund or its agent.
Written Redemption
You can write to the 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 Fund requires a signature by all owners of the account and a
signature guarantee for each owner. Each signature guarantee must be supplied by
an eligible guarantor institution. The Fund reserves the right to reject a
signature guarantee supplied by an eligible institution based on its
creditworthiness. The Fund 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 the Fund (at 1818 Market Street, Philadelphia, PA
19103) to request an exchange of any or all of your shares into another mutual
fund available from the Delaware Investments family, subject to the same
conditions and limitations as other exchanges noted above.
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Telephone Redemption and Exchange
To get the added convenience of the telephone redemption and exchange
methods, you must have the Transfer Agent hold your shares (without charge) for
you. If you choose to have your Class A Shares in certificate form, you may
redeem or exchange only by written request and you must return your
certificate(s).
The Telephone Redemption--Check to Your Address of Record service and
the Telephone Exchange service, both of which are described below, are
automatically provided unless you notify the Fund in which you have your account
in writing that you do not wish to have such services available with respect to
your account. The Fund reserves the right to modify, terminate or suspend these
procedures upon 60 days' written notice to shareholders. It may be difficult to
reach the Fund by telephone during periods when market or economic conditions
lead to an unusually large volume of telephone requests.
Neither the Fund nor its Transfer Agent is responsible for any
shareholder loss incurred in acting upon written or telephone instructions for
redemption or exchange of Fund shares which are reasonably believed to be
genuine. With respect to such telephone transactions, the Fund will follow
reasonable procedures to confirm that instructions communicated by telephone are
genuine (including verification of a form of personal identification) as, if it
does not, the Fund or its 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.
CoreStates Bank, N.A.'s fee (currently $7.50) will be deducted from your
redemption proceeds. If you ask for a check, it will normally be mailed the next
business day after receipt of your redemption request to your predesignated bank
account. There are no separate fees for this redemption method, but the mail
time may delay getting funds into your bank account. Simply call the Shareholder
Service Center prior to the time the offering price and net asset value are
determined, as noted above.
MoneyLine(SM) On Demand
Through the MoneyLine(SM) On Demand service, you or your investment
dealer may call the Fund to request a transfer of funds from your Fund account
to your predesignated bank account. See MoneyLine(SM) Services under The
Delaware Difference for additional information about this service.
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Telephone Exchange
The Telephone Exchange feature is a convenient and efficient way to
adjust your investment holdings as your liquidity requirements and investment
objectives change. You or your investment dealer of record can exchange your
shares into other funds available from the Delaware Investments family under
the same registration, subject to the same conditions and limitations as other
exchanges noted above. As with the written exchange service, telephone exchanges
are subject to the requirements of each fund, as described above. Telephone
exchanges may be subject to limitations as to amounts or frequency.
Systematic Withdrawal Plans
This plan provides shareholders with a consistent monthly (or
quarterly) payment. This is particularly useful to shareholders living on fixed
incomes, since it can provide 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 Fund does not recommend any particular monthly amount, as each
shareholder's situation and needs vary. Payments are normally made by check. In
the alternative, you may elect to have your payments transferred from your Fund
account to your predesignated bank account through the MoneyLine(SM) Direct
Deposit Service. Your funds will normally be credited to your bank account up to
four business days after the payment date. There are no separate fees for this
redemption method. See MoneyLine(SM) Services under The Delaware Difference
for more information about this service.
* * *
Shareholders should not purchase additional shares while participating
in a Systematic Withdrawal Plan.
Redemptions of Class A Shares via a Systematic Withdrawal Plan may be
subject to a Limited CDSC if the original purchase was made at net asset value
within 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, call the
Shareholder Service Center.
Contingent Deferred Sales Charge for Certain Redemptions of Class A
Shares Purchased at Net Asset Value
A Limited CDSC will be imposed on certain redemptions of Class A Shares
(or shares into which such Class A Shares are exchanged) made within 12 months
of purchase, if such purchases were made at net asset value
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and triggered the payment by the Distributor of the dealer's commission
previously described. See Classes of Shares.
The Limited CDSC will be paid to the Distributor and will be equal to
the lesser of 1% of: (1) the net asset value at the time of purchase of Class
A Shares being redeemed; or (2) the net asset value of such Class A Shares at
the time of redemption. For purposes of this formula, the "net asset value at
the time of purchase" will be the net asset value at purchase of Class A
Shares even if those shares are later exchanged for shares of another 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.
Redemptions of such Class A Shares held for more than 12 months will
not be subjected to the Limited CDSC and an exchange of such Class A Shares into
another 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 12-month holding period. The Limited CDSC is assessed if
such 12-month period is not satisfied irrespective of whether the redemption
triggering its payment is of Class A Shares of the 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 the 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 the 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 Fund declares a dividend to all shareholders of record at the time
the offering price of shares is determined. See Purchase Price and Effective
Date under How to Buy Shares. Thus, when redeeming shares, dividends continue to
be credited up to and including the date of redemption.
The Fund's dividends are declared daily and paid monthly. Payment by
check of cash dividends will ordinarily be mailed within three business days
after the payable date. Distributions from net realized securities profits, if
any, will be distributed once a year.
Purchases of Fund shares by wire begin earning dividends when converted
into Federal Funds and available for investment, normally the next business day
after receipt. However, if the Fund is given prior notice of Federal Funds wire
and an acceptable written guarantee of timely receipt from an investor
satisfying the Fund's credit policies, the purchase will start earning dividends
on the date the wire is received. Purchases by check earn dividends upon
conversion to Federal Funds, normally one business day after receipt.
Each Class of the Fund will share proportionately in the investment
income and expenses of the Fund, except that the per share dividends from net
investment income on the Class A Shares, the Class B Shares and the 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 Fund.
Both dividends and distributions, if any, are automatically reinvested
in your account at net asset value unless you elect otherwise. Any payment by
check of dividends or other distributions which cannot be delivered by the
United States Post Office or which remains uncashed for a period of more than
one year may be reinvested in your account at the then-current net asset value
and the dividend option may be changed from cash to reinvest. If you elect to
take your dividends and distributions in cash and such dividends and
distributions are in an amount of $25 or more, you may choose the MoneyLine(SM)
Direct Deposit Service and have such payments transferred from your Fund account
to your predesignated bank account. See MoneyLine(SM) Services under The
Delaware Difference for more information about this service.
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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 the 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
Fund and its distributions to you, they are discussed in Part B. Changes in the
treatment of capital gains, however, are discussed in this section.
The Fund has qualified, and intends to continue to qualify, as a
regulated investment company under Subchapter M of the Code. As such, the 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 its income and diversification of
its assets. The Fund is treated as a separate entity for federal income tax
purposes.
The Fund intends to distribute substantially all of its net investment
income and net capital gains, if any. Dividends from net investment income or
net short-term capital gains will be taxable to those investors who are subject
to income taxes as ordinary income, whether received in cash or in additional
shares. No portion of the Fund's dividends will be eligible for the
dividends-received deduction for corporations.
Distributions paid by the Fund from long-term capital gains, whether
received in cash or in additional shares, are taxable to those investors who are
subject to income taxes as long-term capital gains, regardless of the length of
time an investor has owned shares in the Fund. The Fund does 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 the Fund are made
shortly before the record date for a dividend or 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
the Fund's securities were sold and how long they were held by the Fund before
they were sold. 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.
Mutual Funds, Inc. will advise you in its annual information
reporting at calendar year end of the amount of its capital gain distributions
which will qualify for these maximum federal tax rates.
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
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as if paid by the Fund and received by the shareholder on December 31 of the
calendar year in which they are declared.
The sale of shares of the 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
the 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. 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 the sale of such
shares) if the sale proceeds are reinvested in the Fund or in another fund
available from 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.
The automatic conversion of Class B Shares into Class A Shares at the
end of approximately eight years after purchase will be tax-free for federal tax
purposes. See Automatic Conversion of Class B Shares under Classes of Shares.
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.
Each year, Mutual Funds, Inc. will mail to you information on the tax
status of the Fund's dividends and distributions . 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 the Fund.
The 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 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.
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 Municipal Obligations is excluded from the Minnesota taxable
net income of individuals, estates and trusts, provided that the portion of the
exempt-interest dividends from
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such Minnesota sources paid to all shareholders represents 95 percent or
more of the exempt-interest dividends paid by the Fund.
Exempt interest dividends from the Fund that are excluded from gross
income for federal income tax purposes and that are derived from interest income
on obligations of the State of Minnesota or its political or governmental
subdivisions, municipalities, governmental agencies or instrumentalities, are
excluded from the Minnesota taxable income of individuals, estates and trusts
for Minnesota personal income tax purposes, but only if the portion of the
federal exempt interest dividends from such Minnesota sources paid to all
shareholders represents 95 percent or more of the exempt interest dividends that
are paid by the Fund. However, 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 Fund, 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 Fund is 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 Fund cannot predict the
likelihood that interest on the Minnesota obligations held by the Fund would
become taxable under this Minnesota statutory provision.
The foregoing discussion relates to federal and state taxation as
of the date of the Prospectus. See Distributions and Taxes in Part B. 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.
See Accounting and Tax Issues and Distributions and Taxes in Part B
for additional information on tax matters relating to the Fund and its
shareholders.
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CALCULATION OF OFFERING PRICE AND NET ASSET VALUE PER SHARE
The net asset value ("NAV") per share is computed by adding the
value of all securities and other assets in the portfolio, deducting any
liabilities (expenses and fees are accrued daily) and dividing by the number of
shares outstanding. Debt securities are priced on the basis of valuations
provided by an independent pricing service using methods approved by Mutual
Fund, Inc.'s Board of Directors. Short-term investments having a maturity of
less than 60 days are valued at amortized cost, which approximates market value.
All other securities are valued at their fair value as determined in good faith
and in a method approved by Mutual Funds, Inc.'s Board of Directors. 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 the
Fund will be computed on a pro-rata basis for each outstanding share based on
the proportionate participation in the Fund represented by the value of shares
of that Class. All income earned and expenses incurred by the Fund will be borne
on a pro-rata basis by each outstanding share of a Class, based on each Class'
percentage in the Fund represented by the value of shares of such Classes.
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MANAGEMENT OF THE FUND
Directors
The business and affairs of Mutual Funds, Inc. are managed under
the direction of its Board of Directors. Part B contains additional information
regarding the directors and officers.
Investment Manager
The Manager furnishes investment management services to the Fund.
The Manager and its predecessors have been managing the funds in
the Delaware Investments family since 1938. On December 31, 1997, the
Manager and its affiliates within the Delaware Investments family, including
Delaware International Advisers Ltd., were managing in the aggregate more than
$40 billion in assets in the various institutional or separately managed
(approximately $24,040,760,000) and investment company (approximately
$16,482,523,000) accounts.
Prior to May 1, 1997, Voyageur Fund Managers, Inc. ("Voyageur") had
been retained under an investment advisory contract to act as the Fund's
investment adviser, subject to the authority of the Board of Directors. Voyageur
was an indirect, wholly owned subsidiary of Dougherty Financial Group, Inc.
("DFG"). After the close of business on April 30, 1997, Voyageur became an
indirect, wholly owned subsidiary of Lincoln National, as a result of Lincoln
National's acquisition of DFG.
Because Lincoln National's acquisition of DFG resulted in a change of
control of Voyageur, the Fund's previous investment advisory agreement with
Voyageur was "assigned," as that term is defined by the 1940 Act, and the
previous agreement therefore was terminated upon the completion of the
acquisition. The Board of Directors of the Fund unanimously approved a new
investment advisory agreement at the meeting held in person on February 14,
1997, and called for a shareholders meeting to approve the new agreement. At a
meeting held on April 11, 1997, the shareholders of the Fund approved the
investment advisory agreement with the Manager to become effective after the
close of business on April 30, 1997, the date the acquisition was completed.
The Manager administers the affairs of and is ultimately
responsible for the investment management of the Fund under an Investment
Management Agreement with Mutual Funds, Inc. on behalf of the Fund dated April
30, 1997. Under the Investment Management Agreement for the Fund, the Manager is
paid an annual fee equal to 0.65% of the average daily net assets of the Fund.
The directors annually review fees paid to the Manager.
The Manager is a series of Delaware Management Business Trust. The
Manager changed its form of organization from a corporation to a business trust
on March 1, 1998. The Manager is an indirect, wholly owned subsidiary of
Delaware Management Holdings, Inc. ("DMH"). On April 3, 1995, a merger between
DMH and a wholly owned subsidiary of Lincoln National Corporation ("Lincoln
National") was completed. DMH and the Manager are now indirect, wholly owned
subsidiaries, and subject to the ultimate control, of Lincoln National. Lincoln
National, with headquarters in Fort Wayne, Indiana, is a diversified
organization with operations in many aspects of the financial services industry,
including insurance and investment management.
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Elizabeth H. Howell has had primary responsibility for making
day-to-day investment decisions for the Fund since 1991. Ms. Howell holds a BA
in Economics from Skidmore College and an MBA from Babson College. Prior to
joining the Delaware-Voyageur family, Ms. Howell served as a Senior Portfolio
Manager at Voyageur Fund Managers, Inc. Ms. Howell is a Vice President/Senior
Portfolio Manager of the Fund and has over 13 years experience as a securities
analyst and portfolio manager.
Portfolio Trading Practices
The Fund normally will not invest for short-term trading purposes.
However, the Fund may sell securities without regard to the length of time they
have been held. The degree of portfolio activity will affect brokerage costs of
the Fund and may affect taxes payable by the Fund's shareholders. A turnover
rate of 100% would occur if all the investments in the Fund's portfolio at the
beginning of the year were replaced by the end of the year.
The 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 to their advisory clients. These services may be used by the Manager
in servicing any of its accounts. Subject to best price and execution, the Fund
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, the Fund may quote yield or total return
performance of the 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 that Class during a recent 30-day
period by the maximum offering price per share on the last day of the period.
The yield formula provides for semi-annual compounding, which assumes that net
investment income is earned and reinvested at a constant rate and annualized at
the end of a six-month period.
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- or ten-year, and life-of-the-fund periods, as applicable.
The Fund may also advertise aggregate and average total return information
concerning a Class over additional periods of time. In addition, the Fund may
present total return information that does not reflect the deduction of the
maximum front-end sales charge or any applicable CDSC. In this case, such total
return information would be more favorable than total return information that
includes the deductions of the maximum front-end sales charge or any applicable
CDSC.
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Yield and net asset value fluctuate over time and are not
guaranteed. Past performance should not be considered as a representative of
future results.
Distribution (12b-1) and Service
The Distributor, Delaware Distributors, L.P., serves as the
national distributor of the Fund's shares under a Distribution Agreement with
Mutual Funds, Inc. dated as of March 1, 1997.
Mutual Funds, Inc. has adopted a separate distribution plan under
Rule 12b-1 for each of the Class A Shares, Class B Shares and Class C Shares
(the "Plans"). Each Plan permits the Fund to pay the Distributor from the
assets of the 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 the Class. In addition, the Fund may make payments from the
12b-1 plan fees of its respective Class directly to others, such as banks, who
aid in the distribution of Class shares or provide services in respect of a
Class, pursuant to service agreements with Mutual Funds, Inc.
The 12b-1 Plan expenses relating to each of the 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.
The aggregate fees paid by the Fund from the assets of its Classes
to the Distributor and others under the Plans may not exceed (i) 0.25% of the
Class A Shares' average daily net assets in any year, and (ii) 1% (0.25% of
which are service fees to be paid to the Distributor, dealers and others for
providing personal service and/or maintaining shareholder accounts) of each of
the Class B Shares' and Class C Shares' average daily net assets in any year.
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. 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.
While payments pursuant to the Plans may not exceed 0.25% annually
with respect to Class A Shares, and 1% annually with respect to each of the
Class B Shares and Class C Shares, the Plans do not limit fees to amounts
actually expended by the Distributor. It is therefore possible that the
Distributor may realize a profit in any particular year. However, the
Distributor currently expects that its distribution expenses will likely equal
or exceed payments to it under the Plans. The monthly fees paid to the
Distributor under the Plans are subject to the review and approval of Mutual
Funds, Inc.'s unaffiliated directors, who may reduce the fees or terminate the
Plans at any time.
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The Transfer Agent, Delaware Service Company, Inc., serves as the
shareholder servicing, dividend disbursing and transfer agent for the Fund
pursuant to an amended and restated agreement dated as of April 30, 1997. The
Transfer Agent also provides accounting services to the Fund pursuant to the
terms of a separate Fund Accounting Agreement.
The directors of Mutual Funds, Inc. annually review service 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 Fund could be adversely affected if the
computer systems used by its service providers do not properly process and
calculate date-related information from and after January 1, 2000. This is
commonly known as the "Year 2000 Problem." Mutual Funds, Inc. is taking steps to
obtain satisfactory assurances that the Fund's 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 Fund.
Expenses
The Fund is responsible for all of its own expenses other than those
borne by the Manager under the Investment Management Agreement and those borne
by the Distributor under the Distribution Agreement.
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 the Fund
and to pay the Fund's expenses to the extent necessary to ensure that the Fund's
total operating expenses (excluding 12b-1 plan fees, interest expense, taxes,
brokerage fees and commissions) do not exceed, on an annual basis, 1.00% of the
average daily net assets of each Class of the Fund. This agreement replaces a
similar provision in the Fund's investment advisory contracts with the Fund's
predecessor investment adviser. The Manager and the Distributor reserve the
right to voluntarily waive their fees in whole or part and to voluntarily pay or
reinburse certain other of the Fund's expenses. See Summary of Expenses for
current fee waivers and reimbursements.
The ratios of expenses to average daily net assets for Class A Shares,
Class B Shares and Class C Shares of the Fund for the fiscal year ended December
31, 1997 were 0.09%, 0.85% and 0.83%. The expense ratio of each Class reflects
the impact of its 12b-1 Plan and the fee waivers and payments by the Manager and
Voyageur. Without these waivers and payments, the ratio of operating expenses to
average daily net assets would have been 1.24% for Class A Shares, 2.00% for
Class B Shares and 1.98% for Class C Shares.
Shares
Mutual Funds, Inc. is an open-end management investment company. The Fund's
portfolio of assets is nondiversified as defined by the 1940 Act. Commonly known
as a mutual fund, Mutual Funds, Inc. was organized as a Minnesota corporation in
April 1993. In addition to the Fund, Mutual Funds, Inc. presently offers seven
other series of shares, the Delaware-Voyageur Tax-Free Iowa Fund,
Delaware-Voyageur Tax-Free Wisconsin Fund, Delaware-Voyageur Tax-Free Idaho
Fund, Delaware-Voyageur Tax-Free Arizona Fund, Delaware-Voyageur Tax-Free
California Fund, Delaware-Voyageur Tax-Free New York Fund and National High
Yield Municipal Bond Fund. Fund shares have a par value of $.01, equal voting
rights, except as noted below, and are equal in all other respects. Each fund
will vote separately on any matter which affects only that fund. Shares of each
fund have a priority over shares of any other Mutual Funds, Inc. in the assets
and income of that fund.
All shares of the Fund have noncumulative voting rights which means that
the holders of more than 50% of Mutual Funds, Inc.'s shares voting for the
election of directors can elect 100% of the directors if they choose to do so.
Under Minnesota law, Mutual Funds, Inc. is not required, and does not intend, to
hold annual meetings of shareholders unless, under certain circumstances, it is
required to do so under the 1940 Act.
Shares of each Class represent proportionate interests in the assets of the
Fund and have the same voting and other rights and preferences as the other
classes of the Fund. The shareholders of Class A Shares, Class B
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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 of a Fund
may vote on any proposal to increase materially the fees to be paid by the Fund
under the 12b-1 Plan relating to Class A Shares.
Beginning June 9, 1997, the name of Voyageur Minnesota High Yield
Municipal Bond Fund changed to Delaware-Voyageur Minnesota High Yield Municipal
Bond Fund.
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(DVMF-R)
OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS
Municipal Obligations
As used in this Prospectus, the term "Municipal Obligations" refers
to debt obligations issued by or on behalf of a state or territory or its
agencies, instrumentalities, municipalities and political subdivisions. The term
"Municipal Obligations" also includes Derivative Municipal Obligations as
defined below.
Municipal Obligations are primarily debt obligations issued to
obtain funds for various public purposes such as constructing public facilities
and making loans to public institutions. The two principal classifications of
Municipal Obligations are general obligation bonds and revenue bonds. General
obligation bonds are generally secured by the full faith and credit of an issuer
possessing general taxing power and are payable from the issuer's general
unrestricted revenues and not from any particular fund or revenue source.
Revenue bonds are payable only from the revenues derived from a particular
source or facility, such as a tax on particular property or revenues derived
from, for example, a municipal water or sewer utility or an airport. Municipal
Obligations that benefit private parties in a manner different than members of
the public generally (so-called private activity bonds or industrial development
bonds) are in most cases revenue bonds, payable solely from specific revenues of
the project to be financed. The credit quality of private activity bonds is
usually directly related to the creditworthiness of the user of the facilities
(or the creditworthiness of a third-party guarantor or other credit enhancement
participant, if any).
Within these principal classifications of Municipal Obligations,
there is a variety of types of municipal securities. Certain Municipal
Obligations may carry variable or floating rates of interest whereby the rate of
interest is not fixed but varies with changes in specified market rates or
indexes, such as a bank prime rate or a tax-exempt money market index.
Accordingly, the yield on such obligations can be expected to fluctuate with
changes in prevailing interest rates. Other Municipal Obligations are
zero-coupon securities, which are debt obligations which do not entitle the
holder to any periodic interest payments prior to maturity and are issued and
traded at a discount from their face amounts. The market prices of zero-coupon
securities are generally more volatile than the market prices of securities that
pay interest periodically.
Municipal Obligations also include state or municipal leases and
participation interests therein. The Fund may invest in these types of
obligations without limitation. Municipal leases are obligations issued by state
and local governments or authorities to finance the acquisition of equipment and
facilities such as fire, sanitation or police vehicles or telecommunications
equipment, buildings or other capital assets. Municipal lease obligations,
except in certain circumstances, are considered illiquid by the staff of the
SEC. Municipal lease obligations held by the Fund will be treated as illiquid
unless they are determined to be liquid pursuant to guidelines established by
Mutual Funds, Inc.'s Board of Directors. Under these guidelines, the Fund's
investment adviser will consider factors including, but not limited to (1)
whether the lease can be canceled, (2) what assurance there is that the assets
represented by the lease can be sold, (3) the municipality's general credit
strength (e.g., its debt, administrative, economic and financial
characteristics), (4) the likelihood that the municipality will discontinue
appropriating funding for the leased property because the property is no longer
deemed essential to the operations of the municipality (e.g., the potential for
an "event of non-appropriation"), and (5) the legal recourse in the event of
failure to appropriate. Additionally, the lack of an established trading market
for municipal lease obligations may make the determination of fair market value
more difficult. See Municipal Obligations under Investment Restrictions and
Policies in Part B.
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The Fund may also acquire Derivative Municipal 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 Municipal Obligations. The underwriter of these certificates or
receipts typically purchases and deposits the securities in an irrevocable trust
or custodial account with a custodian bank, which then issues receipts or
certificates that evidence ownership of the periodic unmatured coupon payments
and the final principal payment on the obligations. Although under the terms of
a custodial receipt, the Fund typically would be authorized to assert its rights
directly against the issuer of the underlying obligation, the Fund could be
required to assert through the custodian bank those rights as may exist against
the underlying issuer. Thus, in the event the underlying issuer fails to pay
principal and/or interest when due, the Fund may be subject to delays, expenses
and risks that are greater than those that would have been involved if the Fund
had purchased a direct obligation of the issuer.
In addition, in the event that the trust or custodial account in
which the underlying security had been deposited is determined to be an
association taxable as a corporation, instead of a non-taxable entity, it would
be subject to state income tax (but not federal income tax) on the income it
earned on the underlying security, and the yield on the security paid to the
Fund and its shareholders would be reduced by the amount of taxes paid.
Furthermore, amounts paid by the trust or custodial account to the Fund would
lose their tax-exempt character and become taxable, for federal and state
purposes, in the hands of the Fund and its shareholders. However, the Fund will
only invest in custodial receipts which are accompanied by a tax opinion stating
that interest payable on the receipts is tax-exempt. If the Fund invests in
custodial receipts, it is possible that a portion of the discount at which the
Fund purchases the receipts might have to be accrued as taxable income during
the period that the Fund holds the receipts.
The principal and interest payments on the Derivative Municipal
Obligations underlying custodial receipts may be allocated in a number of ways.
For example, payments may be allocated such that certain custodial receipts may
have variable or floating interest rates and others may be stripped securities
which pay only the principal or interest due on the underlying Municipal
Obligations. The Fund may also invest in custodial receipts which are "inverse
floating obligations" (also sometimes referred to as "residual interest bonds").
These securities pay interest rates that vary inversely to changes in the
interest rates of specified short term Municipal Obligations or an index of
short-term Municipal Obligations. Thus, as market interest rates increase, the
interest rates on inverse floating obligations decrease. Conversely, as market
rates decline, the interest rates on inverse floating obligations increase. Such
securities have the effect of providing a degree of investment leverage, since
the interest rates on such securities will generally change at a rate which is a
multiple of the change in the interest rates of the specified Municipal
Obligations or index. As a result, the market values of inverse floating
obligations will generally be more volatile than the market values of other
Municipal Obligations and investments in these types of obligations will
increase the volatility of the net asset value of shares of the Fund.
Forward Commitments
New issues of Municipal Obligations and other securities are often
purchased on a "when issued" or delayed delivery basis, with delivery and
payment for the securities normally taking place 15 to 45 days after the date of
the transaction. The payment obligation and the interest rate that will be
received on the securities are each fixed at the time the buyer enters into the
commitment. The 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 the Fund's total assets which may be invested in
forward commitments. Municipal Obligations purchased on a when-issued basis and
the securities held
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in the Fund's portfolio are subject to changes in value (both generally changing
in the same way, i.e., appreciating when interest rates decline and depreciating
when interest rates rise) based upon the public's perception of the
creditworthiness of the issuer and changes, real or anticipated, in the level of
interest rates. Municipal Obligations purchased on a when-issued basis may
expose the Fund to risk because they may experience such fluctuations prior to
their actual delivery. Purchasing Municipal Obligations on a when-issued basis
can involve the additional risk that the yield available in the market when the
delivery takes place actually may be higher than that obtained in the
transaction itself. Any significant commitment by the Fund to the purchase of
securities on a when-issued basis may increase the volatility of the Fund's net
asset value. Although the Fund will generally enter into forward commitments
with the intention of acquiring securities for its portfolio, it may dispose of
a commitment prior to settlement if the Fund's investment adviser deems it
appropriate to do so. The Fund may realize short-term profits or losses upon the
sale of forward commitments.
Illiquid Securities
The Fund may invest up to 15% of its net assets in illiquid
securities. A security is considered illiquid if it cannot be sold in the
ordinary course of business within seven days at approximately the price at
which it is valued. Illiquid securities may offer a higher yield than securities
which are more readily marketable, but they may not always be marketable on
advantageous terms.
The sale of illiquid securities often requires more time and
results in higher brokerage charges or dealer discounts than does the sale of
securities eligible for trading on national securities exchanges or in the
over-the-counter markets. The Fund may be restricted in its ability to sell such
securities at a time when the Fund's investment adviser deems it advisable to do
so. In addition, in order to meet redemption requests, the Fund may have to sell
other assets, rather than such illiquid securities, at a time which is not
advantageous.
Certain securities in which the Fund may invest, including
municipal lease obligations, certain restricted securities and commercial paper
issued pursuant to the private placement exemption of Section 4(2) of the 1933
Act, historically have been considered illiquid by the staff of the SEC. In
accordance with more recent staff positions, however, the Fund will treat such
securities as liquid and not subject to the above 15% limitation when they have
been determined to be liquid by the Fund's investment adviser subject to the
oversight of and pursuant to procedures adopted by the Fund's Board of
Directors. See Illiquid Investments under Investment Restrictions and
Policies in Part B.
Repurchase Agreements
The 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. The
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, the Fund may enter into repurchase agreements with
banks or broker/dealers deemed to be creditworthy by the Manager, under
guidelines approved by Mutual Funds, Inc.'s Board of Directors. A repurchase
agreement is a short-term investment in which the purchaser (i.e. the 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
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periods. Should an issuer of a repurchase agreement fail to repurchase the
underlying security, the loss to the Fund, if any, would be the difference
between the repurchase price and the market value of the security. The Fund will
limit its investments in repurchase agreements to those which the Manager under
guidelines of the Board of Directors determines to present minimal credit risks
and which are of high quality. In addition, the Fund must have collateral of at
least 102% of the repurchase price, including the portion representing the
Fund's yield under such agreements, which is monitored on a daily basis.
The funds in the Delaware Investments family have obtained an exemption
from the joint-transaction prohibitions of Section 17(d) of the 1940 Act to
allow funds in the Delaware Investments family jointly to invest cash balances.
The Fund may invest cash balances in a joint repurchase agreement in accordance
with the terms of the Order and subject generally to the conditions described
above.
Reverse Repurchase Agreements
The Fund may engage in "reverse repurchase agreements" with banks and
securities dealers with respect to not more than 10% of its total assets.
Reverse repurchase agreements are ordinary repurchase agreements in which the
Fund is the seller of, rather than the investor in, securities and agrees to
repurchase them at an agreed upon time and price. Use of a reverse repurchase
agreement may be preferable to a regular sale and later repurchase of the
securities because it avoids certain market risks and transaction costs. Because
certain of the incidents of ownership of the security are retained by the Fund,
reverse repurchase agreements are considered a form of borrowing by the Fund
from the buyer, collateralized by the security. At the time the Fund enters into
a reverse repurchase agreement, cash, or liquid securities having a value
sufficient to make payments for the securities to be repurchased will be
segregated, and will be marked to market daily and maintained throughout the
period of the obligation. Reverse repurchase agreements may be used as a means
of borrowing for investment purposes subject to the 10% limitation set forth
above. This speculative technique is referred to as leveraging. Leveraging may
exaggerate the effect on net asset value of any increase or decrease in the
market value of the Fund's portfolio. Money borrowed for leveraging will be
subject to interest costs which may or may not be recovered by income from or
appreciation of the securities purchased. Because the Fund does not currently
intend to utilize reverse repurchase agreements in excess of 10% of total
assets, the Fund believes the risks of leveraging due to use of reverse
repurchase agreements to principal are reduced. The Fund's investment adviser
believes that the limited use of leverage may facilitate the Fund's ability to
provide high current income.
Options and Futures
The Fund may utilize put and call transactions and may utilize futures
transactions to hedge against market risk and facilitate portfolio management.
See Options and Futures under Investment Restrictions and Policies in Part B.
Options and futures may be used to attempt to protect against possible declines
in the market value of the Fund's portfolio resulting from downward trends in
the debt securities markets (generally due to a rise in interest rates), to
protect the Fund's unrealized gains in the value of its portfolio securities, to
facilitate the sale of such securities for investment purposes, to manage the
effective maturity or duration of the Fund's portfolio or to establish a
position in the securities markets as a temporary substitute for purchasing
particular securities. The use of options and futures is a function of market
conditions. Other transactions may be used by the Fund in the future for hedging
purposes as they are developed to the extent deemed appropriate by Mutual
Funds, Inc.'s Board of Directors.
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Options on Securities
The 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, the Fund would be in a position to
realize a gain if, during the option period, the price of the security increased
by an amount in excess of the premium paid. It would realize a loss if the price
of the security declined or remained the same or did not increase during the
period by more than the amount of the premium. In purchasing a put option, the
Fund would be in a position to realize a gain if, during the option period, the
price of the security declined by an amount in excess of the premium paid. It
would realize a loss if the price of the security increased or remained the same
or did not decrease during that period by more than the amount of the premium.
If a put or call option purchased by the Fund were permitted to expire without
being sold or exercised, its premium would be lost by the Fund.
If a put option written by the Fund were exercised, the Fund would
be obligated to purchase the underlying security at the exercise price. If a
call option written by the Fund were exercised, the Fund would be obligated to
sell the underlying security at the exercise price. The risk involved in writing
a put option is that there could be a decrease in the market value of the
underlying security caused by rising interest rates or other factors. If this
occurred, the option could be exercised and the underlying security would then
be sold to the Fund at a higher price than its current market value. The risk
involved in writing a call option is that there could be an increase in the
market value of the underlying security caused by declining interest rates or
other factors. If this occurred, the option could be exercised and the
underlying security would then be sold by the Fund at a lower price than its
current market value. These risks could be reduced by entering into a closing
transaction as described in Appendix A -General Characteristics and Risks of
Options and Futures 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 the Fund in
privately negotiated transactions. Such options are illiquid, and it may not be
possible for the Fund to dispose of an option it has purchased or terminate its
obligations under an option it has written at a time when the Manager believes
it would be advantageous to do so. Over-the-counter options are subject to the
Fund's 15% illiquid investment limitation. See Appendix A - General
Characteristics and Risks of Options and Futures in 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 Fund would not be subject absent the use of this
strategy. If the Manager's predictions of movements in the direction of the
securities and interest rate markets are inaccurate, the adverse consequences to
the Fund may leave the Fund in a worse position than if such strategy was not
used. Risks inherent in the use of options include (a)<0- 32>dependence on the
Manager's ability to predict correctly movements in the direction of interest
rates and security prices; (b) imperfect correlation between the price of
options and movements in the prices of the securities being hedged; (c) the fact
that the skills needed to use these strategies are different from those needed
to select portfolio securities; (d) the possible
-51-
<PAGE>
(DVMF-R)
absence of a liquid secondary market for any particular instrument at any time;
and (e) the possible need to defer closing out certain hedged positions to avoid
adverse tax consequences. See Risks of Transactions in Futures Contracts and
Options under Investment Restrictions and Policies and Appendix A - General
Characteristics and Risks of Options and Futures in Part B for further
discussion and for a discussion of closing transactions and other risks.
Futures Contracts and Options on Futures Contracts
The 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 the Fund may invest ("futures
contracts") and may purchase and write put and call options to buy or sell
futures contracts ("options on futures contracts"). 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 the Fund will be
traded on exchanges or over-the-counter. The successful use of such instruments
draws upon the Manager's experience with respect to such instruments and usually
depends upon the Manager's ability to forecast interest rate movements
correctly. Should interest rates move in an unexpected manner, the Fund may not
achieve the anticipated benefits of futures contracts or options on futures
contracts or may realize losses and would thus be in a worse position than if
such strategies had not been used. In addition, the correlation between
movements in the price of futures contracts or options on futures contracts and
movements in the prices of the securities hedged or used for cover will not be
perfect.
The Fund's use of financial futures and options thereon will in all
cases be consistent with applicable regulatory requirements. To the extent
required to comply with applicable SEC releases and staff positions, when
purchasing a futures contract or writing a put option, the Fund will maintain in
a segregated account cash or liquid securities equal to the value of such
contracts, less any margin on deposit. In addition, the rules and regulations of
the Commodity Futures Trading Commission ("CFTC") currently require that, in
order to avoid "commodity pool operator" status, the Fund must use futures and
options positions (a) for "bona fide hedging purposes" (as defined in the
regulations) or (b) for other purposes so long as aggregate initial margins and
premiums required in connection with non-hedging positions do not exceed 5% of
the liquidation value of the Fund's portfolio. There are no other numerical
limits on the Fund's use of futures contracts and options on futures contracts.
For a discussion of the tax treatment of futures contracts and options on
futures contracts, see Taxes in Part B. For a further discussion of the general
characteristics and risks of futures, see Appendix A - General Characteristics
and Risks of Options and Futures in Part B.
Concentration Policy
As a fundamental policy, the Fund may not invest 25% or more of its
total assets in the securities of any industry, although, for purposes of this
limitation, tax-exempt securities and U.S. government obligations are not
considered to be part of any industry. The Fund may invest 25% or more of its
total assets in industrial development revenue bonds. In addition, it is
possible that the Fund from time to time will invest 25% or more of its total
assets in a particular segment of the municipal bond market, such as housing,
health care, utility, transportation, education or industrial obligations. In
such circumstances, economic, business, political or other changes affecting one
bond (such as proposed legislation affecting the financing of a project;
shortages or price
-52-
<PAGE>
(DVMF-R)
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 Restrictions
and Policies in Part B.
Mutual Funds, Inc.'s Board of Directors may change any of the
foregoing policies that are not specifically designated fundamental.
Investment Restrictions
The 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 the Fund may not borrow
money, except from banks for temporary or emergency purposes in an amount not
exceeding 20% of the value of its total assets (the Fund may also borrow money
in the form of reverse repurchase agreements up to 10% of total assets). See
Investment Restrictions under Investment Restrictions and Policies in
Part B.
The Fund also has a number of non-fundamental investment
restrictions which may be changed by Mutual Funds, Inc.'s Board of Directors
without shareholder approval. These include restrictions providing that the Fund
may not (i) invest more than 5% of its total assets in securities of any single
investment company, (ii) invest more than 10% of its total assets in securities
of two or more investment companies, (iii) invest more than 15% of its net
assets in illiquid securities or (iv) pledge, hypothecate, mortgage or otherwise
encumber its assets in excess of 10% of net assets. If the Fund invests in
securities of other investment companies, the return on any such investments
will be reduced by the operating expenses, including investment advisory and
administrative fees, of such investment companies.
Except for the Fund's policy with respect to borrowing, any
investment restriction or limitation which involves a maximum percentage of
securities or assets shall not be considered to be violated unless an excess
over the percentage occurs immediately after an acquisition of securities or a
utilization of assets and such excess results therefrom.
* * *
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.
-53-
<PAGE>
(DVMF-R)
APPENDIX A -- RATINGS
- ---------------------
The following table sets forth the weighted average percentage of
total investments with respect to the portfolio of the Fund during the year
ended as of December 31, 1997.
<TABLE>
<CAPTION>
Moody's Rating Aaa Aa A Baa Ba B Unrated
(S&P Rating) (AAA) (AA) (A) (BBB) (BB) (B) Bonds Total
- ------------ ----- ---- --- ----- ---- --- ----- -----
- -------------------------------------------------------------------------------------------------------------------
Minnesota High Yield
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Municipal Bond Fund 7% 10% 18% 15% 1% 0% 49% 100%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Earnings and Dividend Rankings for Common Stocks
Standard & Poor's Ratings Group. The investment process involves
assessment of various factors -- such as product and industry position,
corporate resources and financial policy -- with results that make some common
stocks more highly esteemed than others. In this assessment, S & P believes that
earnings and dividend performance is the end result of the interplay of these
factors and that, over the long run, the record of this performance has a
considerable bearing on relative quality. The rankings, however, do not pretend
to reflect all of the factors, tangible or intangible, that bear on stock
quality.
Relative quality of bonds or other debt, that is, degrees of protection
for principal and interest, called creditworthiness, cannot be applied to common
stocks, and therefore rankings are not to be confused with bond quality ratings
which are arrived at by a necessarily different approach.
Growth and stability of earnings and dividends are deemed key elements
in establishing S & P earnings and dividend rankings for common stocks, which
are designed to capsulize the nature of this record in a single symbol. It
should be noted, however, that the process also takes into consideration certain
adjustments and modifications deemed desirable in establishing such rankings.
The point of departure in arriving at these rankings is a computerized
scoring system based on per-share earnings and dividend records of the most
recent ten years -- a period deemed long enough to measure significant time
segments of secular growth, to capture indications of basic change in trend as
they develop, and to encompass the full peak-to-peak range of the business
cycle. Basic scores are computed for earnings and dividends, then adjusted as
indicated by a set of predetermined modifiers for growth, stability within
long-term trend, and cyclicality. Adjusted scores for earnings and dividends are
then combined to yield a final score.
Further, the ranking system makes allowance for the fact that, in
general, corporate size imparts certain recognized advantages from an investment
standpoint. Conversely, minimum size limits (in terms of corporate sales volume)
are set for the various rankings, but the system provides for making exceptions
where the score reflects an outstanding earnings-dividend record.
-54-
<PAGE>
(DVMF-R)
The final score for each stock is measured against a scoring matrix
determined by analysis of the scores of a large and representative sample of
stocks. The range of scores in the array of this sample has been aligned with
the following ladder of rankings:
A+ Highest B+ Average C Lowest
A High B Below Average D In Reorganization
A- Above Average B- Lower
NR signifies no ranking because of insufficient data or because the
stock is not amenable to the ranking process.
The positions as determined above may be modified in some instances by
special considerations, such as natural disasters, massive strikes, and
non-recurring accounting adjustments.
A ranking is not a forecast of future market price performance, but is
basically an appraisal of past performance of earnings and dividends, and
relative current standing. These rankings must not be used as market
recommendations; a high-score stock may at times be so overpriced as to justify
its sale, while a low-score stock may be attractively priced for purchase.
Rankings based upon earnings and dividend records are no substitute for complete
analysis. They cannot take into account potential effects of management changes,
internal company policies not yet fully reflected in the earnings and dividend
record, public relations standing, recent competitive shifts, and a host of
other factors that may be relevant to investment status and decision.
Bonds
The ratings list below can be further descibed as follows. For all
categories lower than Aaa, Moody's Investors Service, Inc. includes a "1", "2"
or "3" following the rating to designate a high, medium or low rating,
respectively. Similarly, for all categories lower than AAA, Standard & Poor's
Ratings Group and Fitch IBCA, Inc. may add a "+" or "-" following the rating to
characterize a higher or lower rating, respectively.
<TABLE>
<CAPTION>
<S> <C> <C>
Moody's Investors Aaa Highest quality, smallest degree of investment risk.
Service, Inc. Aa High quality; together with Aaa bonds, they compose the high-grade
bond group
A Upper-medium-grade obligations; many favorable investment
attributes.
Baa Medium-grade obligations; neither highly protected nor poorly
secured. Interest and principal appear adequate for the present, but
certain protective elements may be lacking or may be unreliable over
any great length of time.
Ba More uncertain with speculative elements. Protective of interest and
principal payments not well safeguarded in good and bad times.
B Lack characteristics of desirable investment; potentially low assurance
of timely interest and principal payments or maintenance of other
contract terms over time.
Caa Poor standing, may be in default; elements of danger with respect to
principal or interest payments.
Ca Speculative in high degree; could be in default or have other marked
</TABLE>
-55-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
(DVMF-R)
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.
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
CCC, CC required interest and principal payments. BB-lowest degree of
speculation; CC-the highest degree of speculation. Quality and
protective characteristics outweighed by large uncertainties or major
risk exposure to adverse conditions.
D In default.
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
CC, C terms of the obligation for bond issues not in default. BB is the least
speculative. C is the most speculative.
</TABLE>
-56-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
(DVMF-R)
Commercial Paper
Moody's S&P Fitch
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
State and Municipal Notes
Moody's S&P Fitch
MIG1/
VMIG1 Best quality SP1+ Very strong quality F-1+ Exceptionally strong quality
SP1 Strong grade F-1 Very strong quality
MIG2/
VMIG2 High quality SP2 Satisfactory grade F-2 Good credit quality
MIG3/
VMIG3 Favorable quality F-3 Fair credit quality
MIG4/
VMIG4 Adequate quality
SG Speculative quality SP3 Speculative grade F-S Weak credit quality
Preferred Stock Rating
Moody's Investors Aaa Considered to be a top-quality preferred stock. This rating indicates
Service, Inc. good 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"
</TABLE>
-57-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
(DVMF-R)
classifications, earnings and asset protection are, nevertheless, expected
to be maintained at adequate levels.
Baa Considered to be medium-grade, neither highly protected nor poorly
secured. Earnings and asset protection appear adequate at present but
may be questionable over any great length of time.
Ba Considered to have speculative elements and its future cannot be
considered well assured. Earnings and asset protection may be very
moderate and not well safeguarded during adverse periods.
Uncertainty of position characterizes preferred stocks in this class.
B Generally lacks the characteristics of a desirable investment.
Assurance of dividend payments and maintenance of other terms of the
issue over any long period of time may be small.
Caa Likely to be in arrears on dividend payments. This rating designation
does not purport to indicate the future status of payments.
Ca Speculative in a high degree and is likely to be in arrears on dividends
with little likelihood of eventual payment.
C The lowest rated class of preferred or preference stock. Issues so rated can
be regarded as having extremely poor prospects of ever attaining any real
investment standing.
Standard& Poor's AAA Has the highest rating that may be assigned by Standard& Poor's to a
Ratings Group preferred stock issue and indicates an extremely strong capacity to pay
the preferred stock obligations.
AA Qualifies as a high-quality fixed income security. The capacity to pay
preferred stock obligations is very strong, although not as
overwhelming as for issues rated "AAA."
A Backed by a sound capacity to pay the preferred stock obligations, although
it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB Regarded as backed by an adequate capacity to pay the preferred stock
obligations. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to make payments for a preferred stock
in this category than for issues in the "A" category.
BB,B, Regarded, on balance, as predominantly speculative with respect to the
CCC 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.
</TABLE>
-58-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
(DVMF-R)
D A non-paying issue with the issuer in default on debt
instruments.
NR Indicates that no rating has been requested, that there
is insufficient information on which to base a rating,
or that S&P does not rate a particular type of obligation
as a matter of policy.
</TABLE>
-59-
Delaware Investments includes funds with a wide range of investment
objectives. Stock funds, income funds, national and state-specific tax-exempt
funds, money market funds, global and international funds and closed-end funds
give investors the ability to create a portfolio that fits their personal
financial goals. For more information, contact your financial adviser or call
Delaware Investments at 800-523-4640.
INVESTMENT MANAGER
Delaware Management Company, Inc.
One Commerce Square
Philadelphia, PA 19103
NATIONAL DISTRIBUTOR
Delaware Distributors, L.P.
1818 Market Street
Philadelphia, PA 19103
SHAREHOLDER SERVICING,
DIVIDEND DISBURSING,
ACCOUNTING SERVICES
AND TRANSFER AGENT
Delaware Service Company, Inc.
1818 Market Street
Philadelphia, PA 19103
LEGAL COUNSEL
Stradley, Ronon, Stevens & Young, LLP
One Commerce Square
Philadelphia, PA 19103
INDEPENDENT AUDITORS
Ernst & Young LLP
Two Commerce Square
Philadelphia, PA 19103
CUSTODIAN
Norwest Bank Minnesota, N.A.
Sixth Street & Marquette Avenue
Minneapolis, MN 55479
NATIONAL HIGH YIELD MUNICIPAL BOND FUND
A CLASS
B CLASS
C CLASS
PROSPECTUS
APRIL 30, 1998
- ---------------
Delaware
Investments
- -----------
<PAGE>
NATIONAL HIGH YIELD MUNICIPAL BOND FUND PROSPECTUS
A CLASS APRIL 30, 1998
B CLASS
C CLASS
------------------------------------------------------------
1818 Market Street, Philadelphia, PA 19103
For Prospectus and Performance:
Nationwide 800-523-4640
Information on Existing Accounts:
(SHAREHOLDERS ONLY)
Nationwide 800-523-1918
Dealer Services:
(BROKER/DEALERS ONLY)
Nationwide 800-362-7500
Representatives of Financial Institutions:
Nationwide 800-659-2265
This Prospectus describes the shares of National High Yield Municipal
Bond Fund (the "Fund") (formerly known as Voyageur National High Yield Municipal
Bond Fund) of Voyageur Mutual Funds, Inc. ("Mutual Funds, Inc.") a
professionally-managed mutual fund of the series type.
The Fund offers Class A Shares, Class B Shares and Class C Shares. Each
class is referred to individually as a "Class" and collectively as the
"Classes."
The investment objective of the Fund is to seek a high level of current
income exempt from federal income tax primarily through investment in a
portfolio of medium- and lower-grade Municipal Obligations. The weighted average
maturity of the investment portfolio of the Fund is expected to be approximately
15 to 25 years. There is no assurance that the Fund will achieve its investment
objective.
The Fund may invest in medium- and lower-grade Municipal Obligations
rated between BBB and B-(inclusive) by Standard & Poor's Ratings Group
("S&P") or Fitch IBCA, Inc. (formerly Fitch Investors Service , L.P.) ("Fitch"),
Baa and B3 (inclusive) by Moody's Investors Service, Inc. ("Moody's"),
comparably rated short-term Municipal Obligations and non-rated Municipal
Obligations determined by the Fund's investment adviser to be of comparable
quality. The Fund may also invest in higher rated securities. Investment in
medium- and lower-grade Municipal Obligations involves special risks as compared
with investment in higher-grade municipal securities, including potentially
greater sensitivity to a general economic downturn or to a significant increase
in interest rates, greater market price volatility and less liquid secondary
market trading. See Risk Considerations under Investment Objectives and
Policies. Investment in the Fund may not be appropriate for all investors.
This Prospectus sets forth certain information that you should read and
consider before you invest. Please retain it for future reference. The Statement
of Additional Information ("Part B" of Mutual Funds, Inc.'s registration
statement) dated April 30, 1998,
-2-
<PAGE>
as it may be amended from time to time, contains additional information about
the Fund 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 telephone numbers. The Fund's financial
statements appear in its Annual Report, which will accompany any response to
requests for Part B. The SEC also 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 Objective and Policies Calculation of Offering Price and
Suitability Net Asset Value Per Share
Investment Strategy Management of the Fund
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 FUND 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 FUND ARE NOT BANK OR CREDIT UNION DEPOSITS.
-3-
<PAGE>
SYNOPSIS
Investment Objective
The investment objective of the Fund is to seek a high level of current
income exempt from federal income tax primarily through investment in a
portfolio of medium- and lower-grade Municipal Obligations. The weighted average
maturity of the investment portfolio of the Fund is expected to be approximately
15 to 25 years.
Risk Factors and Special Considerations
The Fund is a nondiversified investment company under the Investment
Company Act of 1940 Act (the "1940 Act") and may be subject to greater risks
than if the Fund were diversified. See Diversification under Investment
Objective and Policies. The Fund invests primarily in high yield securities,
commonly known as "junk bonds," and greater risks may be involved with an
investment in the Fund than an investment in a mutual fund comprised primarily
of investment grade bonds. See Risk Considerations under Investment Objective
and Policies.
Investment Manager, Distributor and Transfer Agent
Delaware Management Company (the "Manager") furnishes investment
management services to the Fund, subject to the supervision and direction of
Mutual Funds, Inc.'s Board of Directors. The Manager also provides investment
management services to certain other funds available from the Delaware
Investments family. Delaware Distributors, L.P. (the "Distributor") is the
national distributor for the Fund and for all of the other mutual funds
available from the Delaware Investments family. Delaware Service Company, Inc.
(the "Transfer Agent") is the shareholder servicing, dividend disbursing,
accounting services and transfer agent for the Fund and for all of the other
mutual funds available from the Delaware Investments family.
See Summary of Expenses and Management of the Fund for further
information regarding the Manager and the fees payable under the Fund's
Investment Management Agreement.
Sales Charges
The price of Class A Shares of the Fund includes a maximum front-end
sales charge of 3.75% 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
(subject to a contingent deferred sales charge ("Limited CDSC") of 1% if shares
are redeemed within 12 months of purchase and if a dealer commission was paid in
connection with such purchase). Class A Shares are subject to annual 12b-1 Plan
expenses for the life of the investment.
The price of Class B Shares is equal to the net asset value per share.
Class B Shares are subject to a CDSC of: (i) 4% if shares are redeemed within
two years of purchase; (ii) 3% if shares are redeemed during the third or fourth
year following purchase; (iii) 2% if shares are redeemed during the fifth year
following purchase; (iv) 1% if shares are redeemed during the sixth year
following purchase; and (v) 0% thereafter. Class B Shares are subject to annual
12b-1 Plan expenses for approximately eight years after purchase.
-4-
<PAGE>
The price of Class C Shares is equal to the net asset value per share.
Class C Shares are subject to a CDSC of 1% if shares are redeemed within 12
months of purchase. Class C Shares are subject to annual 12b-1 Plan expenses for
the life of the investment.
See Classes of Shares, and Distribution (12b-1) and Service under
Management of the Fund.
Purchase Amounts
Generally, the minimum initial investment in any Class is $1,000.
Subsequent investments must generally be at least $100.
Each purchase of Class B Shares is subject to a maximum purchase
limitation of $250,000. For Class C Shares, each purchase must be in an amount
that is less than $1,000,000. An investor may exceed these maximum purchase
limitations for Class B Shares and Class C Shares by making cumulative purchases
over a period of time. An investor should keep in mind, however, that reduced
front-end sales charges apply to investments of $100,000 or more in Class A
Shares, and 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 the Fund may be redeemed or exchanged at the net
asset value calculated after receipt of the redemption or exchange request.
Neither the Fund nor the Distributor assesses a charge for redemptions or
exchanges of Class A Shares, except for certain redemptions of shares purchased
at net asset value, which may be subject to a CDSC if a dealer's commission was
paid in connection with such purchases. See Front-End Sales Charge Alternative -
Class A Shares under Classes of Shares.
Class B Shares and Class C Shares may be redeemed or exchanged at the
net asset value calculated after receipt of the redemption or exchange request
subject, in the case of redemptions, to any applicable CDSC. Neither the Fund
nor the Distributor assesses any charges other than the CDSC 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
Mutual Funds, Inc. is an open-end management investment company. The
Fund's portfolio of assets is nondiversified as defined by the 1940 Act. Mutual
Funds, Inc. was organized as a Minnesota corporation in April 1993. The Fund is
one of several series of Mutual Funds, Inc. See Shares under Management of the
Fund.
-5-
<PAGE>
SUMMARY OF EXPENSES
A general comparison of the sales arrangements and other expenses
applicable to Class A Shares, Class B Shares and Class C Shares follows:
<TABLE>
<CAPTION>
Shareholder Transaction Expenses Class A Shares Class B Shares Class C Shares
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum Sales Charge Imposed
on Purchases (as a percentage of
offering price).......................................3.75% None None
Maximum Sales Charge Imposed on
Reinvested Dividends
(as a percentage of offering price)...................None None None
Maximum Deferred Sales Charge
(as a percentage of original purchase
price or redemption proceeds,
whichever is lower) (1)...............................None 4.00% 1.00%
Redemption Fees (2)...................................None None None
</TABLE>
(1) Class A purchases of $1,000,000 or more may be made at net asset value.
However, if in connection with any such purchase a dealer commission is
paid to the financial adviser through whom such purchase is effected, a
Limited CDSC of 1% will be imposed on certain redemptions within 12 months
of purchase. Additional Class A purchase options involving the imposition
of a CDSC may be permitted as described in the Prospectus from time to
time. Class B Shares of the 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 C Shares of the Fund are subject to a CDSC of 1% if shares are
redeemed within 12 months of purchase. See Contingent Deferred Sales Charge
for Certain Redemptions of Class A Shares Purchased at Net Asset Value
under Redemption and Exchange; and Deferred Sales Charge Alternative -
Class B Shares, Level Sales Charge Alternative--Class C Shares and
Contingent Deferred Sales Charge - Class B Shares and Class C Shares
underClasses of Shares.
(2) CoreStates Bank, N.A. currently charges $7.50 per redemption for
redemptions payable by wire.
-6-
<PAGE>
<TABLE>
<CAPTION>
Annual Fund Operating Expenses
(as a percentage of average
net assets)
Class A Shares Class B Shares Class C Shares
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Management Fees (4)................................ 0.59% 0.59% 0.59%
12b-1 Plan Expenses
(including service fees) (3)....................... 0.25% 1.00% 1.00%
Other Operating Expenses (4)....................... 0.16% 0.16% 0.16%
----- ----- -----
Total Operating Expenses (4)....................... 1.00% 1.75% 1.75%
===== ===== =====
</TABLE>
(3) Class A Shares, Class B Shares and Class C Shares are subject to separate
12b-1 Plans. Long-term shareholders may pay more than the economic
equivalent of the maximum front-end sales charges permitted by rules of the
National Association of Securities Dealers, Inc. (the "NASD"). See
Distribution (12b-1) and Service under Management of the Fund.
(4) The Annual Operating Expenses for the 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 the Fund from time to
time. The Manager has elected voluntarily 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 expense,
brokerage fees and commissions) do not exceed, on an annualized basis,
0.75% of the average daily net assets of each Class of the Fund through
December 31, 1998. If the voluntary waivers and payments were not in
effect, it is estimated that "Total Operating Expenses", as a percentage of
average daily net assets, would be 1.06% for Class A Shares, 1.81% for
Class B Shares and 1.81% for Class C Shares. See Expenses under Management
of the Fund for a discussion of the waivers that will remain in place
through April 30, 1999.
Investors utilizing the Asset Planner asset allocation service also
typically incur an annual maintenance fee of $35 per Strategy. However,
effective November 1, 1996, the annual maintenance fee is waived until further
notice. See Asset Planner in Part B.
-7-
<PAGE>
The following example illustrates the expenses that an investor would
pay on a $1,000 investment over various time periods, assuming (1) a 5% annual
rate of return, (2) redemption and no redemption at the end of each time period
and (3) for Class B Shares and Class C Shares, payment of a CDSC at the time of
redemption, if applicable.
<TABLE>
<CAPTION>
Assuming Redemption Assuming No Redemption
1 Year 3 Years 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years
------ ------- ------- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A Shares $47(1) $68 $91 $155 $47 $68 $91 $155
Class B Shares 58 85 115 186(2) 18 55 95 186(2)
Class C Shares 28 55 95 200 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
will be automatically converted into Class A Shares. 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 year eight and the expenses of Class A Shares for
years nine and ten. See Automatic Conversion of Class B Shares under
Class of Shares for a description of the automatic conversion feature.
The example should not be considered a representation of past or future
expenses. Actual expenses may be greater or less than those shown.
The purpose of the above tables is to assist the investor in
understanding the various costs and expenses they will bear directly or
indirectly in owning shares of each Fund.
-8-
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The following financial highlights are derived from the financial
statements of Voyageur Mutual Funds, Inc. - National High Yield Municipal Bond
Fund and have been audited by Ernst & Young LLP, independent auditors for the
year ended December 31, 1997 and by the Fund's previous independent auditors for
the prior fiscal periods. The data for the most recent fiscal year should be
read in conjunction with the financial statements, related notes, and the report
of Ernst & Young LLP, all of which are incorporated by reference into Part B.
Further information about the Fund's performance is contained in its Annual
Report to shareholders. A copy of the Fund's Annual Report (including the report
of Ernst & Young LLP) may be obtained from Mutual Funds, Inc. upon request at no
charge.
Effective with the close of business on November 8, 1996, the Fund
acquired the assets and assumed all identified liabilities of Great Hall
National Tax-Exempt Fund in a tax-free exchange by issuing new shares. The Fund
had no assets or liabilities prior to the acquisition. Consequently, the
information presented for the Fund represents the financial history of Great
Hall National Tax-Exempt Fund.
- --------------------------------------------------------------------------------
-9-
<PAGE>
<TABLE>
<CAPTION>
CLASS A SHARES
---------------------------------------------------------
Period
Year 8/1/96
Ended through
12/31/97(1) 12/31/96(2) 7/31/96 7/31/95 7/31/94 7/31/93
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........... $ 10.40 $ 10.19 $ 10.17 $ 10.17 $ 10.50 $ 10.22
Income from Investment Operations
Net Investment Income..................... 0.648 0.260 0.625 0.648 0.624 0.652
Net Realized and Unrealized Gain
(Loss) From Investments..................... 0.390 0.210 0.148 0.045 (0.313) 0.280
------- ------- ------- ------- ------- -------
Total From Investment Operations............... 1.038 0.470 0.773 0.693 0.311 0.932
------- ------- ------- ------- ------- -------
Less Dividends and Distributions
Dividends From Net Investment Income........... (0.647) (0.260) (0.625) (0.648) (0.624) (0.652)
Distributions From Net Realized Gain
(Loss) on Investments........................ (0.071) none (0.128) (0.045) (0.017) none
Total Dividends and Distributions.............. (0.718) (0.260) (0.750) (0.690) (0.640) (0.650)
Net Asset Value, End of Period................. $ 10.72 $ 10.40 $ 10.19 $ 10.17 $ 10.17 $ 10.50
======= ======= ======= ======= ======= =======
Total Return(3)................................ 10.32% 4.52% 7.78% 7.16% 2.99% 9.45%
Ratio and Supplemental Data
Net Assets at End of Year (000s omitted)....... $55,458 $59,105 $63,460 $66,357 $72,172 $58,048
Ratio of Expenses to Average
Net Assets................................. 0.84% 0.87%(4) 0.85% 0.79% 0.91% 1.01%
Ratio of Expenses to Average Net Assets
Prior to Expense Limitation................ 1.12% 1.07%(4) 0.96% 0.90% 1.01% 1.24%
Ratio of Net Investment Income to
Average Daily Net Assets.................... 6.15% 6.06%(4) 6.10% 6.45% 5.98% 6.32%
Ratio of Net Investment Income to Average Net
Assets Prior to Expense Limitation.......... 5.87% 5.86%(4) 5.99% 6.34% 5.88% 6.09%
Portfolio Turnover Rate........................ 45% 8% 0% 8% 28% 16%
----------------------------------------------------------------------------------
</TABLE>
[RESTUB TABLE]
<TABLE>
<CAPTION>
Year Ended
7/31/92 7/31/91 7/31/90 7/31/89 7/31/88
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........... $ 9.65 $ 9.63 $ 9.68 $ 9.25 $ 9.31
Income from Investment Operations
Net Investment Income.......................... 0.703 0.697 0.669 0.692 0.714
Net Realized and Unrealized Gain
(Loss) From Investments.................... 0.570 0.020 (0.050) 0.430 (0.060)
------- ------- ------- ------- -------
Total From Investment Operations............... 1.273 0.717 0.619 1.122 0.654
------- ------- ------- ------- -------
Less Dividends and Distributions
Dividends From Net Investment Income........... (0.703) (0.697) (0.669) (0.692) (0.714)
Distributions From Net Realized Gain
(Loss) on Investments........................ none none none none none
Total Dividends and Distributions.............. (0.703) (0.697) (0.669) (0.692) (0.714)
Net Asset Value, End of Period................. $ 10.22 $ 9.65 $ 9.63 $ 9.68 $ 9.25
======= ======= ======= ======= =======
Total Return(3)............................... 13.84% 7.76% 6.69% 12.55% 7.35%
Ratio and Supplemental Data
Net Assets at End of Year (000s omitted)....... $43,166 $46,812 $36,439 $34,519 $23,190
Ratio of Expenses to Average
Net Assets................................. 0.84% 0.96% 1.23% 1.02% 0.68%
Ratio of Expenses to Average Net Assets
Prior to Expense Limitation................ 1.14% 1.26% 1.23% 1.20% 1.21%
Ratio of Net Investment Income to
Average Daily Net Assets.................... 7.15% 7.26% 6.99% 7.36% 7.71%
Ratio of Net Investment Income to Average Net
Assets Prior to Expense Limitation.......... 6.85% 6.96% 6.99% 7.18% 7.18%
Portfolio Turnover Rate........................ 15% 14% 33% 16% 20%
</TABLE>
- ----------------------------
(1) Effective May 1, 1997, the Manager replaced Voyageur Fund Managers, Inc.
as the Fund's investment manager.
(2) On November 6, 1996, the Fund's shareholders approved a change of investment
adviser from I.F.G. Asset Management Services, Inc. to Voyageur Fund
Managers, Inc.
(3) Total investment return is based on the change in net asset value on a share
during the period and assumes reinvestment of distributions at net asset
value and does not reflect the impact of a sales charge. Total return for
periods less than 12 months have not been annualized.
(4) Annualized.
-10-
<PAGE>
<TABLE>
<CAPTION>
Class B Shares Class C Shares
Period Period
Year 12/18/96(1) 5/26/97(1)
Ended through through
12/31/97(2) 12/31/96 12/31/97
<S> <C> <C> <C>
Net Asset Value, Beginning of Period................. $10.40 $ 10.37 $10.44
Income From Investment Operations
Net Investment Income................................ 0.534 0.010 0.315
Net Realized and Unrealized Gain
(Loss) from Investments....................... 0.433 0.030 0.391
Total From Investment Operations..................... 0.967 0.040 0.706
Less Dividends and Distributions
Dividends From Net Investment Income (Loss).......... (0.566) (0.010) (0.335)
Distributions From Net Realized Gain
(Loss) on Investments........................ (0.071) none (0.071)
Total Dividends and Distributions.................... (0.637) (0.010) (0.406)
Net Asset Value, End of Period....................... $10.73 $10.40 $10.74
------ ------ ------
Total Return(3)...................................... 9.57% 0.43% 6.88%
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted)............ $3,573 $88 $1,220
Ratio of Expenses to Average Net Assets.............. 1.56% 1.45%(4) 1.62%(4)
Ratio of Expenses to Average Net Assets
Prior to Expense Limitation................... 1.84% 1.66%(4) 1.90%(4)
Ratio of Net Investment Income to
Average Net Assets............................ 5.43% 4.65%(4) 5.37%(4)
Ratio of Net Investment Income to Average
Net Assets Prior to Expense Limitation........ 5.15% 4.44%(4) 5.09%(4)
Portfolio Turnover Rate ................................... 45% 8% 45%
</TABLE>
- --------------------------
(1) Commencement of operations.
(2) Effective May 1, 1997, the Manager replaced Voyageur Fund Managers, Inc.
as the Fund's investment manager.
(3) Total investment return is based on the change in net asset value on a share
during the period and assumes reinvestment of distributions at net asset
value does not reflect the impact of a sales charge. Total return for
periods less than 12 months have not been annualized.
(4) Annualized.
-11-
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to seek a high level of current
income exempt from federal income tax primarily through investment in a
portfolio of medium- and lower-grade Municipal Obligations. The weighted average
maturity of the investment portfolio of the Fund is expected to be approximately
15 to 25 years. There is no assurance that the Fund will achieve its investment
objective.
SUITABILITY
The Fund may be suitable for investors interested in high current
income flow exempt from federal income tax. The net asset value of each Class
may fluctuate in response to the condition of individual municipalities and
general market and economic conditions and, as a result, the Fund is not
appropriate for a short-term investor.
The types of securities in which the Fund invests are subject to price
fluctuations particularly due to changes in interest rates and economic
conditions. Investors should consider asset value fluctuation, as well as yield,
in making an investment decision. While investments in unrated, lower-rated and
restricted securities have the potential for higher yields, they are more
speculative and increase the credit risk of the Fund's portfolio. Changes in the
market value of the portfolio securities will not affect interest income from
such securities, but will be reflected in the Fund's net asset value. Investors
should be willing to accept the risks, including the risk of net asset value
fluctuations, associated with investing in these securities.
* * *
Ownership of shares of the Fund can reduce the bookkeeping and
administrative inconvenience that is typically connected with direct purchases
of the type of securities in which the Fund invests.
An investor should not consider a purchase of shares of the Fund 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 Fund will attempt to invest 100% (and as a matter of fundamental
policy during normal circumstances will invest at least 80%) of the value of its
net assets in Municipal Obligations, the interest on which is exempt from
regular federal income tax. The Fund may invest without limit in securities that
generate interest that is an item of tax preference for purposes of federal
alternative minimum tax ("AMT"). In normal circumstances the weighted average
maturity of the investment portfolio of the Fund is expected to be approximately
15 to 25 years. However, if the Manager determines that market conditions
warrant a shorter average maturity, the Fund's investments will be adjusted
accordingly. During times of adverse market conditions when a defensive
investment posture is warranted, the Fund may temporarily select investments
without regard to the foregoing policies.
In normal market or economic situations, the Fund will invest at least
65% of its total assets in medium-and lower-grade Municipal Obligations rated,
at the time of investment, between BBB and B-(inclusive) by S&P, Baa and B3
(inclusive) by Moody's , or BBB and B- (inclusive) by Fitch , or Municipal
Obligations determined by the Manager to be of comparable quality.
Medium-grade Municipal Obligations are rated BBB by S&P or Fitch, Baa
by Moody's or determined by the Manager to be of comparable quality. Municipal
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. Municipal
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
-12-
<PAGE>
length of time. In Moody's view, such securities lack outstanding investment
characteristics and have speculative characteristics as well.
The Fund may invest in lower-grade Municipal Obligations rated, at the
time of investment, no lower than B- by S&P or Fitch or B3 by Moody's, or in
municipal securities determined by the Manager to be of comparable quality.
Municipal Obligations rated B by S&P or Fitch generally are regarded by S&P or
Fitch, on balance, as predominantly speculative with respect to capacity to pay
interest or repay principal in accordance with the terms of the obligations.
While such securities will likely have some quality and protective
characteristics, in S&P's or Fitch's view these are outweighed by large
uncertainties or major risk exposure to adverse conditions. Securities rated B
by Moody's are viewed by Moody's as generally lacking characteristics of the
desirable investment. In Moody's view, assurance of interest and principal
payments or of maintenance of other terms of the contract over any long period
of time may be small.
The Fund will not make initial investments in Municipal Obligations
rated, at the time of investment, below B- by S&P or Fitch or below B3 by
Moody's, or in Municipal Obligations determined by the Manager to be of
comparable quality. The Fund may retain Municipal Obligations which are
downgraded after investment. There is no minimum rating with respect to
securities that the Fund may hold if downgraded after investment. See Appendix A
to this Prospectus for a description of Municipal Obligations ratings.
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 alternative minimum
tax and, accordingly, a portion of the income produced by the Fund may be
taxable under the federal 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 Municipal Obligations make pursuing the Fund's basic
investment strategy of investing primarily in such Municipal Obligations
inconsistent with the best interests of shareholders. At such times, the Fund
may invest all or a portion of its assets in higher grade Municipal Obligations
and in Municipal Obligations determined by the Manager to be of comparable
quality. Although such higher grade Municipal Obligations generally entail less
credit risk, such higher grade Municipal Obligations may have a lower yield than
medium and lower grade Municipal Obligations and investment in such higher grade
Municipal Obligations may result in a lower yield to Fund shareholders. The
Manager may also judge that conditions in the markets for long- and
intermediate-term Municipal Obligations in general make pursuing the Fund's
basic investment strategy inconsistent with the best interests of the Fund's
shareholders. At such times, the Fund may pursue strategies primarily designed
to reduce fluctuations in the value of the Fund's assets, including investing
the Fund's assets in high-quality, short-term Municipal Obligations and in
high-quality, short-term taxable securities. See Taxes.
The Fund may invest without limitation in short-term Municipal
Obligations or in taxable obligations on a temporary, defensive basis due to
market conditions or, with respect to taxable obligations, for liquidity
purposes. Such taxable obligations, whether purchased for liquidity purposes or
on a temporary, defensive basis, may include: obligations of the U.S.
government, its agencies or instrumentalities; other debt securities rated
within the three highest grades by either Moody's, Fitch or S&P; commercial
paper rated in the highest grade by any of such rating services (Prime-1, F-1+
or A-1, respectively); certificates of deposit and bankers' acceptances of
domestic banks which have capital, surplus and undivided profits of over $100
million; high-grade taxable municipal bonds; and repurchase agreements with
respect to any of the foregoing investments. The Fund also may hold its assets
in cash and in securities of tax-exempt money market mutual funds.
Diversification
The Fund is a nondiversified investment company. This means that the
Manager has the flexibility to invest as much as 50% of the Fund's assets in as
few as two issuers provided no single issuer accounts for more than 25% of the
portfolio. The
-13-
<PAGE>
remaining 50% of the portfolio must be diversified so that no more than 5% of
the Fund's assets is invested in the securities of a single issuer. The Fund may
invest without limitation in U.S. government and government agency securities
backed by the U.S. government, its agencies or instrumentalities. Because the
Fund may invest its assets in fewer issuers, the value of Fund shares may
increase or decrease more rapidly than if the Fund were fully diversified. If
the Fund were to invest more than 5% of its assets in a single issuer, the Fund
would be affected more than a fully-diversified fund in the event that issuer
encountered difficulties in satisfying its financial obligations.
RISK CONSIDERATIONS
General
The yields on Municipal Obligations are dependent on a variety of
factors, including the financial condition of the issuer or other obligor
thereon or the revenue source from which debt service is payable, general
economic and monetary conditions, conditions in the relevant market, the size of
a particular issue, maturity of the obligation and the rating of the issue.
Generally, the value of Municipal Obligations will tend to fall as interest
rates rise and will tend to increase as interest rates decrease. In addition,
Municipal Obligations of longer maturity generally produce higher current yields
than Municipal Obligations with shorter maturities but are subject to greater
price fluctuation due to changes in interest rates, tax laws and other general
market factors. Lower rated Municipal Obligations generally produce a higher
yield than higher rated Municipal Obligations due to the perception of a greater
degree of risk as to the payment of principal and interest. Certain Municipal
Obligations held by the Fund may permit the issuer at its option to "call," or
redeem, its securities. If an issuer were to redeem securities held by the Fund
during a time of declining interest rates, the Fund might not be able to
reinvest the proceeds in securities providing the same investment return as the
securities redeemed.
Special Risks Considerations Regarding Medium- and Lower-Grade Municipal
Obligations
The Fund invests in medium- and lower-grade Municipal Obligations.
Municipal Obligations which are in the medium and lower grade categories
generally offer a higher current yield than is offered by higher-grade Municipal
Obligations but they also generally involve greater price volatility and greater
credit and market risk. Credit risk relates to the issuer's ability to make
timely payment of interest and principal when due. Market risk relates to the
changes in market value that occur as a result of variation in the level of
prevailing interest rates and yield relationships in the municipal securities
market. Debt securities rated BB or below by S&P or Fitch and B or below by
Moody's are commonly referred to as "junk bonds." Although the Fund primarily
will invest in medium- and lower-grade Municipal Obligations, the Fund may
invest in higher-grade Municipal Obligations for 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 Municipal Obligations are
less sensitive to changes in interest rates and are more sensitive to adverse
economic changes or individual issuer developments than are the secondary market
prices of higher-grade debt securities. Such events also could lead to a higher
incidence of defaults by issuers of medium- and lower-grade Municipal
Obligations as compared with historical default rates. In addition, changes in
interest rates and periods of economic uncertainty can be expected to result in
increased volatility in the market price of the Municipal Obligations in the
Fund's portfolio and thus in the net asset value of the Fund. Also, adverse
publicity and investor perceptions, whether or not based on rational analysis,
may affect the value and liquidity of medium-and lower-grade Municipal
Obligations. The secondary market value of Municipal Obligations structured as
zero-coupon securities and payment-in-kind securities may be more volatile in
response to changes in interest rates than debt securities which pay interest
periodically in cash. Investment in such securities also involves certain tax
considerations.
Increases in interest rates and changes in the economy may adversely
affect the ability of issuers of medium- and lower-grade Municipal Obligations
to pay interest and to repay principal, to meet projected financial goals and to
obtain additional financing. In the event that an issuer of securities held by
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
-14-
<PAGE>
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 Municipal Obligations in which the Fund may invest,
trading in such securities may be relatively inactive. The Manager has
contracted with Muller Data Corporation as pricing agent 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 Municipal 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 Municipal
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 quality of the issuer. The
Internal Revenue Code of 1986, as amended, (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 Fund's investment advisor seeks to minimize the risks involved
in investing in medium- and lower-grade Municipal Obligations through multiple
portfolio holdings, careful investment analysis, and attention to current
developments and trends in the economy and financial and credit markets. 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 Municipal
Obligations, although it does not rely primarily on these ratings. Such ratings
evaluate only the safety of principal and interest payments, not market value
risk. Additionally, because the creditworthiness of an issuer may change more
rapidly than is able to be timely reflected in changes in credit ratings, the
Manager monitors the issuers of Municipal Obligations held in the Fund's
portfolio on an ongoing basis.
Municipal Obligations generally are not listed for trading on any
national securities exchange, and many issuers of medium- and lower-grade
Municipal Obligations choose not to have a rating assigned to their obligations
by any nationally recognized statistical rating organization. The amount of
information available about the financial condition of an issuer of unlisted or
unrated securities generally is not as extensive as that which is available with
respect to issuers of listed or rated securities. Because of the nature of
medium- and lower-rated Municipal Obligations, achievement by the Fund of its
investment objective may be more dependent on the credit analysis of the Manager
than is the case for an investment company which invests primarily in exchange
listed higher-grade securities.
* * *
-15-
<PAGE>
The Fund's investment objective and certain other investment policies
explicitly designated herein as such are fundamental, which means that they
cannot be changed without the vote of the Fund's shareholders as provided in the
1940 Act.
For additional information about the Fund's investment policies and
certain risks associated with investments in certain types of securities, see
Other Investment Policies and Risk Considerations in this Prospectus. Part B
provides more information concerning the Fund's investment policies,
restrictions and risk factors.
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<PAGE>
THE DELAWARE DIFFERENCE
PLANS AND SERVICES
The Delaware Difference is our commitment to provide you with superior
information and quality service on your investments in the Delaware
Investments family.
SHAREHOLDER PHONE DIRECTORY
Investor Information Center
800-523-4640
Fund Information; Literature Price; Yield and Performance Figures
Shareholder Service Center
800-523-1918
Information on Existing Regular Investment Accounts; Wire Investments;
Wire Liquidations; Telephone Liquidations and Telephone Exchanges
Delaphone
800-362-FUND
(800-362-3863)
Performance Information
You can call the Investor Information Center at any time for current
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. Our representatives can answer any questions about
your account, the Fund, various service features and other funds available
from 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 Fund, as well as other funds available
from the Delaware Investments family. Delaphone is available seven days a
week, 24 hours a day.
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, Mutual Funds, Inc. will mail to you information on the tax
status of your dividends and distributions.
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<PAGE>
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.
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 the Fund to
accept such requests from you or your investment dealer, funds will be
withdrawn from (for share purchases) or deposited to (for share redemptions)
your predesignated bank account. Your request will be processed the same day
if you call prior to calculation of net asset value on that day, normally 4
p.m., Eastern time. There is a $25 minimum and a $50,000 maximum limit for
MoneyLine(SM) On Demand transactions.
For each MoneyLine(SM) Service, it may take up to four business days
for the transactions to be completed. You can initiate either service by
completing an Account Services form. If your name and address are not identical
to the name and address on your Fund account, you must have your signature
guaranteed. The Fund does not charge a fee for any MoneyLine(SM) Service;
however, your bank may charge a fee. Please call the Shareholder Service Center
for additional information about these services.
Right of Accumulation
With respect to Class A Shares, the Right of Accumulation feature
allows you to combine the value of your current holdings of Class A Shares,
Class B Shares and Class C Shares of the Fund with the dollar amount of new
purchases of Class A Shares 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 available from 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 fund shares available from 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.
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<PAGE>
Exchange Privilege
The Exchange Privilege permits shareholders to exchange all or part of
their shares into shares of the other funds available from 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 Fund through regular liquidations of
shares in your accounts in other funds available from 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 Fund
Each fiscal year, you will receive an audited annual report and an
unaudited semi-annual report. These reports provide detailed information about
the Fund's investments and performance. Mutual Funds, Inc.'s fiscal year ends on
December 31.
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<PAGE>
CLASSES OF SHARES
Alternative Purchase Arrangements
Shares may be purchased at a price equal to the next determined net
asset value per share, subject to a sales charge which may be imposed, at the
election of the purchaser, at the time of the purchase for Class A Shares
("front-end sales charge alternative"), or on a contingent deferred basis for
Class B Shares ("deferred sales charge alternative") or Class C Shares ("level
sales charge alternative").
Class A Shares. An investor who elects the front-end sales charge
alternative acquires Class A Shares, which incur a sales charge when they are
purchased, but generally are not subject to any sales charge when they are
redeemed. Class A Shares are subject to annual 12b-1 Plan expenses of up to a
maximum of 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 Fund.
Class B Shares. An investor who elects the deferred sales charge
alternative acquires Class B Shares, which do not incur a front-end sales charge
when they are purchased, but are subject to a contingent deferred sales charge
if they are redeemed within six years of purchase. 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
such shares for approximately eight 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. At the
end of approximately eight years after purchase, Class B Shares
automatically will be converted into Class A Shares and, thereafter, for the
remainder of the life of the investment, the annual 0.25% 12b-1 Plan fee for the
Class A Shares will apply. 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 the Fund with their investment being subject
to a CDSC if they redeem shares within six years of purchase, or purchase Class
C Shares and have the entire initial purchase amount invested in the 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. In addition, the effect of any return earned
on such additional money will diminish over time. In comparing Class B Shares to
Class C Shares, investors should also consider the durability of the annual
12b-1 Plan expenses to which each of these classes is subject and the
desirability of an automatic conversion feature, which is available only for
Class B Shares.
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<PAGE>
For the distribution and related services provided to, and the expenses
borne on behalf of, the Fund, 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 12b-1 Distribution Plans under Management of the Fund.
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, 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. Mutual Funds, Inc. 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%. See Calculation of Offering Price and
Net Asset Value Per Share.
Purchases of $100,000 or more carry a reduced front-end sales charge
as shown in the following table.
Class A Shares
- --------------------------------------------------------------------------------
Dealer's
Commission(1)
Front-End Sales Charge as % of as % of
Offering Amount Offering
Amount of Purchase Price Invested(2) Price
- --------------------------------------------------------------------------------
Less than $100,000 3.75% 3.92% 3.25%
$100,000 but under $250,000 3.00 3.08 2.50
$250,000 but under $500,000 2.50 2.52 2.00
$500,000 but under $1,000,000(3) 2.00 2.05 1.75
(1) Financial institutions or their affiliated brokers may receive an agency
transaction fee in the percentages set forth above.
(2) Based upon the net asset value of Class A Shares as of the Fund's most
recent fiscal year.
(3) 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 1% Limited
CDSC apply upon redemption of such shares.
- --------------------------------------------------------------------------------
The 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 the 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 fund 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>
For initial purchases of Class A Shares of $1,000,000 or more, a
dealer's commission may be paid by the Distributor to financial advisers through
whom such purchases are made in accordance with the following schedule:
Dealer's Commission
(as a percentage of
Amount of Purchase amount purchased)
Up to $2 million 1.00%
Next $1 million up to $3 million 0.75
Next $2 million up to $5 million 0.50
Amount over $5 million 0.25
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 the Fund. Financial advisers also may be eligible
for a dealer's commission in connection with certain purchases made under a
Letter of Intention or pursuant to an investor's Right of Accumulation.
Financial advisers should contact the Distributor concerning the applicability
and calculation of the dealer's commission in the case of combined purchases.
An exchange from other funds in the Delaware Investments family will
not qualify for payment of the dealer's commission, unless a dealer's commission
or similar payment has not been previously paid on the assets being exchanged.
The schedule and program for payment of the dealer's commission are subject to
change or termination at any time by the Distributor at its discretion.
Redemptions of Class A Shares purchased at net asset value may result
in the imposition of a Limited CDSC if the dealer's commission described above
was paid in connection with the purchase of those shares. See Contingent
Deferred Sales Charge for Certain Redemptions of Class A Shares Purchased at Net
Asset Value under Redemption and Exchange.
Combined Purchases Privilege
By combining your holdings of Class A Shares with your holdings of
Class B Shares and/or Class C Shares of the Fund and shares of the other funds
available from 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 fund holdings in the Delaware Investments family. 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.
It also permits you to use these combinations under a Letter of
Intention. A Letter of Intention allows you to make purchases over a 13-month
period and qualify the entire purchase for a reduction in front-end sales
charges on Class A Shares.
Combined purchases of $1,000,000 or more, including certain purchases
made at net asset value pursuant to a Right of Accumulation or under a Letter of
Intention, may result in the payment of a dealer's commission and the
applicability of a Limited CDSC. Investors should consult their financial
advisers or the Shareholder Service Center about the operation of these
features. See Front-End Sales Charge Alternative -Class A Shares, above.
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<PAGE>
Buying Class A Shares at Net Asset Value
Class A Shares 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 and employees (and members of their families) of
the Manager, any affiliate, any of the funds available from 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 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.
Investors in Delaware Investments Unit Investment Trusts may reinvest
monthly dividend checks and/or repayment of invested capital into Class A Shares
of any of the funds available from the Delaware Investments family at net
asset value.
The Fund must be notified in advance that an investment qualifies for
purchase at net asset value.
Deferred Sales Charge Alternative - Class B Shares
Class B Shares may be purchased at net asset value without a front-end
sales charge and, as a result, the full amount of the investor's purchase
payment will be invested in Fund shares. The Distributor currently anticipates
compensating dealers or brokers for selling Class B Shares at the time of
purchase from its own assets in an amount equal to no more than 4% of the dollar
amount purchased. In addition, from time to time, upon written notice to all of
its dealers, the Distributor may hold special promotions for specified periods
during which the Distributor may pay additional compensation to dealers or
brokers for selling Class B Shares at the time of purchase. As discussed below,
however, Class B Shares are subject to annual 12b-1 Plan expenses and, if
redeemed within six 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 the 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. Such CDSC schedule may be
higher than the CDSC schedule for Class B Shares acquired as a result of the
exchange. See Redemption and Exchange.
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<PAGE>
Automatic Conversion of Class B Shares
Class B Shares, other than shares acquired through reinvestment of
dividends, held for eight 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 the eighth 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 the eighth anniversary occurs between Conversion Dates, an
investor's Class B Shares will be converted on the next Conversion Date after
such anniversary. Consequently, if a shareholder's eighth 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 the eighth anniversary of
purchase before the shares will automatically convert into Class A Shares.
Class B Shares of a fund acquired through a reinvestment of dividends
will convert to the corresponding Class A Shares of that fund (or, in the case
of Delaware Group Cash Reserve, Inc., the Delaware Cash Reserve Consultant
Class) pro-rata with Class B Shares of that fund not acquired through dividend
reinvestment.
All such automatic conversions of Class B Shares will constitute
tax-free exchanges for federal income tax purposes. See Taxes.
Level Sales Charge Alternative - Class C Shares
Class C Shares may be purchased at net asset value without a front-end
sales charge and, as a result, the full amount of the investor's purchase
payment will be invested in Fund shares. The Distributor currently anticipates
compensating dealers or brokers for selling Class C Shares at the time of
purchase from its own assets in an amount equal to no more than 1% of the dollar
amount purchased. As discussed below, 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, 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 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 six years of purchase may be subject to
a CDSC at the rates set forth below and Class C Shares redeemed within 12 months
of purchase may be subject to a CDSC of 1%. CDSCs are charged as a percentage of
the dollar amount subject to the CDSC. The charge will be assessed on an amount
equal to the lesser of the net asset value at the time of purchase of the shares
being redeemed or the net asset value of those shares at the time of redemption.
No CDSC will be imposed on increases in net asset value above the initial
purchase price, nor will a CDSC be assessed on redemptions of shares acquired
through reinvestments of dividends or capital gains distributions. For purposes
of this formula, the "net asset value at the time of purchase" will be the net
asset value at purchase of Class B Shares or Class C Shares of the Fund, as
the case may be, 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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<PAGE>
The following table sets forth the rates of the CDSC for Class B
Shares of the 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 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.
In determining whether a CDSC applies to a redemption of Class B
Shares, it will be assumed that shares held for more than six 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 period.
With respect to Class C Shares, it will be assumed that shares held for more
than 12 months are redeemed first followed by shares acquired through the
reinvestment of dividends or distributions, and finally by shares held for 12
months or less.
All investments made during a calendar month, regardless of what day of
the month the investment occurred, will age one month on the last day of that
month and each subsequent month.
The CDSC is waived on certain redemptions of Class B Shares and Class C
Shares. See Waiver of Contingent Deferred Sales Charge - Class B Shares and
Class C Shares under Redemption and Exchange.
Other Payments to Dealers -- Class A 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 fund shares of 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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<PAGE>
HOW TO BUY SHARES
Purchase Amounts
Generally, the minimum initial purchase is $1,000 for Class A Shares,
Class B Shares and Class C Shares. Subsequent purchases of shares of any Class
generally must be $100 or more. For purchases under a Uniform Gifts to Minors
Act or Uniform Transfers to Minors Act or through an Automatic Investing Plan,
there is a minimum initial purchase of $250 and a minimum subsequent purchase of
$25.
There is a maximum purchase limitation of $250,000 on each purchase of
Class B Shares. For Class C Shares, each purchase must be in an amount that is
less than $1,000,000. An investor may exceed these maximum purchase limitations
by making cumulative purchases over a period of time. In doing so, an investor
should keep in mind that reduced front-end sales charges are available on
investments of $100,000 or more in Class A Shares, and that Class A Shares (i)
are subject to lower annual 12b-1 Plan expenses than Class B Shares and Class C
Shares and (ii) generally are not subject to a CDSC.
Investing through Your Investment Dealer
You can make a purchase of shares of the Fund 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 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 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 Mutual Funds, Inc. Use of this investment
slip can help expedite processing of your check when making additional
purchases. Your investment may be delayed if you send additional purchases by
certified mail.
Investing by Wire
You may purchase shares by requesting your bank to transmit funds by
wire to CoreStates Bank, N.A., ABA #031000011, account number 1412893401
(include your name(s) and your account number for the 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 to the 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 CoreStates Bank, N.A., as described above. You should advise the
Shareholder Service Center by telephone of each wire you send.
Investing by Exchange
If you have an investment in another mutual fund in the Delaware
Investments family, you may write and authorize an exchange of part or all of
your investment into shares of the 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 privilege.
Holders of Class A Shares may exchange all or part of their shares for
certain of the shares of other funds available from the Delaware Investments
family, including other Class A Shares, but may not exchange their Class A
Shares for Class B Shares or Class C Shares of the Fund or of any other fund
available from the Delaware Investments family. Holders of Class B Shares of
the Fund are permitted to exchange all or part of their Class B Shares only into
Class B Shares of other funds in the Delaware
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Investments family. Similarly, holders of Class C Shares of the 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 B Shares of
the Fund and Class C Shares of the 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 the 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 the Fund.
Permissible exchanges into Class A Shares of the 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 the 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 Mutual Funds,
Inc. to transfer a designated amount monthly from your checking account to your
Fund account. Many shareholders use this as an automatic savings plan.
Shareholders should allow a reasonable amount of time for initial purchases and
changes to these plans to become effective.
2. Direct Deposit
You may have your employer or bank make regular investments directly to
your Fund account for you (for example: payroll deduction, pay by phone, annuity
payments). The 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, Mutual Funds, Inc. 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
the Fund.
3. MoneyLine(SM)On Demand
Through the MoneyLine(SM) On Demand service, you or your investment
dealer may call the Fund to request a transfer of funds from your predesignated
bank account to your Fund account. See MoneyLine(SM) Services under The
Delaware Difference for additional information about this service.
4. Wealth Builder Option
You can use our Wealth Builder Option to invest in the 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
available from 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 available from the Delaware Investments family and
invested automatically into any other account in a mutual fund in 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
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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 available from 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 the 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 the Fund or
of other funds in the Delaware Investments family or into Class C Shares of
the 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 the Fund may not reinvest their
distributions into Class B Shares or Class C Shares of any fund available from
the Delaware Investments family, including the Fund. Holders of Class B Shares
of the Fund may reinvest their distributions only into Class B Shares of the
funds available from the Delaware Investments family which offer that class
of shares. Similarly, holders of Class C Shares of the Fund may reinvest their
distributions only into Class C Shares of the funds available from the
Delaware Investments family which offer that class of shares. For more
information about reinvestments, call the Shareholder Service Center.
PurchasePrice and Effective Date
The offering price and net asset value of the 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 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.
The Conditions of Your Purchase
The 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. The 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 available from the Delaware Investments family. The 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.
The 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, the
Fund in which the account is held 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.
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The Fund also reserves the right, upon 60 days' written notice, to
involuntarily redeem accounts that remain under the minimum initial purchase
amount as a result of redemptions. An investor making the minimum initial
investment may be subject to involuntary redemption without the imposition of a
CDSC or Limited CDSC if he or she redeems any portion of his or her account.
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REDEMPTION AND EXCHANGE
You can redeem or exchange your shares in a number of different ways.
The exchange service is useful if your investment requirements change and you
want an easy way to invest in other tax-advantaged funds, equity funds, bond
funds, or money market funds. This service is also useful if you are
anticipating a major expenditure and want to move a portion of your investment
into a fund that has the checkwriting feature. Exchanges are subject to the
requirements of each fund and all exchanges of shares constitute taxable events.
See Taxes. Further, in order for an exchange to be processed, shares of the fund
being acquired must be registered in the state where the acquiring shareholder
resides. You may want to consult your financial adviser or investment dealer to
discuss which funds in the Delaware Investments 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 the 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, and in the case of certain redemptions
from retirement plan accounts, the 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. The Fund
may suspend, terminate, or amend the terms of the exchange privilege upon 60
days' written notice to shareholders.
The Fund will process written and telephone redemption requests to the
extent that the purchase orders for the shares being redeemed have already
settled. The Fund will honor redemption requests as to shares for which a check
was tendered as payment, but the Fund will not mail or wire the proceeds until
it is reasonably satisfied that the check has cleared, 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. The 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.
Holders of Class B Shares or Class C Shares that exchange their shares
("Original Shares") for shares of other funds available from the Delaware
Investments family (in each case, "New Shares") in a permitted exchange, will
not be subject to a CDSC that might otherwise be due upon redemption of the
Original Shares. However, such shareholders will continue to be subject to the
CDSC and, in the case of Class B Shares, the automatic conversion schedule of
the Original Shares as described in this
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Prospectus and any CDSC assessed upon redemption will be charged by the Fund
from which the Original Shares were exchanged. In an exchange of Class B Shares
from the Fund, the Fund's CDSC schedule may be higher than the CDSC schedule
relating to the New Shares acquired as a result of the exchange. For purposes of
computing the CDSC that may be payable upon a disposition of the New Shares, the
period of time that an investor held the Original Shares is added to the period
of time that an investor held the New Shares. With respect to Class B Shares,
the automatic conversion schedule of the Original Shares 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 the
Fund 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 the Fund or its agent.
Written Redemption
You can write to the 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 Fund requires a signature by all owners of the account and a
signature guarantee for each owner. Each signature guarantee must be supplied by
an eligible guarantor institution. The Fund reserves the right to reject a
signature guarantee supplied by an eligible institution based on its
creditworthiness. The Fund 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 the Fund (at 1818 Market Street, Philadelphia, PA
19103) to request an exchange of any or all of your shares into another mutual
fund available from the Delaware Investments family, subject to the same
conditions and limitations as other exchanges noted above.
Telephone Redemption and Exchange
To get the added convenience of the telephone redemption and exchange
methods, you must have the Transfer Agent hold your shares (without charge) for
you. If you choose to have your Class A Shares in certificate form, you may
redeem or exchange only by written request and you must return your
certificate(s).
The Telephone Redemption--Check to Your Address of Record service and
the Telephone Exchange service, both of which are described below, are
automatically provided unless you notify the Fund in which you have your account
in writing that you do not wish to have such services available with respect to
your account. The Fund reserves the right to modify, terminate or suspend these
procedures upon 60 days' written notice to shareholders. It may be difficult to
reach the Fund by telephone during periods when market or economic conditions
lead to an unusually large volume of telephone requests.
Neither the Fund nor its Transfer Agent is responsible for any
shareholder loss incurred in acting upon written or telephone instructions for
redemption or exchange of Fund shares which are reasonably believed to be
genuine. With respect to such telephone transactions, the Fund will follow
reasonable procedures to confirm that instructions communicated by telephone are
genuine (including verification of a form of personal identification) as, if it
does not, the Fund or its 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
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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.
CoreStates Bank, N.A.'s fee (currently $7.50) will be deducted from your
redemption proceeds. If you ask for a check, it will normally be mailed the next
business day after receipt of your redemption request to your predesignated bank
account. There are no separate fees for this redemption method, but the mail
time may delay getting funds into your bank account. Simply call the Shareholder
Service Center prior to the time the offering price and net asset value are
determined, as noted above.
MoneyLine(SM) On Demand
Through the MoneyLine(SM) On Demand service, you or your investment
dealer may call the Fund to request a transfer of funds from your Fund account
to your predesignated bank account. See MoneyLine(SM) Services under The
Delaware Difference for additional information about this service.
Telephone Exchange
The Telephone Exchange feature is a convenient and efficient way to
adjust your investment holdings as your liquidity requirements and investment
objectives change. You or your investment dealer of record can exchange your
shares into other funds available from the Delaware Investments family under
the same registration, subject to the same conditions and limitations as other
exchanges noted above. As with the written exchange service, telephone exchanges
are subject to the requirements of each fund, as described above. Telephone
exchanges may be subject to limitations as to amounts or frequency.
Systematic Withdrawal Plans
This plan provides shareholders with a consistent monthly (or
quarterly) payment. This is particularly useful to shareholders living on fixed
incomes, since it can provide 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 Fund does not recommend any particular monthly amount, as each
shareholder's situation and needs vary. Payments are normally made by check. In
the alternative, you may elect to have your payments transferred from your Fund
account to your predesignated bank account through the MoneyLine(SM) Direct
Deposit Service. Your funds will normally be credited to your bank account up to
four business days after the payment date. There are no separate fees for this
redemption method. See MoneyLine(SM) Services under The Delaware Difference
for more information about this service.
* * *
Shareholders should not purchase additional shares while participating
in a Systematic Withdrawal Plan.
Redemptions of Class A Shares via a Systematic Withdrawal Plan may be
subject to a Limited CDSC if the original purchase was made at net asset value
within the 12 months prior to the withdrawal and a dealer's commission was paid
on that
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(DVNF-ABC)
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, call the
Shareholder Service Center.
Contingent Deferred Sales Charge for Certain Redemptions of Class A Shares
Purchased at Net Asset Value
A Limited CDSC will be imposed on certain redemptions of Class A Shares
(or shares into which such Class A Shares are exchanged) made within 12 months
of purchase, if such purchases were made at net asset value and triggered the
payment by the Distributor of the dealer's commission previously described. See
Classes of Shares.
The Limited CDSC will be paid to the Distributor and will be equal to
the lesser of 1% of: (1) the net asset value at the time of purchase of ^ 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.
Redemptions of such Class A Shares held for more than 12 months will
not be subjected to the Limited CDSC and an exchange of such Class A Shares into
another 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 12-month holding period. The Limited CDSC is assessed if
such 12-month period is not satisfied irrespective of whether the redemption
triggering its payment is of Class A Shares of the 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 the Fund's right to liquidate a shareholder's account if the aggregate net
asset value of the shares held in the account is less than the then-effective
minimum account size; and (ii) redemptions by the classes of shareholders who
are permitted to purchase shares at net asset value, regardless of the size of
the purchase (see Buying Class A Shares at Net Asset Value under Classes of
Shares).
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<PAGE>
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 the 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 Fund declares a dividend to all shareholders of record at the time
the offering price of shares is determined. See Purchase Price and Effective
Date under How to Buy Shares. Thus, when redeeming shares, dividends continue to
be credited up to and including the date of redemption.
The Fund's dividends are declared daily and paid monthly. Payment by
check of cash dividends will ordinarily be mailed within three business days
after the payable date. Distributions from net realized securities profits, if
any, will be distributed once a year.
Purchases of Fund shares by wire begin earning dividends when converted
into Federal Funds and available for investment, normally the next business day
after receipt. However, if the Fund is given prior notice of Federal Funds wire
and an acceptable written guarantee of timely receipt from an investor
satisfying the Fund's credit policies, the purchase will start earning dividends
on the date the wire is received. Purchases by check earn dividends upon
conversion to Federal Funds, normally one business day after receipt.
Each Class of the Fund will share proportionately in the investment
income and expenses of the Fund, except that the per share dividends from net
investment income on the Class A Shares, the Class B Shares and the 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 Fund.
Both dividends and distributions, if any, are automatically reinvested
in your account at net asset value unless you elect otherwise. Any payment by
check of dividends or other distributions which cannot be delivered by the
United States Post Office or which remains uncashed for a period of more than
one year may be reinvested in your account at the then-current net asset value
and the dividend option may be changed from cash to reinvest. If you elect to
take your dividends and distributions in cash and such dividends and
distributions are in an amount of $25 or more, you may choose the MoneyLine(SM)
Direct Deposit Service and have such payments transferred from your Fund account
to your predesignated bank account. See MoneyLine(SM) Services under The
Delaware Difference for more information about this service.
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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 the 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
Fund and its distributions to you, they are discussed in Part B. Changes in the
treatment of capital gains, however, are discussed in this section.
The Fund has qualified, and intends to continue to qualify, as a
regulated investment company under Subchapter M of the Code. As such, the 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 its income and diversification of
its assets. The Fund is treated as a separate entity for federal income tax
purposes.
The Fund intends to distribute substantially all of its net investment
income and net capital gains, if any. Dividends from net investment income or
net short-term capital gains will be taxable to those investors who are subject
to income taxes as ordinary income, whether received in cash or in additional
shares. No portion of the Fund's dividends will be eligible for the
dividends-received deduction for corporations.
Distributions of net interest income from tax-exempt obligations that
are designated by the Fund as exempt-interest dividends are excludable from the
gross income of the Fund's shareholders. Distributions paid by the Fund from
long-term capital gains, whether received in cash or in additional shares, are
taxable to those investors who are subject to income taxes as long-term capital
gains, regardless of the length of time an investor has owned shares in the
Fund. The Fund does 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 the Fund are made shortly before the record date for a
dividend or 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
the Fund's securities were sold and how long they were held by the Fund before
they were sold. 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.
Mutual Funds, Inc. will advise you in its annual information
reporting at calendar year end of the amount of its capital gain distributions
which will qualify for these maximum federal tax rates.
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 the Fund and received by the shareholder
on December 31 of the calendar year in which they are declared.
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The sale of shares of the 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
the 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. 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 the sale of such
shares) if the sale proceeds are reinvested in the Fund or in another fund ^
available from 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.
The automatic conversion of Class B Shares into Class A Shares at the
end of approximately eight years after purchase will be tax-free for federal tax
purposes. See Automatic Conversion of Class B Shares under Classes of Shares.
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.
Each year, Mutual Funds, Inc. will mail to you information on the tax
status of the Fund's dividends and distributions. 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 the Fund.
The 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 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 Accounting and Tax Issues and Distributions and Taxes in Part B for
additional information on tax matters relating to the Fund and its shareholders.
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CALCULATION OF OFFERING PRICE AND NET ASSET VALUE PER SHARE
The net asset value ("NAV") per share is computed by adding the value
of all securities and other assets in the portfolio, deducting any liabilities
(expenses and fees are accrued daily) and dividing by the number of shares
outstanding. Debt securities are priced on the basis of valuations provided by
an independent pricing service using methods approved by Mutual Fund, Inc.'s
Board of Directors. Short-term investments having a maturity of less than 60
days are valued at amortized cost, which approximates market value. All other
securities are valued at their fair value as determined in good faith and in a
method approved by Mutual Funds, Inc.'s Board of Directors. 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 the
Fund will be computed on a pro-rata basis for each outstanding share based on
the proportionate participation in the Fund represented by the value of shares
of that Class. All income earned and expenses incurred by the Fund will be borne
on a pro-rata basis by each outstanding share of a Class, based on each Class'
percentage in the Fund represented by the value of shares of such Classes.
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MANAGEMENT OF THE FUND
Directors
The business and affairs of Mutual Funds, Inc. are managed under the
direction of its Board of Directors. Part B contains additional information
regarding the directors and officers.
Investment Manager
The Manager furnishes investment management services to the Fund.
The Manager and its predecessors have been managing the funds in the
Delaware Investments family since 1938. On December 31, 1997, the Manager
and its affiliates within the Delaware Investments family, including Delaware
International Advisers Ltd., were managing in the aggregate more than $40
billion in assets in the various institutional or separately managed
(approximately $24,040,760,000) and investment company (approximately
$16,482,523,000) accounts.
Prior to May 1, 1997, Voyageur Fund Managers, Inc. ("Voyageur") had
been retained under an investment advisory contract to act as the Fund's
investment adviser, subject to the authority of the Board of Directors. Voyageur
was an indirect, wholly owned subsidiary of Dougherty Financial Group, Inc.
("DFG"). After the close of business on April 30, 1997, Voyageur became an
indirect, wholly owned subsidiary of Lincoln National, as a result of Lincoln
National's acquisition of DFG.
Because Lincoln National's acquisition of DFG resulted in a change of
control of Voyageur, the Fund's previous investment advisory agreement with
Voyageur was "assigned," as that term is defined by the 1940 Act, and the
previous agreement therefore was terminated upon the completion of the
acquisition. The Board of Directors of the Fund unanimously approved a new
investment advisory agreement at the meeting held in person on February 14,
1997, and called for a shareholders meeting to approve the new agreement. At a
meeting held on April 11, 1997, the shareholders of the Fund approved the
investment advisory agreement with the Manager to become effective after the
close of business on April 30, 1997, the date the acquisition was completed.
The Manager administers the affairs of and is ultimately responsible
for the investment management of the Fund under an Investment Management
Agreement with Mutual Funds, Inc. on behalf of the Fund dated April 30, 1997.
Under the Investment Management Agreement for the Fund, the Manager is paid an
annual fee equal to 0.65% of the average daily net assets of the Fund.
The directors annually review fees paid to the Manager.
The Manager is a series of Delaware Management Business Trust. The
Manager changed its form of organization from a corporation to a business trust
on March 1, 1998. The Manager is an indirect, wholly owned subsidiary of
Delaware Management Holdings, Inc. ("DMH"). On April 3, 1995, a merger between
DMH and a wholly owned subsidiary of Lincoln National Corporation ("Lincoln
National") was completed. DMH and the Manager are now indirect, wholly owned
subsidiaries, and subject to the ultimate control, of Lincoln National. Lincoln
National, with headquarters in Fort Wayne, Indiana, is a diversified
organization with operations in many aspects of the financial services industry,
including insurance and investment management.
Patrick P. Coyne and Mitchell L. Conery, each a Vice President/Senior
Portfolio Manager of the Fund, assumed primary responsibility for making the
day-to-day investment decisions for the Fund on May 1, 1997. Mr. Coyne is a
graduate of Harvard University with an MBA from University of Pennsylvania's
Wharton School. Prior to joining Delaware Investments' fixed-income department
in 1990, Mr. Coyne was a manager at 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 1997. He holds a bachelor's degree from
Boston University and an MBA in Finance
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at the State University of New York in 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 such investment decisions for the Fund, 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
1981-1985. He returned to Delaware Investments in 1993 after eight years with
Oppenheimer Management Corporation where he served as Executive Vice President
and Director of Fixed Income.
Portfolio Trading Practices
The Fund normally will not invest for short-term trading purposes.
However, the Fund may sell securities without regard to the length of time they
have been held. The degree of portfolio activity will affect brokerage costs of
the Fund and may affect taxes payable by the Fund's shareholders. A turnover
rate of 100% would occur if all the investments in the Fund's portfolio at the
beginning of the year were replaced by the end of the year.
The 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
to their advisory clients. These services may be used by the Manager in
servicing any of its accounts. Subject to best price and execution, the Fund 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, the Fund may quote yield or total return performance
of the 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 that Class during a recent 30-day
period by the maximum offering price per share on the last day of the period.
The yield formula provides for semi-annual compounding, which assumes that net
investment income is earned and reinvested at a constant rate and annualized at
the end of a six-month period.
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- or ten-year, and life-of-the-fund periods, as applicable.
The Fund may also advertise aggregate and average total return information
concerning a Class over additional periods of time. In addition, the Fund may
present total return information that does not reflect the deduction of the
maximum front-end sales charge or any applicable CDSC. In this case, such total
return information would be more favorable than total return information that
includes the deductions of the maximum front-end sales charge or any applicable
CDSC.
Yield and net asset value fluctuate over time and are not guaranteed.
Past performance should not be considered as a representative of future
results.
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Distribution (12b-1) and Service
The Distributor, Delaware Distributors, L.P., serves as the national
distributor of the Fund's shares under a Distribution Agreement with Mutual
Funds, Inc. dated as of March 1, 1997.
Mutual Funds, Inc. has adopted a separate distribution plan under Rule
12b-1 for each of the Class A Shares, Class B Shares and Class C Shares (the
"Plans"). Each Plan permits the Fund to pay the Distributor from the assets of
the 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 the Class. In addition,
the Fund may make payments from the 12b-1 plan fees of its respective Class
directly to others, such as banks, who aid in the distribution of Class shares
or provide services in respect of a Class, pursuant to service agreements with
Mutual Funds, Inc.
The 12b-1 Plan expenses relating to each of the 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.
The aggregate fees paid by the Fund from the assets of its Classes to
the Distributor and others under the Plans may not exceed (i) 0.25% of the Class
A Shares' average daily net assets in any year, and (ii) 1% (0.25% of which are
service fees to be paid to the Distributor, dealers and others for providing
personal service and/or maintaining shareholder accounts) of each of the Class B
Shares' and Class C Shares' average daily net assets in any year. 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. 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.
While payments pursuant to the Plans may not exceed 0.25% annually with
respect to Class A Shares, and 1% annually with respect to each of the Class B
Shares and Class C Shares, the Plans do not limit fees to amounts actually
expended by the Distributor. It is therefore possible that the Distributor may
realize a profit in any particular year. However, the Distributor currently
expects that its distribution expenses will likely equal or exceed payments to
it under the Plans. The monthly fees paid to the Distributor under the Plans
are subject to the review and approval of Mutual Funds, Inc.'s unaffiliated
directors, who may reduce the fees or terminate the Plans at any time.
The Transfer Agent, Delaware Service Company, Inc., serves as the
shareholder servicing, dividend disbursing and transfer agent for the Fund
pursuant to an amended and restated agreement dated as of April 30, 1997. The
Transfer Agent also provides accounting services to the Fund pursuant to the
terms of a separate Fund Accounting Agreement.
The directors of Mutual Funds, Inc. annually review service 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 Fund could be adversely affected if the
computer systems used by its service providers do not properly process and
calculate date-related information from and after January 1, 2000. This is
commonly known as the "Year 2000 Problem." Mutual Funds, Inc. is taking steps to
obtain satisfactory assurances that the Fund's 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 Fund.
Expenses
The Fund is responsible for all of its own expenses other than those
borne by the Manager under the Investment Management Agreement and those borne
by the Distributor under the Distribution Agreement.
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
the Fund and to pay the Fund's expenses to the extent necessary to ensure that
the Fund's total operating expenses (excluding 12b-1 plan fees,
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interest expense, taxes, brokerage fees and commissions) do not exceed, on an
annual basis, 1.00% of the average daily net assets of each Class of the Fund.
This agreement replaces a similar provision in the Fund's investment advisory
contracts with the Fund's predecessor investment adviser. The Manager and the
Distributor reserve the right to voluntarily waive their fees in whole or part
and to voluntarily pay or reimburse certain other of the Fund's expenses. See
Summary of Expenses for current fee waivers and reimbursements.
The ratios of expenses to average daily net assets for Class A Shares,
Class B Shares and Class C Shares of the Fund for the fiscal year ended December
31, 1997 were 0.84%, 1.56% and 1.62%. The expense ratio of each Class reflects
the impact of its 12b-1 Plan and the fee waivers and payments by the Manager and
Voyageur. Without these waivers and payments, the ratio of operating expenses to
average daily net assets would have been 1.12% for Class A Shares, 1.84% for
Class B Shares and 1.90% for Class C Shares.
Shares
Mutual Funds, Inc. is an open-end management investment company. The
Fund's portfolio of assets is non-diversified as defined by the 1940 Act.
Commonly known as a mutual fund, Mutual Funds, Inc. was organized as a Minnesota
corporation in April 1993. In addition to the Fund, Mutual Funds, Inc. presently
offers seven other series of shares, the Delaware-Voyageur Tax-Free Iowa Fund,
Delaware-Voyageur Tax-Free Wisconsin Fund, Delaware-Voyageur Tax-Free Idaho
Fund, Delaware-Voyageur Tax-Free Arizona Fund, Delaware-Voyageur Tax-Free
California Fund, Delaware-Voyageur Tax-Free New York Fund and Delaware-Voyageur
Minnesota High Yield Municipal Bond Fund. Fund shares have a par value of $.01,
equal voting rights, except as noted below, and are equal in all other respects.
Each fund will vote separately on any matter which affects only that fund.
Shares of each fund have a priority over shares of any other Mutual Funds, Inc.
in the assets and income of that fund.
All shares of the Fund have noncumulative voting rights which means
that the holders of more than 50% of Mutual Funds, Inc.'s shares voting for the
election of directors can elect 100% of the directors if they choose to do so.
Under Minnesota law, Mutual Funds, Inc. is not required, and does not intend, to
hold annual meetings of shareholders unless, under certain circumstances, it is
required to do so under the 1940 Act.
Shares of each Class represent proportionate interests in the assets of
the Fund and have the same voting and other rights and preferences as the other
classes of the Fund. The shareholders of 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 of a Fund may vote
on any proposal to increase materially the fees to be paid by the Fund under the
12b-1 Plan relating to Class A Shares.
Beginning June 9, 1997, the name of Voyageur National High Yield
Municipal Bond Fund changed to National High Yield Municipal Bond Fund.
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OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS
Municipal Obligations
As used in this Prospectus, the term "Municipal Obligations" refers to
debt obligations issued by or on behalf of a state or territory or its agencies,
instrumentalities, municipalities and political subdivisions. The term
"Municipal Obligations" also includes Derivative Municipal Obligations as
defined below.
Municipal Obligations are primarily debt obligations issued to obtain
funds for various public purposes such as constructing public facilities and
making loans to public institutions. The two principal classifications of
Municipal Obligations are general obligation bonds and revenue bonds. General
obligation bonds are generally secured by the full faith and credit of an issuer
possessing general taxing power and are payable from the issuer's general
unrestricted revenues and not from any particular fund or revenue source.
Revenue bonds are payable only from the revenues derived from a particular
source or facility, such as a tax on particular property or revenues derived
from, for example, a municipal water or sewer utility or an airport. Municipal
Obligations that benefit private parties in a manner different than members of
the public generally (so-called private activity bonds or industrial development
bonds) are in most cases revenue bonds, payable solely from specific revenues of
the project to be financed. The credit quality of private activity bonds is
usually directly related to the creditworthiness of the user of the facilities
(or the creditworthiness of a third-party guarantor or other credit enhancement
participant, if any).
Within these principal classifications of Municipal Obligations, there
is a variety of types of municipal securities. Certain Municipal Obligations may
carry variable or floating rates of interest whereby the rate of interest is not
fixed but varies with changes in specified market rates or indexes, such as a
bank prime rate or a tax-exempt money market index. Accordingly, the yield on
such obligations can be expected to fluctuate with changes in prevailing
interest rates. Other Municipal Obligations are zero coupon securities, which
are debt obligations which do not entitle the holder to any periodic interest
payments prior to maturity and are issued and traded at a discount from their
face amounts. The market prices of zero coupon securities are generally more
volatile than the market prices of securities that pay interest periodically.
Municipal Obligations also include state or municipal leases and
participation interests therein. The Fund may invest in these types of
obligations without limitation. Municipal leases are obligations issued by state
and local governments or authorities to finance the acquisition of equipment and
facilities such as fire, sanitation or police vehicles or telecommunications
equipment, buildings or other capital assets. Municipal lease obligations,
except in certain circumstances, are considered illiquid by the staff of the
SEC. Municipal lease obligations held by the Fund will be treated as illiquid
unless they are determined to be liquid pursuant to guidelines established by
Mutual Funds, Inc.'s Board of Directors. Under these guidelines, the Fund's
investment adviser will consider factors including, but not limited to (1)
whether the lease can be canceled, (2) what assurance there is that the assets
represented by the lease can be sold, (3) the municipality's general credit
strength (e.g., its debt, administrative, economic and financial
characteristics), (4) the likelihood that the municipality will discontinue
appropriating funding for the leased property because the property is no longer
deemed essential to the operations of the municipality (e.g., the potential for
an "event of non-appropriation"), and (5) the legal recourse in the event of
failure to appropriate. Additionally, the lack of an established trading market
for municipal lease obligations may make the determination of fair market value
more difficult. See Municipal Obligations under Investment Restrictions and
Policies in Part B.
The Fund may also acquire Derivative Municipal Obligations, which are
custodial receipts or trust certificates ("custodial receipts") underwritten by
securities dealers or banks that evidence ownership of future interest payments,
principal payments or both on certain Municipal Obligations. The underwriter of
these certificates or receipts typically purchases and deposits the securities
in an irrevocable trust or custodial account with a custodian bank, which then
issues receipts or certificates that evidence ownership of the periodic
unmatured coupon payments and the final principal payment on the obligations.
Although under the terms of a custodial
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receipt or trust certificate, the Fund may be authorized to assert its rights
directly against the issuer of the underlying obligation, the Fund could be
required to assert through the custodian bank those rights as may exist against
the underlying issuer. Thus, in the event the underlying issuer fails to pay
principal and/or interest when due, the Fund may be subject to delays, expenses
and risks that are greater than those that would have been involved if the Fund
had purchased a direct obligation of the issuer.
In addition, in the event that the trust or custodial account in which
the underlying security had been deposited is determined to be an association
taxable as a corporation, instead of a non-taxable entity, it would be subject
to state income tax (but not federal income tax) on the income it earned on the
underlying security, and the yield on the security paid to the Fund and its
shareholders would be reduced by the amount of taxes paid. Furthermore, amounts
paid by the trust or custodial account to the Fund would lose their tax-exempt
character and become taxable, for federal and state purposes, in the hands of
the Fund and its shareholders. However, the Fund will only invest in custodial
receipts which are accompanied by a tax opinion stating that interest payable on
the receipts is tax-exempt. If the Fund invests in custodial receipts, it is
possible that a portion of the discount at which the Fund purchases the receipts
might have to be accrued as taxable income during the period that the Fund holds
the receipts.
The principal and interest payments on the Derivative Municipal
Obligations underlying custodial receipts or trust certificates may be allocated
in a number of ways. For example, payments may be allocated such that certain
custodial receipts or trust certificates may have variable or floating interest
rates and others may be stripped securities which pay only the principal or
interest due on the underlying Municipal Obligations. The Fund may also invest
in custodial receipts or trust certificates which are "inverse floating
obligations" (also sometimes referred to as "residual interest bonds"). These
securities pay interest rates that vary inversely to changes in the interest
rates of specified short term Municipal Obligations or an index of short-term
Municipal Obligations. Thus, as market interest rates increase, the interest
rates on inverse floating obligations decrease. Conversely, as market rates
decline, the interest rates on inverse floating obligations increase. Such
securities have the effect of providing a degree of investment leverage, since
the interest rates on such securities will generally change at a rate which is a
multiple of the change in the interest rates of the specified Municipal
Obligations or index. As a result, the market values of inverse floating
obligations will generally be more volatile than the market values of other
Municipal Obligations and investments in these types of obligations will
increase the volatility of the net asset value of shares of the Fund.
Illiquid Securities
The Fund may invest up to 15% of its net assets in illiquid securities.
A security is considered illiquid if it cannot be sold in the ordinary course of
business within seven days at approximately the price at which it is valued.
Illiquid securities may offer a higher yield than securities which are more
readily marketable, but they may not always be marketable on advantageous terms.
The sale of illiquid securities often requires more time and results in
higher brokerage charges or dealer discounts than does the sale of securities
eligible for trading on national securities exchanges or in the over-the-counter
markets. The Fund may be restricted in its ability to sell such securities at a
time when the Manager deems it advisable to do so. In addition, in order to meet
redemption requests, the Fund may have to sell other assets, rather than such
illiquid securities, at a time which is not advantageous.
Certain securities in which the Fund may invest, including municipal
lease obligations, certain restricted securities and commercial paper issued
pursuant to the private placement exemption of Section 4(2) of the 1933 Act,
historically have been considered illiquid by the staff of the SEC. In
accordance with more recent staff positions, however, the Fund will treat such
securities as liquid and not subject to the above 15% limitation when they have
been determined to be liquid by the Fund's investment adviser subject to the
oversight of and pursuant to procedures adopted by the Fund's Board of
Directors. See Illiquid Investments under Investment Restrictions and Policies ^
in Part B.
Forward Commitments
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New issues of Municipal Obligations and other securities are often
purchased on a "when issued" or delayed delivery basis, with delivery and
payment for the securities normally taking place 15 to 45 days after the date of
the transaction. The payment obligation and the interest rate that will be
received on the securities are each fixed at the time the buyer enters into the
commitment. The 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 the Fund's total assets which may be invested in
forward commitments. Municipal Obligations purchased on a when-issued basis and
the securities held in the Fund's portfolio are subject to changes in value
(both generally changing in the same way, i.e., appreciating when interest rates
decline and depreciating when interest rates rise) based upon the public's
perception of the creditworthiness of the issuer and changes, real or
anticipated, in the level of interest rates. Municipal Obligations purchased on
a when-issued basis may expose the Fund to risk because they may experience such
fluctuations prior to their actual delivery. Purchasing Municipal Obligations on
a when-issued basis can involve the additional risk that the yield available in
the market when the delivery takes place actually may be higher than that
obtained in the transaction itself. Any significant commitment by the Fund to
the purchase of securities on a when-issued basis may increase the volatility of
the Fund's net asset value. Although the Fund will generally enter into forward
commitments with the intention of acquiring securities for its portfolio, it may
dispose of a commitment prior to settlement if the Fund's Manager deems it
appropriate to do so. The Fund may realize short-term profits or losses upon the
sale of forward commitments.
Repurchase Agreements
The 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. The 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, the Fund may enter into repurchase agreements with banks or
broker/dealers deemed to be creditworthy by the Manager, under guidelines
approved by Mutual Funds, Inc.'s Board of Directors. A repurchase agreement is
a short-term investment in which the purchaser (i.e. the 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 the Fund, if any, would be the difference between the repurchase price
and the market value of the security. The Fund will limit its investments in
repurchase agreements to those which the Manager under guidelines of the Board
of Directors determines to present minimal credit risks and which are of high
quality. In addition, the Fund must have collateral of at least 102% of the
repurchase price, including the portion representing the Fund's yield under such
agreements, which is monitored on a daily basis.
The funds in the Delaware Investments family have obtained an exemption
from the joint-transaction prohibitions of Section 17(d) of the 1940 Act to
allow funds in the Delaware Investments family jointly to invest cash balances.
The Fund may invest cash balances in a joint repurchase agreement in accordance
with the terms of the Order and subject generally to the conditions described
above.
Reverse Repurchase Agreements
The Fund may engage in "reverse repurchase agreements" with banks and
securities dealers with respect to not more than 10% of its total assets.
Reverse repurchase agreements are ordinary repurchase agreements in which the
Fund is the seller of, rather than the investor in, securities and agrees to
repurchase them at an agreed upon time and price. Use of a reverse repurchase
agreement may be preferable to a regular sale and later repurchase of the
securities because it avoids certain market risks and transaction costs. Because
certain of the incidents of ownership of the security are retained by the Fund,
reverse repurchase agreements are considered a form of borrowing by the Fund
from the buyer, collateralized by the security. At the time the Fund enters into
a reverse repurchase agreement, cash or liquid securities having a value
sufficient to make payments for the securities to be repurchased will be
segregated, and will be marked to market daily and maintained throughout the
period of the obligation. Reverse repurchase
-46-
<PAGE>
agreements may be used as a means of borrowing for investment purposes subject
to the 10% limitation set forth above. This speculative technique is referred to
as leveraging. Leveraging may exaggerate the effect on net asset value of any
increase or decrease in the market value of the Fund's portfolio. Money borrowed
for leveraging will be subject to interest costs which may or may not be
recovered by income from or appreciation of the securities purchased. Because
the Fund does not currently intend to utilize reverse repurchase agreements in
excess of 10% of total assets, the Fund believes the risks of leveraging due to
use of reverse repurchase agreements to principal are reduced. The Manager
believes that the limited use of leverage may facilitate the Fund's ability to
provide high current income.
Options and Futures
The Fund may utilize put and call transactions and may utilize futures
transactions to hedge against market risk and facilitate portfolio management.
See Options and Futures under Investment Restrictions and Policies in Part B.
Options and futures may be used to attempt to protect against possible declines
in the market value of the Fund's portfolio resulting from downward trends in
the debt securities markets (generally due to a rise in interest rates), to
protect the Fund's unrealized gains in the value of its portfolio securities, to
facilitate the sale of such securities for investment purposes, to manage the
effective maturity or duration of the Fund's portfolio or to establish a
position in the securities markets as a temporary substitute for purchasing
particular securities. The use of options and futures is a function of market
conditions. Other transactions may be used by the Fund in the future for hedging
purposes as they are developed to the extent deemed appropriate by ^ Mutual
Funds, Inc.'s Board of Directors.
Options on Securities
The 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, the Fund would be in a position to realize
a gain if, during the option period, the price of the security increased by an
amount in excess of the premium paid. It would realize a loss if the price of
the security declined or remained the same or did not increase during the period
by more than the amount of the premium. In purchasing a put option, the Fund
would be in a position to realize a gain if, during the option period, the price
of the security declined by an amount in excess of the premium paid. It would
realize a loss if the price of the security increased or remained the same or
did not decrease during that period by more than the amount of the premium. If a
put or call option purchased by the Fund were permitted to expire without being
sold or exercised, its premium would be lost by the Fund.
If a put option written by the Fund were exercised, the Fund would be
obligated to purchase the underlying security at the exercise price. If a call
option written by the Fund were exercised, the Fund would be obligated to sell
the underlying security at the exercise price. The risk involved in writing a
put option is that there could be a decrease in the market value of the
underlying security caused by rising interest rates or other factors. If this
occurred, the option could be exercised and the underlying security would then
be sold to the Fund at a higher price than its current market value. The risk
involved in writing a call option is that there could be an increase in the
market value of the underlying security caused by declining interest rates or
other factors. If this occurred, the option could be exercised and the
underlying security would then be sold by the Fund at a lower price than its
current market value. These risks could be reduced by entering into a closing
transaction as described in Appendix A - General Characteristics and Risks of
Options and Futures in Part B. The Fund retains the premium received from
writing a put or call option whether or not the option is exercised.
-47-
<PAGE>
Over-the-counter options are purchased or written by the Fund in
privately negotiated transactions. Such options are illiquid, and it may not be
possible for the Fund to dispose of an option it has purchased or terminate its
obligations under an option it has written at a time when the Manager believes
it would be advantageous to do so. Over-the-counter options are subject to the
Fund's 15% illiquid investment limitation. See Appendix A - General
Characteristics and Risks of Options and Futures in 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 Fund would not be subject absent the use of this
strategy. If the Manager's predictions of movements in the direction of the
securities and interest rate markets are inaccurate, the adverse consequences to
the Fund may leave the Fund in a worse position than if such strategy was not
used. Risks inherent in the use of options include (a) dependence on the
Manager's ability to predict correctly movements in the direction of interest
rates and security prices; (b) imperfect correlation between the price of
options and movements in the prices of the securities being hedged; (c) the fact
that the skills needed to use these strategies are different from those needed
to select portfolio securities; (d) the possible absence of a liquid secondary
market for any particular instrument at any time; and (e) the possible need to
defer closing out certain hedged positions to avoid adverse tax consequences.
See Risks of Transactions in Futures Contracts and Options under Investment
Restrictions and Policies and Appendix A - General Characteristics and Risks of
Options and Futures in Part B for further discussion and for a discussion of
closing transactions and other risks.
Futures Contracts and Options on Futures Contracts
The 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 the Fund may invest ("futures
contracts") and may purchase and write put and call options to buy or sell
futures contracts ("options on futures contracts"). 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 the Fund will be
traded on exchanges or over-the-counter. The successful use of such instruments
draws upon the Manager's experience with respect to such instruments and usually
depends upon the Manager's ability to forecast interest rate movements
correctly. Should interest rates move in an unexpected manner, the Fund may not
achieve the anticipated benefits of futures contracts or options on futures
contracts or may realize losses and would thus be in a worse position than if
such strategies had not been used. In addition, the correlation between
movements in the price of futures contracts or options on futures contracts and
movements in the prices of the securities hedged or used for cover will not be
perfect.
The Fund's use of financial futures and options thereon will in all
cases be consistent with applicable regulatory requirements. To the extent
required to comply with applicable SEC releases and staff positions, when
purchasing a futures contract or writing a put option, the Fund will maintain in
a segregated account cash or liquid securities equal to the value of such
contracts, less any margin on deposit. In addition, the rules and regulations of
the Commodity Futures Trading Commission ("CFTC") currently require that, in
order to avoid "commodity pool operator" status, the Fund must use futures and
options positions (a) for "bona fide hedging purposes" (as defined in the
regulations) or (b) for other purposes so long as aggregate initial margins and
premiums required in connection with non-hedging positions do not exceed 5% of
the liquidation value of the Fund's portfolio. There are no other numerical
limits on the Fund's use of futures contracts and options on futures contracts.
For a discussion of the tax treatment of futures contracts and options on
futures contracts, see Taxes in Part B. For a further discussion of the general
characteristics and risks of futures, see Appendix A - General Characteristics
and Risks of Options and Futures in Part B.
Concentration Policy
As a fundamental policy, the Fund may not invest 25% or more of its
total assets in the securities of any industry, although, for purposes of this
limitation, tax-exempt securities and U.S. government obligations are not
considered to be part of any industry.
-48-
<PAGE>
The Fund may invest 25% or more of its total assets in industrial development
revenue bonds. In addition, it is possible that the Fund from time to time will
invest 25% or more of its total assets in a particular segment of the municipal
bond market, such as housing, health care, utility, transportation, education or
industrial obligations. In such circumstances, economic, business, political or
other changes affecting one bond (such as proposed legislation affecting the
financing of a project; shortages or price increases of needed materials; or a
declining market or need for the project) might also affect other bonds in the
same segment, thereby potentially increasing market or credit risk. For a
discussion of these segments of the municipal bond market, see Concentration
Policy under Investment Restrictions and Policies in Part B.
Mutual Funds Inc.'s Board may change any of the foregoing policies that
are not specifically designated fundamental.
Investment Restrictions
The 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 the Fund may not borrow
money, except from banks for temporary or emergency purposes in an amount not
exceeding 20% of the value of its total assets (the Fund may also borrow money
in the form of reverse repurchase agreements up to 10% of total assets). See
Investment Restrictions under Investment Restrictions and Policies in Part B.
The Fund also has a number of non-fundamental investment restrictions
which may be changed by Mutual Funds, Inc.'s Board of Directors without
shareholder approval. These include restrictions providing that the Fund may not
(i) invest more than 5% of its total assets in securities of any single
investment company, (ii) invest more than 10% of its total assets in securities
of two or more investment companies, (iii) invest more than 15% of its net
assets in illiquid securities or (iv) pledge, hypothecate, mortgage or otherwise
encumber its assets in excess of 10% of net assets. If the Fund invests in
securities of other investment companies, the return on any such investments
will be reduced by the operating expenses, including investment advisory and
administrative fees, of such investment companies.
Except for the Fund's policy with respect to borrowing, any investment
restriction or limitation which involves a maximum percentage of securities or
assets shall not be considered to be violated unless an excess over the
percentage occurs immediately after an acquisition of securities or a
utilization of assets and such excess results therefrom.
* * *
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.
-49-
<PAGE>
APPENDIX A -- RATINGS
The following table sets forth the weighted average percentage of total
investments with respect to the portfolio of the Fund during the year ended as
of December 31, 1997.
- --------------------------------------------------------------------------------
Moody's Rating Aaa Aa A Baa Ba B Unrated
(S&P Rating) (AAA) (AA) (A) (BBB) (BB) (B) Bonds Total
================================================================================
National High Yield
Municipal Bond Fund -- 3% 5% 23% 2% 0% 67% 100%
================================================================================
Earnings and Dividend Rankings for Common Stocks
Standard & Poor's Ratings Group. The investment process involves
assessment of various factors -- such as product and industry position,
corporate resources and financial policy -- with results that make some common
stocks more highly esteemed than others. In this assessment, Standard & Poor's
believes that earnings and dividend performance is the end result of the
interplay of these factors and that, over the long run, the record of this
performance has a considerable bearing on relative quality. The rankings,
however, do not pretend to reflect all of the factors, tangible or intangible,
that bear on stock quality.
Relative quality of bonds or other debt, that is, degrees of protection
for principal and interest, called creditworthiness, cannot be applied to common
stocks, and therefore rankings are not to be confused with bond quality ratings
which are arrived at by a necessarily different approach.
Growth and stability of earnings and dividends are deemed key elements
in establishing Standard & Poor's earnings and dividend rankings for common
stocks, which are designed to capsulize the nature of this record in a single
symbol. It should be noted, however, that the process also takes into
consideration certain adjustments and modifications deemed desirable in
establishing such rankings.
The point of departure in arriving at these rankings is a computerized
scoring system based on per-share earnings and dividend records of the most
recent ten years -- a period deemed long enough to measure significant time
segments of secular growth, to capture indications of basic change in trend as
they develop, and to encompass the full peak-to-peak range of the business
cycle. Basic scores are computed for earnings and dividends, then adjusted as
indicated by a set of predetermined modifiers for growth, stability within
long-term trend, and cyclicality. Adjusted scores for earnings and dividends are
then combined to yield a final score.
Further, the ranking system makes allowance for the fact that, in
general, corporate size imparts certain recognized advantages from an investment
standpoint. Conversely, minimum size limits (in terms of corporate sales volume)
are set for the various rankings, but the system provides for making exceptions
where the score reflects an outstanding earnings-dividend record.
-50-
<PAGE>
The final score for each stock is measured against a scoring matrix
determined by analysis of the scores of a large and representative sample of
stocks. The range of scores in the array of this sample has been aligned with
the following ladder of rankings:
A+ Highest B+ Average C Lowest
A High B Below Average D In Reorganization
A- Above Average B Lower
NR signifies no ranking because of insufficient data or because the
stock is not amenable to the ranking process.
The positions as determined above may be modified in some instances by
special considerations, such as natural disasters, massive strikes, and
non-recurring accounting adjustments.
A ranking is not a forecast of future market price performance, but is
basically an appraisal of past performance of earnings and dividends, and
relative current standing. These rankings must not be used as market
recommendations; a high-score stock may at times be so overpriced as to justify
its sale, while a low-score stock may be attractively priced for purchase.
Rankings based upon earnings and dividend records are no substitute for complete
analysis. They cannot take into account potential effects of management changes,
internal company policies not yet fully reflected in the earnings and dividend
record, public relations standing, recent competitive shifts, and a host of
other factors that may be relevant to investment status and decision.
Bonds
The ratings list below can be further described as follows. For all
categories lower than Aaa, Moody's Investors Service, Inc. includes a "1","2"
or "3" following the rating to designate a high, medium or low rating,
respectively. Similarly, for all categories lower than AAA, Standard & Poor's
Ratings Group and Fitch IBCA, Inc. may add a "+" or "-" following the rating to
characterize a higher or lower rating, respectively.
<TABLE>
<CAPTION>
<S> <C> <C>
Moody's Investors Aaa Highest quality, smallest degree of investment risk.
Service, Inc. Aa High quality; together with Aaa bonds, they compose the high-grade
bond group
A Upper-medium-grade obligations; many favorable investment
attributes.
Baa Medium-grade obligations; neither
highly protected nor poorly secured.
Interest and principal appear adequate
for the present, but certain protective
elements may be lacking or may be
unreliable over any great length of
time.
Ba More uncertain with speculative elements. Protective of interest and principal
payments not well safeguarded in good and bad times.
B Lack characteristics of desirable
investment; potentially low assurance
of timely interest and principal
payments or maintenance of other
contract terms over time.
Caa Poor standing, may be in default; elements of danger with respect to principal or
interest payments.
Ca Speculative in high degree; could be in default or have other marked
shortcomings.
C Lowest rated. Extremely poor prospects of ever attaining investment
standing.
Standard & Poor's AAA Highest rating; extremely strong capacity to pay principal and interest.
Ratings Group AA High quality; very strong capacity to pay principal and interest.
</TABLE>
-51-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
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
CCC, CC required interest and principal payments. BB-lowest degree of speculation; CC-the
highest degree of speculation. Quality and protective characteristics outweighed by
large uncertainties or major risk exposure to adverse conditions.
D In default.
Fitch IBCA, Inc. AAA Highest quality; obligor has exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA Very high quality; obligor's ability to
pay interest and repay principal is
very strong. Because bonds rated in the
AAA and AA categories are not
significantly vulnerable to foreseeable
future developments, short-term debt of
these issuers is generally rated F-1+.
A High quality; obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes
in economic conditions and circumstances than higher-rated bonds.
BBB Satisfactory credit quality; obligor's
ability to pay interest and repay
principal is considered adequate.
Unfavorable changes in economic
conditions and circumstances are more
likely to adversely affect these bonds
and impair timely payment. The
likelihood that the ratings of these
bonds will fall below investment grade
is higher than for higher-rated bonds.
BB, Not investment grade; predominantly speculative with respect to the
CCC, issuer'scapacity to repay interest and repay principal in accordance with
CC, C the terms of the obligation for bond issues not in default. BB is the
least speculative. C is the most speculative.
</TABLE>
-52-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Commercial Paper
Moody's S&P Fitch
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
State and Municipal Notes
Moody's S&P Fitch
MIG1/
VMIG1 Best quality SP1+ Very strong quality F-1+ Exceptionally strong quality
SP1 Strong grade F-1 Very strong quality
MIG2/
VMIG2 High quality SP2 Satisfactory grade F-2 Good credit quality
MIG3/
VMIG3 Favorable quality F-3 Fair credit quality
MIG4/
VMIG4 Adequate quality
SG Speculative quality SP3 Speculative grade F-S Weak credit quality
Preferred Stock Rating
Moody's Investors Aaa Considered to be a top-quality preferred stock. This rating indicates Service,
Inc. good 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.
</TABLE>
-53-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Baa Considered to be medium-grade, neither highly protected nor poorly
secured. Earnings and asset protection appear adequate at present but
may be questionable over any great length of time.
Ba Considered to have speculative elements and its future cannot be
considered well assured. Earnings and asset protection may be very
moderate and not well safeguarded during adverse periods. Uncertainty
of position characterizes preferred stocks in this class.
B Generally lacks the characteristics of a desirable investment. Assurance
of dividend payments and maintenance of other terms of the issue over
any long period of time may be small.
Caa Likely to be in arrears on dividend payments. This rating designation
does not purport to indicate the future status of payments.
Ca Speculative in a high degree and is likely to be in arrears on dividends
with little likelihood of eventual payment.
C The lowest rated class of preferred or
preference stock. Issues so rated can
be regarded as having extremely poor
prospects of ever attaining any real
investment standing.
Standard & Poor's AAA Has the highest rating that may be assigned by Standard& Poor's to a
Ratings Group preferred stock issue and indicates an extremely strong capacity to pay
the preferred stock obligations.
AA Qualifies as a high-quality fixed income security. The capacity to pay
preferred stock obligations is very strong, although not as
overwhelming as for issues rated "AAA."
A Backed by a sound capacity to pay the
preferred stock obligations, although
it is somewhat more susceptible to the
adverse effects of changes in
circumstances and economic conditions.
BBB Regarded as backed by an adequate
capacity to pay the preferred stock
obligations. Whereas it normally
exhibits adequate protection
parameters, adverse economic conditions
or changing circumstances are more
likely to lead to a weakened capacity
to make payments for a preferred stock
in this category than for issues in the
"A" category.
BB,B, Regarded, on balance, as predominantly speculative with respect to the
CCC issuer's capacity to pay preferred stock obligations. "BB" indicates the
lowest degree of speculation and "CCC" the highest degree of
speculation. While such issues will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or
major risk exposures to adverse conditions.
CC Reserved for a preferred stock issue in arrears on dividends or sinking
fund payments but that is currently paying.
C A non-paying issue.
D A non-paying issue with the issuer in default on
debt instruments.
NR Indicates that no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
PART B--STATEMENT OF ADDITIONAL INFORMATION
APRIL 30, 1998
- --------------------------------------------------------------------------------
VOYAGEUR MUTUAL FUNDS, INC.
- --------------------------------------------------------------------------------
1818 Market Street
Philadelphia, PA 19103
- --------------------------------------------------------------------------------
For Prospectus and Performance of Class A Shares, Class B Shares and
Class C Shares:
Nationwide 800-523-4640
Information on Existing Accounts of Class A Shares, Class B Shares and
Class C Shares:
(SHAREHOLDERS ONLY) Nationwide 800-523-1918
Dealer Services: (BROKER/DEALERS ONLY) Nationwide 800-362-7500
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Cover Page
- --------------------------------------------------------------------------------
Investment Restrictions and Policies
- --------------------------------------------------------------------------------
Accounting and Tax Issues
- --------------------------------------------------------------------------------
Performance Information
- --------------------------------------------------------------------------------
Trading Practices and Brokerage
- --------------------------------------------------------------------------------
Purchasing Shares
- --------------------------------------------------------------------------------
Investment Plans
- --------------------------------------------------------------------------------
Determining Offering Price and Net Asset Value
- --------------------------------------------------------------------------------
Redemption and Repurchase
- --------------------------------------------------------------------------------
Distributions and Taxes
- --------------------------------------------------------------------------------
Investment Management Agreement
- --------------------------------------------------------------------------------
Officers and Directors
- --------------------------------------------------------------------------------
Exchange Privilege
- --------------------------------------------------------------------------------
General Information
- --------------------------------------------------------------------------------
Appendix A -- General Characteristics and Risks of Options and Futures
- --------------------------------------------------------------------------------
Financial Statements
- --------------------------------------------------------------------------------
-1-
<PAGE>
Voyageur Mutual Funds, Inc. ("Mutual Funds, Inc.") is a
professionally-managed mutual fund of the series type. This Statement of
Additional Information ("Part B" of Mutual Funds, Inc.'s registration
statement) describes Delaware-Voyageur Minnesota High Yield Municipal Bond Fund
series (the "Fund") of Mutual Funds, Inc. The Fund offers Class A Shares, Class
B Shares and Class C Shares (individually, a "Class" and collectively the
"Classes").
Class B Shares and Class C Shares of the Fund may be purchased at a
price equal to the next determined net asset value per share. Class A Shares may
be purchased at the public offering price, which is equal to the next determined
net asset value per share, plus a front-end sales charge. Class A Shares are
subject to a maximum front-end sales charge of 3.75% and annual 12b-1 Plan
expenses of up to 0.25%. Class B Shares are subject to a contingent deferred
sales charge ("CDSC") which may be imposed on redemptions made within six years
of purchase and annual 12b-1 Plan expenses of up to 1% which are assessed
against Class B Shares for approximately eight years after purchase. See
Automatic Conversion of Class B Shares under Classes of Shares in the Fund's
Prospectus. Class C Shares are subject to a CDSC which may be imposed on
redemptions made within 12 months of purchase and annual 12b-1 Plan expenses of
up to 1% which are assessed against Class C Shares for the life of the
investment.
This Part B supplements the information contained in the current
Prospectus for the Fund dated April 30, 1998 as it may be amended from time to
time. It should be read in conjunction with the Prospectus. Part B is not itself
a prospectus but is, in its entirety, incorporated by reference into the
Prospectus. A Prospectus may be obtained by writing or calling your investment
dealer or by contacting the Fund's national distributor, Delaware Distributors,
L.P. (the "Distributor"), 1818 Market Street, Philadelphia, PA 19103.
All references to "shares" in this Part B refer to all Classes of
shares of the Fund, except where noted.
-2-
<PAGE>
INVESTMENT RESTRICTIONS AND POLICIES
Investment Restrictions
The Fund has adopted certain investment restrictions set forth below
which, together with the investment objectives of the Fund and other policies
which are specifically identified as fundamental in the Prospectus or herein
cannot be changed without approval by holders of a majority of the outstanding
voting shares of the Fund. As defined in the Investment Company Act of 1940
(the "1940 Act"), this means the lesser of the vote of (1) 67% of the shares of
the Fund at a meeting where more than 50% of the outstanding shares of the Fund
are present in person or by proxy or (2) more than 50% of the outstanding shares
of the Fund. The following investment restrictions apply to the Fund. The Fund
will not:
(1) Borrow money (provided that the Fund may enter into reverse
repurchase agreements with respect to not more than 10% of its total assets),
except from banks for temporary or emergency purposes in an amount not exceeding
20% of the value of the Fund's total assets, including the amount borrowed. The
Fund may not borrow for leverage purposes, provided that the Fund may enter into
reverse repurchase agreements for such purposes, and securities will not be
purchased while outstanding borrowings exceed 5% of the value of the Fund's
total assets.
(2) Underwrite securities issued by other persons except to the extent
that, in connection with the disposition of portfolio investments, the Fund may
be deemed to be an underwriter under federal securities laws.
(3) Purchase or sell real estate, although it may purchase securities
which are secured by or represent interests in real estate.
(4) Make loans, except by purchase of debt obligations in which the
Fund may invest consistent with its investment policies, and through repurchase
agreements.
(5) Invest 25% or more if its total assets in the securities of any
industry, although, for purposes of this limitation, tax-exempt securities and
U.S. government obligations are not considered to be part of any industry.
(6) Issue any senior securities (as defined in the 1940 Act), except as
set forth in investment restriction number (1) above, and except to the extent
that using options, futures contracts and options on futures contracts,
purchasing or selling on a when-issued or forward commitment basis or using
similar investment strategies may be deemed to constitute issuing a senior
security.
(7) Purchase or sell commodities or futures or options contracts with
respect to physical commodities. This restriction shall not restrict the Fund
from purchasing or selling, on a basis consistent with any restrictions
contained in its then-current Prospectus, any financial contracts or instruments
which may be deemed commodities (including, by way of example and not by way of
limitation, options, futures, and options on futures with respect, in each case,
to interest rates, currencies, stock indices, bond indices or interest rate
indices).
The following non-fundamental investment restrictions may be changed by
the Board of the Fund at any time. The Fund will not:
(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) Write puts if, as a result, more than 50% of the Fund's assets
would be required to be segregated to cover such puts.
(4) Make short sales of securities or maintain a short position for
the account of the Fund, unless at all times when a short position is open it
owns an equal amount of such securities or owns securities which, without
payment of any further consideration, are convertible into or exchangeable for
securities of the same issue as, and equal in amount to, the securities sold
short.
Except for the Fund's policy with respect to borrowing, any investment
restriction or limitation which involves a maximum percentage of securities or
assets shall not be considered to be violated unless an excess over the
percentage occurs immediately after an acquisition of securities or a
utilization of assets and such excess results therefrom.
The investment objectives, policies and restrictions of the Fund are
set forth in the Prospectus. Certain additional investment information is set
forth below.
Diversification
Although the Fund is characterized as a non-diversified fund under the
1940 Act, the Fund intends to conduct its operations so that it will qualify
under the Internal Revenue Code of 1986, amended (the "Code") as a "regulated
investment company." In order to qualify as a regulated investment company, the
Fund must limit its investments so that, at the close of each quarter of the
taxable year, with respect to at least 50% of its total assets, not more than 5%
of its total assets will be invested in the securities of a single issuer. In
addition, the Code requires that not more than 25% in value of the Fund's total
assets may be invested in the securities of a single issuer at the close of each
quarter of the taxable year.
For purposes of such diversification, the identification of the issuer
of Municipal Obligations depends on the terms and conditions of the security. If
a state or a political subdivision thereof pledges its full faith and credit
to payment of a security, the state or the political subdivision,
respectively, is deemed the sole issuer of the security. If the assets and
revenues of an agency, authority or instrumentality of a state or a political
subdivision thereof are separate from those of the state or political
subdivision and the security is backed only by the assets and revenues of the
agency, authority or instrumentality, such agency, authority or instrumentality
is deemed to be the sole issuer. Moreover, if the security is backed only by
revenues of an enterprise or specific projects of the state, a political
subdivision or agency, authority or instrumentality, such as utility revenue
bonds, and the full faith and credit of the governmental unit is not pledged to
the payment thereof, such enterprise or specific project is deemed the sole
issuer.
Similarly, in the case of an industrial development bond, if that bond
is backed only by certain revenues to be received from the non-governmental user
of the project financed by the bond, then such non-governmental user is deemed
to be the sole issuer. If, however, in any of the above cases, a state,
political subdivision or some other entity guarantees a security and the value
of all securities issued or guaranteed by the guarantor and owned by the Fund
exceeds 10% of the value of the Fund's total assets, the guarantee is considered
a separate security and is treated as an issue of the guarantor. Investments in
municipal obligations refunded with escrowed U. S. government securities will
be treated as investments in U. S. government securities for purposes of
determining the Fund's compliance with the 1940 Act diversification
requirements.
Municipal Obligations
Municipal Obligations are generally issued to obtain funds for various
public purposes, including the construction or improvement of a wide range of
public facilities such as airports, bridges, highways, housing, hospitals, mass
transportation, schools, streets and water and sewer works. Other public
purposes for which
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Municipal Obligations may be issued include refunding outstanding obligations,
obtaining funds for general operating expenses and lending such funds to other
public institutions and facilities. In addition, Municipal Obligations may be
issued by or on behalf of public bodies to obtain funds to provide for the
construction, equipping, repair or improvement of housing facilities, convention
or trade show facilities, airport, mass transit, industrial, port or parking
facilities and certain local facilities for water supply, gas, electricity,
sewage or solid waste disposal.
Securities in which the Fund may invest, including Municipal
Obligations, are subject to the provisions of bankruptcy, insolvency,
reorganization and other laws affecting the rights and remedies of creditors,
such as the federal Bankruptcy Code, and laws, if any, which may be enacted by
Congress or a State's legislature extending the time for payment of principal or
interest, or both, or imposing other constraints upon enforcement of such
obligations within constitutional limitations. There is also the possibility
that, as a result of litigation or other conditions, the power or ability of
issuers to meet their obligations for the payment of interest on and principal
of their Municipal Obligations may be materially affected.
From time to time, legislation has been introduced in Congress for the
purpose of restricting the availability of or eliminating the federal income tax
exemption for interest on Municipal Obligations, some of which have been
enacted. Additional proposals may be introduced in the future which, if enacted,
could affect the availability of Municipal Obligations for investment by the
Fund and the value of the Fund's portfolio. In such event, management of the
Fund may discontinue the issuance of shares to new investors and may reevaluate
the Fund's investment objective and policies and submit possible changes in the
structure of the Fund for shareholder approval.
To the extent that the ratings given by Moody's Investors Service, Inc.
("Moody's"), Fitch IBCA, Inc. (formerly Fitch Investors Service, L.P.)
("Fitch"), or Standard & Poor's Ratings Group ("S&P") for Municipal
Obligations may change as a result of changes in such organizations or their
rating systems, the Fund will attempt to use comparable ratings as standards for
their investments in accordance with the investment policies contained in the
Fund's Prospectus and this Part B. The ratings of Moody's, Fitch and S&P
represent their opinions as to the quality of the Municipal Obligations which
they undertake to rate. It should be emphasized, however, that ratings are
relative and subjective and are not absolute standards of quality. Although
these ratings provide an initial criterion for selection of portfolio
investments, Delaware Management Company (the "Manager"), the Fund's
investment manager, will subject these securities to other evaluative criteria
prior to investing in such securities.
Floating and Variable Rate Demand Notes
Variable rate master demand notes, in which the Fund may invest, are
unsecured demand notes that permit the indebtedness thereunder to vary and
provide for periodic adjustments in the interest rate according to the terms of
the instrument. Because master demand notes are direct lending arrangements
between the Fund and the issuer, they are not normally traded. Although there is
no secondary market in the notes, the Fund may 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.
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Such notes are frequently not rated by credit rating agencies; however, unrated
variable and floating rate notes purchased by the Fund will be determined by the
Fund's Manager under guidelines established by the Fund's Board of Directors to
be of comparable quality at the time of purchase to rated instruments eligible
for purchase under the Fund's investment policies. In making such
determinations, the Manager will consider the earning power, cash flow and other
liquidity ratios of the issuers of such notes (such issuers include financial,
merchandising, bank holding and other companies) and will continuously monitor
their financial condition. Although there may be no active secondary market with
respect to a particular variable or floating rate note purchased by the Fund,
the Fund may re-sell the note at any time to a third party. The absence of such
an active secondary market, however, could make it difficult for the Fund to
dispose of the variable or floating rate note involved in the event the issuer
of the note defaulted on its payment obligations, and the Fund could, for this
or other reasons, suffer a loss to the extent of the default. Variable or
floating rate notes may be secured by bank letters of credit.
Variable and floating rate notes for which no readily available market
exists will be purchased in an amount which, together with securities with legal
or contractual restrictions on resale or for which no readily available market
exists (including repurchase agreements providing for settlement more than seven
days after notice), exceed 10% of the Fund's total assets only if such notes are
subject to a demand feature that will permit the Fund to demand payment of the
Principal within seven days after demand by the Fund. If not rated, such
instruments must be found by the Fund's Manager and/or sub-adviser under
guidelines established by the Fund's Board of Directors, to be of comparable
quality to instruments that are rated high quality. A rating may be relied upon
only if it is provided by a nationally recognized statistical rating
organization that is not affiliated with the issuer or guarantor of the
instruments.
Escrow Secured Bonds or Defeased Bonds
Escrow secured bonds or defeased bonds are created when an issuer
refunds in advance of maturity (or pre-refunds) some of its outstanding bonds
and it becomes necessary or desirable to set aside funds for redemption or
payment of the bonds at a future date or dates. In an advance refunding, the
issuer will use the proceeds of a new bond issue to purchase high grade interest
bearing debt securities which are then deposited in an irrevocable escrow
account held by an escrow agent to secure all future payments of principal and
interest of the advance refunded bond. Escrow secured bonds will often receive a
AAA rating from S&P, Moody's and Fitch.
State or Municipal Lease Obligations
Municipal leases may take the form of a lease with an option to
purchase, an installment purchase contract, a conditional sales contract or a
participation certificate in any of the foregoing. In determining leases in
which the Fund will invest, the Manager will evaluate the credit rating of the
lessee and the terms of the lease. Additionally, the Manager may require that
certain municipal leases be secured by a letter of credit or put arrangement
with an independent financial institution. State or municipal lease obligations
frequently have the special risks described below which are not associated with
general obligation or revenue bonds issued by public bodies.
The United States Constitution and the statutes of many states contain
requirements with which the state and municipalities must comply whenever
incurring debt. These requirements may include approving voter referendums, debt
limits, interest rate limits and public sale requirements. Leases have evolved
as a means for public bodies to acquire property and equipment without needing
to comply with all of the constitutional and statutory requirements for the
issuance of debt. The debt-issuance limitations may be inapplicable for one or
more of the following reasons: (1) the inclusion in many leases or contracts of
"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
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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
As a fundamental policy, the Fund may not invest 25% or more of its
total assets in the securities of any industry, although, for purposes of this
limitation, tax-exempt securities and U.S. government obligations are not
considered to be part of any industry. The Fund may invest 25% or more of its
total assets in industrial development revenue bonds. In addition, it is
possible that the Fund from time to time will invest 25% or more of its total
assets in a particular segment of the municipal bond market, such as housing,
health care, utility, transportation, education or industrial obligations. In
such circumstances, economic, business, political or other changes affecting one
bond (such as proposed legislation affecting the financing of a project;
shortages or price increases of needed materials; or a declining market or need
for the project) might also affect other bonds in the same segment, thereby
potentially increasing market or credit risk.
Housing Obligations. The Fund may invest, from time to time, 25% or
more of its total assets in obligations of public bodies, including state and
municipal housing authorities, issued to finance the purchase of single-family
mortgage loans or the construction of multifamily housing projects. Economic and
political developments, including fluctuations in interest rates, increasing
construction and operating costs and reductions in federal housing subsidy
programs, may adversely impact on revenues of housing authorities. Furthermore,
adverse economic conditions may result in an increasing rate of default of
mortgagors on the underlying mortgage loans. In the case of some housing
authorities, inability to obtain additional financing also could reduce revenues
available to pay existing obligations. Single-family mortgage revenue bonds are
subject to extraordinary mandatory redemption at par at any time in whole or in
part from the proceeds derived from prepayments of underlying mortgage loans and
also from the unused proceeds of the issue within a stated period which may be
within a year from the date of issue.
Health Care Obligations. The Fund may invest, from time to time, 25% or
more of its total assets in obligations issued by public bodies, including state
and municipal authorities, to finance hospital or health care facilities or
equipment. The ability of any health care entity or hospital to make payments in
amounts sufficient to pay maturing principal and interest obligations is
generally subject to, among other things, the capabilities of its management,
the confidence of physicians in management, the availability of physicians and
trained support staff, changes in the population or economic condition of the
service area, the level of and restrictions on federal funding of Medicare and
federal and state funding of Medicaid, the demand for services, competition,
rates, government regulations and licensing requirements and future economic and
other conditions, including any future health care reform.
Utility Obligations. The Fund may invest, from time to time, 25% or
more of its total assets in obligations issued by public bodies, including state
and municipal utility authorities, to finance the operation or expansion of
utilities. Various future economic and other conditions may adversely impact
utility entities, including inflation, increases in financing requirements,
increases in raw material costs and other operating costs, changes in the demand
for services and the effects of environmental and other governmental
regulations.
Transportation Obligations. The Fund may, from time to time, invest 25%
or more of its total assets in obligations issued by public bodies, including
state and municipal authorities, to finance airports and highway,
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bridge and toll road facilities. The major portion of an airport's gross
operating income is generally derived from fees received from signatory airlines
pursuant to use agreements which consist of annual payments for airport use,
occupancy of certain terminal space, service fees and leases. Airport operating
income may therefore be affected by the ability of the airlines to meet their
obligations under the use agreements. The air transport industry is experiencing
significant variations in earnings and traffic, due to increased competition,
excess capacity, increased costs, deregulation, traffic constraints and other
factors, and several airlines are experiencing severe financial difficulties.
The revenues of issuers which derive their payments from bridge, road or tunnel
toll revenues could be adversely affected by competition from toll-free
vehicular bridges and roads and alternative modes of transportation. Such
revenues could also be adversely affected by a reduction in the availability of
fuel to motorists or significant increases in the costs thereof.
Education Obligations. The Fund may, from time to time, invest 25% or
more of its total assets in obligations of issuers which are, or which govern
the operation of, schools, colleges and universities and whose revenues are
derived mainly from tuition, dormitory revenues, grants and endowments. General
problems of such issuers include the prospect of a declining percentage of the
population consisting of college aged individuals, possible inability to raise
tuition and fees sufficiently to cover increased operating costs, the
uncertainty of continued receipt of federal grants, state funding and alumni
support, and government legislation or regulations which may adversely affect
the revenues or costs of such issuers.
Industrial Revenue Obligations. The Fund may, from time to time, invest
25% or more of its total assets in obligations issued by public bodies,
including state and municipal authorities, to finance the cost of acquiring,
constructing or improving various industrial projects. These projects are
usually operated by corporate entities. Issuers are obligated only to pay
amounts due on the bonds to the extent that funds are available from the
unexpended proceeds of the bonds or receipts or revenues of the issuer under an
arrangement between the issuer and the corporate operator of a project. The
arrangement may be in the form of a lease, installment sale agreement,
conditional sale agreement or loan agreement, but in each case the payments of
the issuer are designed to be sufficient to meet the payments of amounts due on
the bonds. Regardless of the structure, payment of bonds is solely dependent
upon the creditworthiness of the corporate operator of the project and, if
applicable, the corporate guarantor. Corporate operators or guarantors may be
affected by many factors which may have an adverse impact on the credit quality
of the particular company or industry. These include cyclicality of revenues and
earnings, regulatory and environmental restrictions, litigation resulting from
accidents or deterioration resulting from leveraged buy-outs or takeovers. The
bonds may be subject to special or extraordinary redemption provisions which may
provide for redemption at par or accredited value, plus, if applicable, a
premium.
Other Risks. The exclusion from gross income for purposes of federal
income taxes and the personal income taxes of Minnesota for certain housing,
health care, utility, transportation, education and industrial revenue bonds
depends on compliance with relevant provisions of the Code. The failure to
comply with these provisions could cause the interest on the bonds to become
includable in gross income, possibly retroactively to the date of issuance,
thereby reducing the value of the bonds, subjecting shareholders to
unanticipated tax liabilities and possibly requiring the Fund to sell the bonds
at the reduced value. Furthermore, such a failure to meet these ongoing
requirements may not enable the holder to accelerate payment of the bond or
require the issuer to redeem the bond.
Taxable Obligations
As set forth in the Fund's Prospectus, the Fund may invest to a limited
extent in obligations and instruments, the interest on which is includable in
gross income for purposes of federal and Minnesota state income taxation.
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Government Obligations
The Fund may invest in securities issued or guaranteed by the U. S.
government or its agencies or instrumentalities. These securities include a
variety of Treasury securities, which differ in their interest rates, maturities
and times of issuance. Treasury Bills generally have maturities of one year or
less; Treasury Notes generally have maturities of one to ten years; and Treasury
Bonds generally have maturities of greater than ten years. Some obligations
issued or guaranteed by U. S. government agencies and instrumentalities, such as
Government National Mortgage Association pass-through certificates, are
supported by the full faith and credit of the U. S. Treasury; other obligations,
such as those of the Federal Home Loan Banks, are secured by the right of the
issuer to borrow from the Treasury; other obligations, such as those issued by
the Federal National Mortgage Association, are supported by the discretionary
authority of the U. S. government to purchase certain obligations of the agency
or instrumentality; and other obligations, such as those issued by the Student
Loan Marketing Association, are supported only by the credit of the
instrumentality itself. Although the U. S. government provides financial support
to such U. S. government-sponsored agencies or instrumentalities, no assurance
can be given that it will always do so, since it is not so obligated by law. The
Fund will invest in such securities only when the Manager is satisfied that the
credit risk with respect to the issuer is minimal.
Repurchase Agreements
A repurchase agreement is a short-term investment by which the
purchaser acquires ownership of a debt security and the seller agrees to
repurchase the obligation at a future time and set price, thereby determining
the yield during the purchaser's holding period. Should an issuer of a
repurchase agreement fail to repurchase the underlying security, the loss to the
Fund, if any, would be the difference between the repurchase price and the
market value of the security. The Fund will limit its investments in repurchase
agreements to those which the Manager, under the guidelines of the Board of
Directors, determines to present minimal credit risks and which are of high
quality. In addition, the Fund must have collateral of at least 102% of the
repurchase price, including the portion representing the Fund's yield under such
agreements which is monitored on a daily basis.
The funds 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 the Delaware Investments family jointly to invest cash
balances. The Fund may invest cash balances in a joint repurchase agreement in
accordance with the terms of the Order and subject generally to the conditions
described below.
Other Taxable Investments
The Fund also may invest in certificates of deposit, bankers'
acceptances and other time deposits. Certificates of deposit are certificates
representing the obligation of a bank to repay the funds deposited (plus
interest thereon) at a time certain after the deposit. Bankers' acceptances are
credit instruments evidencing the obligation of a bank to pay a draft drawn on
it by a customer. Time deposits are non-negotiable deposits maintained in a
banking institution for a specified period of time at a stated interest rate.
Options
The Fund may purchase call options, write call options on a covered
basis, write secured put options and purchase put options on a covered basis
only, and will not engage in option writing strategies for speculative purposes.
The Fund may invest in options that are either listed on a national
securities exchange (an "Exchange") or traded over-the-counter. Certain
over-the-counter options may be illiquid. Thus, it may not be possible to close
option positions and this may have an adverse impact on the Fund's ability to
effectively hedge its securities. The Fund will not, however, invest more than
15% of its assets in illiquid securities.
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A. Covered Call Writing--The Fund may write covered call options from
time to time on such portion of its portfolio, without limit, as the Manager
determines is appropriate in seeking to obtain the Fund's investment objective.
A call option gives the purchaser of such option the right to buy, and the
writer, in this case the Fund, has the obligation to sell the underlying
security at the exercise price during the option period. The advantage to the
Fund of writing covered calls is that the Fund receives a premium which is
additional income. However, if the security rises in value, the Fund may not
fully participate in the market appreciation.
During the option period, a covered call option writer may be assigned
an exercise notice by the broker/dealer through whom such call option was sold,
requiring the writer to deliver the underlying security against payment of the
exercise price. This obligation is terminated upon the expiration of the option
period or at such earlier time in which the writer effects a closing purchase
transaction. A closing purchase transaction cannot be effected with respect to
an option once the option writer has received an exercise notice for such
option.
With respect to options on actual portfolio securities owned by the
Fund, the Fund may enter into closing purchase transactions. A closing purchase
transaction is one in which the Fund, when obligated as a writer of an option,
terminates its obligation by purchasing an option of the same series as the
option previously written.
Closing purchase transactions will ordinarily be effected to realize a
profit on an outstanding call option, to prevent an underlying security from
being called, to permit the sale of the underlying security or to enable the
Fund to write another call option on the underlying security with either a
different exercise price or expiration date or both. The Fund may realize a net
gain or loss from a closing purchase transaction depending upon whether the net
amount of the original premium received on the call option is more or less than
the cost of effecting the closing purchase transaction. Any loss incurred in a
closing purchase transaction may be partially or entirety offset by the premium
received from a sale of a different call option on the same underlying security.
Such a loss may also be wholly or partially offset by unrealized appreciation in
the market value of the underlying security. Conversely, a gain resulting from a
closing purchase transaction could be offset in whole or in part by a decline in
the market value of the underlying security.
If a call option expires unexercised, the Fund will realize a
short-term capital gain in the amount of the premium on the option less the
commission paid. Such a gain, however, may be offset by depreciation in the
market value of the underlying security during the option period. If a call
option is exercised, the Fund will realize a gain or loss from the sale of the
underlying security equal to the difference between the cost of the underlying
security and the proceeds of the sale of the security plus the amount of the
premium on the option less the commission paid.
The market value of a call option generally reflects the market price
of an underlying security. Other principal factors affecting market value
include supply and demand, interest rates, the price volatility of the
underlying security and the time remaining until the expiration date.
The Fund will write call options only on a covered basis, which means
that the Fund will own the underlying security subject to a call option at all
times during the option period. Unless a closing purchase transaction is
effected, the Fund would be required to continue to hold a security which it
might otherwise wish to sell or deliver a security it would want to hold.
Options written by the Fund will normally have expiration dates between one and
nine months from the date written. The exercise price of a call option may be
below, equal to or above the current market value of the underlying security at
the time the option is written.
B. Purchasing Call Options--The Fund may purchase call options to the
extent that premiums paid by the Fund do not aggregate more than 2% of the
Fund's total assets. The advantage of purchasing call options is
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that the Fund may alter portfolio characteristics, and modify portfolio
maturities without incurring the cost associated with portfolio transactions.
The Fund may, following the purchase of a call option, liquidate its
position by effecting a closing sale transaction. This is accomplished by
selling an option of the same Fund as the option previously purchased. The Fund
will realize a profit from a closing sale transaction if the price received on
the transaction is more than the premium paid to purchase the original call
option; the Fund will realize a loss from a closing sale transaction if the
price received on the transaction is less than the premium paid to purchase the
original call option.
Although the Fund will generally purchase only those call options for
which there appears to be an active secondary market, there is no assurance that
a liquid secondary market on an Exchange will exist for any particular option,
or at any particular time, and for some options no secondary market on an
Exchange may exist. In such event, it may not be possible to effect closing
transactions in particular options, with the results that the Fund would have to
exercise its options in order to realize any profit and would incur brokerage
commissions upon the exercise of such options and upon the subsequent
disposition of the underlying securities acquired through the exercise of such
options. Further, unless the price of the underlying security changes
sufficiently, a call option purchased by the Fund may expire without any value
to the Fund.
C. Purchasing Put Options--The Fund may invest up to 2% of its total
assets in the purchase of put options. The Fund will, at all times during which
it holds a put option, own the security covered by such option.
The Fund intends to purchase put options in order to protect against a
decline in the market value of the underlying security below the exercise price
less the premium paid for the option ("protective puts"). The ability to
purchase put options will allow the Fund to protect an unrealized gain in an
appreciated security in its portfolio without actually selling the security. If
the security does not drop in value, the Fund will lose the value of the premium
paid. The Fund may sell a put option which it has previously purchased prior to
the sale of the securities underlying such option. Such sales will result in a
net gain or loss depending on whether the amount received on the sale is more or
less than the premium and other transaction costs paid on the put option which
is sold.
The Fund may sell a put option purchased on individual portfolio
securities. Additionally, the Fund may enter into closing sale transactions. A
closing sale transaction is one in which the Fund, when it is the holder of an
outstanding option, liquidates its position by selling an option of the same
series as the option previously purchased.
D. Writing Put Options--The Fund may also write put options on a
secured basis which means that the Fund will maintain in a segregated account
with its custodian, cash or U.S. government securities in an amount not less
than the exercise price of the option at all times during the option period. The
amount of cash or U.S. government securities held in the segregated account will
be adjusted on a daily basis to reflect changes in the market value of the
securities covered by the put option written by the Fund. Secured put options
will generally be written in circumstances where the Manager wishes to purchase
the underlying security for the Fund's portfolio at a price lower than the
current market price of the security. In such event, the Fund would write a
secured put option at an exercise price which, reduced by the premium received
on the option, reflects the lower price it is willing to pay.
Following the writing of a put option, the Fund may wish to terminate
the obligation to buy the security underlying the option by effecting a closing
purchase transaction. This is accomplished by buying an option of the same
series as the option previously written. The Fund may not, however, effect such
a closing transaction after it has been notified of the exercise of the option.
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Futures
Futures contracts are agreements for the purchase or sale for future
delivery of securities. While futures contracts provide for the delivery of
securities, deliveries usually do not occur. Contracts are generally terminated
by entering into an offsetting transaction. When the Fund enters into a futures
transaction, it must deliver to the futures commission merchant selected by the
Fund an amount referred to as "initial margin." This amount is maintained by the
futures commission merchant in an account at the Fund's custodian bank.
Thereafter, a "variation margin" may be paid by the Fund to, or drawn by the
Fund from, such account in accordance with controls set for such account,
depending upon changes in the price of the underlying securities subject to the
futures contract.
In addition, when the Fund engages in futures transactions, to the
extent required by the Securities and Exchange Commission (the "SEC"), it will
maintain with its custodian, assets in a segregated account to cover its
obligations with respect to such contracts, which assets will consist of cash,
cash equivalents or high quality debt securities from its portfolio in an amount
equal to the difference between the fluctuating market value of such futures
contracts and the aggregate value of the margin payments made by the Fund with
respect to such futures contracts.
The Fund may enter into such futures contracts to protect against the
adverse effects of fluctuations in interest rates without actually buying or
selling such securities. Similarly, when it is expected that interest rates may
decline, futures contracts may be purchased to hedge in anticipation of
subsequent purchases of government securities at higher prices.
With respect to options on futures contracts, when the Fund is not
fully invested, it may purchase a call option on a futures contract to hedge
against a market advance due to declining interest rates. The writing of a call
option on a futures contract constitutes a partial hedge against declining
prices of the securities which are deliverable upon exercise of the futures
contract. If the futures price at the expiration of the option is below the
exercise price, the Fund will retain the full amount of the option premium which
provides a partial hedge against any decline that may have occurred in the
portfolio holdings. The writing of a put option on a futures contract
constitutes a partial hedge against increasing prices of the securities which
are deliverable upon exercise of the futures contract. If the futures price at
expiration of the option is higher than the exercise price, the Fund will retain
the full amount of the option premium which provides a partial hedge against any
increase in the price of government securities which the Fund intends to
purchase.
If a put or call option the Fund has written is exercised, the Fund
will incur a loss which will be reduced by the amount of the premium it
receives. Depending on the degree of correlation between the value of its
portfolio securities and changes in the value of its futures positions, the
Fund's losses from existing options on futures may, to some extent, be reduced
or increased by changes in the value of portfolio securities. The Fund will
purchase a put option on a futures contract to hedge the Fund's portfolio
against the risk of rising interest rates.
To the extent that interest rates move in an unexpected direction, the
Fund may not achieve the anticipated benefits of futures contracts or options on
futures contracts or may realize a loss. For example, if the Fund is hedged
against the possibility of an increase in interest rates which would adversely
affect the price of government securities held in its portfolio and interest
rates decrease instead, the Fund will lose part or all of the benefit of the
increased value of its government securities which it has because it will have
offsetting losses in its futures position. In addition, in such situations, if
the Fund had insufficient cash, it may be required to sell government securities
from its portfolio to meet daily variation margin requirements. Such sales of
government securities may, but will not necessarily, be at increased prices
which reflect the rising market. The Fund may be required to sell securities at
a time when it may be disadvantageous to do so.
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<PAGE>
Further, with respect to options on futures contracts, the Fund may
seek to close out an option position by writing or buying an offsetting position
covering the same securities or contracts and have the same exercise price and
expiration date. The ability to establish and close out positions on options
will be subject to the maintenance of a liquid secondary market, which cannot be
assured.
Risks of Transactions in Futures Contracts and Options.
Hedging Risks in Futures Contracts Transactions. There are several
risks in using securities index or interest rate futures contracts as hedging
devices. One risk arises because the prices of futures contracts may not
correlate perfectly with movements in the underlying index or financial
instrument due to certain market distortions. First, all participants in the
futures market are subject to initial margin and variation margin requirements.
Rather than making additional variation margin payments, investors may close the
contracts through offsetting transactions which could distort the normal
relationship between the index or security and the futures market. Second, the
margin requirements in the futures market are lower than margin requirements in
the securities market, and as a result the futures market may attract more
speculators than does the securities market. Increased participation by
speculators in the futures market may also cause temporary price distortions.
Because of possible price distortion in the futures market and because of
imperfect correlation between movements in indexes of securities and movements
in the prices of futures contracts, even a correct forecast of general market
trends may not result in a successful hedging transaction over a very short
period.
Another risk arises because of imperfect correlation between movements
in the value of the futures contracts and movements in the value of securities
subject to the hedge. With respect to index futures contracts, the risk of
imperfect correlation increases as the composition of the Fund's portfolio
diverges from the financial instruments included in the applicable index.
Successful use of futures contracts by the Fund is subject to the
ability of the Manager to predict correctly movements in the direction of
interest rates or the relevant underlying securities market. If the Fund has
hedged against the possibility of an increase in interest rates adversely
affecting the value of fixed-income securities held in its portfolio and
interest rates decrease instead, the Fund will lose part or all of the benefit
of the increased value of its security which it has hedged because it will have
offsetting losses in its futures positions. In addition, in such situations, if
the Fund has insufficient cash, it may have to sell securities to meet daily
variation margin requirements. Such sales of securities may, but will not
necessarily, be at increased prices which reflect the rising market or decline
in interest rates. The Fund may have to sell securities at a time when it may be
disadvantageous to do so.
Liquidity of Futures Contracts. The Fund may elect to close some or all
of its contracts prior to expiration. The purpose of making such a move would be
to reduce or eliminate the hedge position held by the Fund. The Fund may close
its positions by taking opposite positions. Final determinations of variation
margin are then made, additional cash as required is paid by or to the Fund, and
the Fund realizes a loss or a gain.
Positions in futures contracts may be closed only on an Exchange or
board of trade providing a secondary market for such futures contracts. Although
the Fund intends to enter into futures contracts only on exchanges or boards of
trade where there appears to be an active secondary market, there is no
assurance that a liquid secondary market will exist for any particular contract
at any particular time.
In addition, most domestic futures exchanges and boards of trade limit
the amount of fluctuation permitted in futures contract prices during a single
trading day. The daily limit establishes the maximum amount that the price of a
futures contract may vary either up or down from the previous day's settlement
price at the end of a trading session. Once the daily limit has been reached in
a particular contract, no trades may be made that day at a price
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<PAGE>
beyond that limit. The daily limit governs only price movement during a
particular trading day and therefore does not limit potential losses because the
limit may prevent the liquidation of unfavorable positions. It is possible that
futures contract prices could move to the daily limit for several consecutive
trading days with little or no trading, thereby preventing prompt liquidation of
futures positions and subjecting some futures traders to substantial losses. In
such event, it will not be possible to close a futures position and, in the
event of adverse price movements, the Fund would be required to make daily cash
payments of variation margin. In such circumstances, an increase in the value of
the portion of the portfolio being hedged, if any, may partially or completely
offset losses on the futures contract. However, as described above, there is no
guarantee that the price of the securities being hedged will, in fact, correlate
with the price movements in the futures contract and thus provide an offset to
losses on a futures contract.
Risk of Options. The use of options on financial instruments and
indexes and on interest rate and index futures contracts also involves
additional risk. Compared to the purchase or sale of futures contracts, the
purchase of call or put options involves less potential risk to the Fund because
the maximum amount at risk is the premium paid for the options (plus
transactions costs). The writing of a call option generates a premium, which may
partially offset a decline in the value of the Fund's portfolio assets. By
writing a call option, the Fund becomes obligated to sell an underlying
instrument or a futures contract, which may have a value higher than the
exercise price. Conversely, the writing of a put option generates a premium, but
the Fund becomes obligated to purchase the underlying instrument or futures
contract, which may have a value lower than the exercise price. Thus, the loss
incurred by the Fund in writing options may exceed the amount of the premium
received.
The effective use of options strategies is dependent, among other
things, on the Fund's ability to terminate options positions at a time when
the Manager deems it desirable to do so. Although the Fund will enter into an
option position only if the Manager believes that a liquid secondary market
exists for such option, there is no assurance that the Fund will be able to
effect closing transactions at any particular time or at an acceptable price.
The Fund's transactions involving options on futures contracts will be conducted
only on recognized exchanges.
The Fund's purchase or sale of put or call options will be based upon
predictions as to anticipated interest rates or market trends by the Manager,
which could prove to be inaccurate. Even if the expectations of the Manager
are correct, there may be an imperfect correlation between the change in the
value of the options and of the Fund's portfolio securities.
The writer of an option may have no control over when the underlying
securities must be sold, in the case of a call option, or purchased, in the case
of a put option; the writer may be assigned an exercise notice at any time prior
to the termination of the obligation. Whether or not an option expires
unexercised, the writer retains the amount of the premium. This amount, of
course, may, in the case of a covered call option, be offset by a decline in the
market value of the underlying security during the option period. If a call
option is exercised, the writer experiences a profit or loss from the sale of
the underlying security. If a put option is exercised, the writer must fulfill
the obligation to purchase the underlying security at the exercise price which
will usually exceed the then market value of the underlying security.
The writer of an option that wishes to terminate its obligation may
effect a "closing purchase transaction." This is accomplished by buying an
option of the same series as the option previously written. The effect of a
purchase is that the writer's position will be canceled by the clearing
corporation. However, a writer may not effect a closing purchase transaction
after being notified of the exercise of an option. Likewise, an investor who is
the holder of an option may liquidate its position by effecting a "closing sale
transaction." This is accomplished by selling an option of the same series as
the option previously purchased. There is no guarantee that either a closing
purchase or a closing sale transaction can be effected.
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<PAGE>
Effecting a closing transaction in the case of a written call option
will permit the Fund to write another call option on the underlying security
with either a different exercise price or expiration date or both, or in the
case of a written put option will permit the Fund to write another put option to
the extent that the exercise price thereof is secured by deposited cash or
short-term securities. Also, effecting a closing transaction will permit the
cash or proceeds from the concurrent sale of any securities subject to the
option to be used for other Fund investments. If the Fund desires to sell a
particular security from its portfolio on which it has written a call option, it
will effect a closing transaction prior to or concurrent with the sale of the
security.
The Fund will realize a profit from a closing transaction if the price
of the transaction is less than the premium received from writing the option or
is more than the premium paid to purchase the option; the Fund will realize a
loss from a closing transaction if the price of the transaction is more than the
premium received from writing the option or is less than the premium paid to
purchase the option. Because increases in the market price of a call option will
generally reflect increases in the market price of the underlying security, any
loss resulting from the repurchase of a call option is likely to be offset in
whole or in part by appreciation of the underlying security owned by the Fund.
An option position may be closed out only where there exists a
secondary market for an option of the same series. If a secondary market does
not exist, it might not be possible to effect closing transactions in particular
options with the result that the Fund would have to exercise the options in
order to realize any profit. If the Fund is unable to effect a closing purchase
transaction in a secondary market, it will not be able to sell the underlying
security until the option expires or it delivers the underlying security upon
exercise. Reasons for the absence of a liquid secondary market include the
following: (i) there may be insufficient trading interest in certain options,
(ii) restrictions may be imposed by an Exchange on opening transactions or
closing transactions or both, (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options or underlying securities, (iv) unusual or unforeseen circumstances may
interrupt normal operations on an Exchange, (v) the facilities of an Exchange or
the Options Clearing Corporation may not at all times be adequate to handle
current trading volume, or (vi) one or more Exchanges could, for economic or
other reasons, decide or be compelled at some future date to discontinue the
trading of options (or a particular class or series of options), in which event
the secondary market on that Exchange (or in that class or series of options)
would cease to exist, although outstanding options on that Exchange that had
been issued by the Options Clearing Corporation as a result of trades on that
Exchange would continue to be exercisable in accordance with their terms.
The Fund may purchase put options to hedge against a decline in the
value of their portfolios. By using put options in this way, the Fund will
reduce any profit they might otherwise have realized in the underlying security
by the amount of the premium paid for the put option and by transaction costs.
The Fund may purchase call options to hedge against an increase in
price of securities that the Fund anticipate purchasing in the future. The
premium paid for the call option plus any transaction costs will reduce the
benefit, if any, realized by the Fund upon exercise of the option, and, unless
the price of the underlying security rises sufficiently, the option may expire
worthless to the Fund.
As discussed above, options may be traded over-the-counter ("OTC
options"). In an over-the-counter trading environment, many of the protections
afforded to exchange participants will not be available. For example, there are
no daily price fluctuation limits, and adverse market movements could therefore
continue to an unlimited extent over a period of time. OTC options are illiquid
and it may not be possible for the Fund to dispose of options they have
purchased or terminate their obligations under an option they have written at a
time when Voyageur believes it would be advantageous to do so. Accordingly, OTC
options are subject to the Fund's limitation that a maximum of 15% of its net
assets be invested in illiquid securities. In the event of the bankruptcy of the
writer of
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<PAGE>
an OTC option, the Fund could experience a loss of all or part of the value of
the option. Voyageur anticipates that options on Municipal Obligations will
consist primarily of OTC options.
Illiquid Investments
The Fund may invest no more than 15% of the value of its net assets in
illiquid securities.
The Fund may invest in restricted securities, including securities
eligible for resale without registration pursuant to Rule 144A ("Rule 144A
Securities") under the Securities Act of 1933 (the "1933 Act"). Rule 144A
permits many privately placed and legally restricted securities to be freely
traded among certain institutional buyers such as the Fund.
While maintaining oversight, Mutual Funds, Inc.'s Board of Directors
has delegated to the Manager the day-to-day function of determining whether or
not individual Rule 144A Securities are liquid for purposes of a Fund's 15%
limitation on investments in illiquid assets. The Board has instructed the
Manager to consider the following factors in determining the liquidity of a Rule
144A Security: (i) the frequency of trades and trading volume for the security;
(ii) whether at least three dealers are willing to purchase or sell the security
and the number of potential purchasers; (iii) whether at least two dealers are
making a market in the security; and (iv) the nature of the security and the
nature of the marketplace trades (e.g., the time needed to dispose of the
security, the method of soliciting offers, and the mechanics of transfer).
If the Manager determines that a Rule 144A Security that was previously
determined to be liquid is no longer liquid and, as a result, the Fund's
holdings of illiquid securities exceed the Fund's 15% limit on investment in
such securities, the Manager will determine what action to take to ensure that
the Fund continues to adhere to such limitation.
Special Factors Affecting the Fund
The following information is a brief summary of Minnesota factors
affecting the Fund and does not purport to be a complete description of such
factors. The financial condition of Minnesota, 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, Minnesota faces numerous forms of litigation seeking
significant damages which, if awarded, could adversely affect the financial
situation of Minnesota or issuers located in therein. It should be noted that
the creditworthiness of obligations issued by local issuers may be unrelated to
the creditworthiness of Minnesota, and that there is no obligation on the part
of Minnesota to make payment on such local obligations in the event of default
in the absence of a specific guarantee or pledge provided by Minnesota. The
following information is based primarily upon information derived from public
documents relating to securities offerings of issuers of such states and other
historically reliable sources, but has not been independently verified by the
Fund. The Fund makes no representation or warranty regarding the completeness or
accuracy of such information. The market value of the shares of the Fund may
fluctuate due to factors such as changes in interest rates, matters affecting
Minnesota or for other reasons.
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. The 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
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<PAGE>
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 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
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<PAGE>
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 Municipal Obligations that are held by the Fund or the value or
marketability of such obligations.
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. Moody's and Fitch's rates Minnesota general
obligation bonds Aaa and AAA, respectively. In August 1997, S&P upgraded the
state's general obligation bond rating to AAA from AA+.
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 Obligations that are held by the
Fund. See Dividends and Distributions, and Minnesota State Taxation under Taxes
in the Prospectus.
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<PAGE>
ACCOUNTING AND TAX ISSUES
When the Fund writes a call option, an amount equal to the premium
received by it is included in the section of the Fund's assets and liabilities
as an asset and as an equivalent liability. The amount of the liability is
subsequently "marked to market" to reflect the current market value of the
option written. The current market value of a written option is the last sale
price on the principal Exchange on which such option is traded or, in the
absence of a sale, the mean between the last bid and asked prices. If an option
which the Fund has written expires on its stipulated expiration date, the Fund
reports a realized gain. If the Fund enters into a closing purchase transaction
with respect to an option which the Fund has written, the Fund realizes a gain
(or loss if the cost of the closing transaction exceeds the premium received
when the option was sold) without regard to any unrealized gain or loss on the
underlying security, and the liability related to such option is extinguished.
Any such gain or loss is a short-term capital gain or loss for federal income
tax purposes. If a call option which the Fund has written is exercised, the Fund
realizes a capital gain or loss (long-term or short-term, depending on the
holding period of the underlying security) from the sale of the underlying
security and the proceeds from such sale are increased by the premium originally
received.
Other Tax Requirements -- The Fund has qualified, and intends to
continue to qualify, as regulated investment companies under Subchapter M of the
Code. The Fund must meet several requirements to maintain its status as a
regulated investment company. Among these requirements are that at least 90% of
its investment company taxable income be derived from dividends, interest,
payment with respect to securities loans and gains from the sale or disposition
of securities; that at the close of each quarter of its taxable year at least
50% of the value of its assets consists of cash and cash items, government
securities, securities of other regulated investment companies and, subject to
certain diversification requirements, other securities; and that less than 30%
of its gross income be derived from sales of securities held for less than three
months. This 30% rule is rescinded for tax years beginning August 5, 1997.
The requirement that not more than 30% of the Fund's gross income be
derived from gains from the sale or other disposition of securities held for
less than three months may restrict the Fund in its ability to write covered
call options on securities which it has held less than three months, to write
options which expire in less than three months, to sell securities which have
been held less than three months and to effect closing purchase transactions
with respect to options which have been written less than three months prior to
such transactions. Consequently, in order to avoid realizing a gain within the
three-month period, the Fund may be required to defer the closing out of a
contract beyond the time when it might otherwise be advantageous to do so.
The straddle rules of Section 1092 may apply. Generally, the straddle
provisions require the deferral of losses to the extent of unrecognized gains
related to the offsetting positions in the straddle. Excess losses, if any, can
be recognized in the year of loss. Deferred losses will be carried forward and
recognized in the following year, subject to the same limitation.
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PERFORMANCE INFORMATION
From time to time, the Fund may state each of its Classes' total return
in advertisements and other types of literature. Any statement of total return
performance data for a Class will be accompanied by information on the average
annual compounded rate of return for that Class over, as relevant, the most
recent one-, five- and ten-year or life-of-fund periods, as applicable. Each
Fund may also advertise aggregate and average total return information for its
Classes over additional periods of time.
In presenting performance information for Class A Shares, the Limited
CDSC, applicable to only certain redemptions of those shares, will not be
deducted from any computation of total return. See the Prospectus for a
description of the Limited CDSC and the limited instances in which it applies.
All references to a CDSC in this Performance Information section will apply to
Class B Shares or Class C Shares of the Fund.
The average annual total rate of return for each Class is based on a
hypothetical $1,000 investment that includes capital appreciation and
depreciation during the stated periods. The following formula will be used for
the actual computations:
n
P(1 + T) = ERV
Where: P = a hypothetical initial purchase order of
$1,000 from which, in the case of only
Class A Shares, the maximum front-end sales
charge is deducted;
T = average annual total return;
n = number of years; and
ERV = redeemable value of the hypothetical
$1,000 purchase at the end of the period
after the deduction of the applicable CDSC,
if any, with respect to Class B Shares and
Class C Shares.
Aggregate or cumulative total return is calculated in a similar manner,
except that the results are not annualized. Each calculation assumes the maximum
front-end sales charge, if any, is deducted from the initial $1,000 investment
at the time it is made and that all distributions are reinvested at net asset
value, and with respect to Class B Shares and Class C Shares, reflects the
deduction of the CDSC that would be applicable upon complete redemption of such
shares. In addition, the Fund may present total return information that does not
reflect the deduction of the maximum front-end sales charge or any applicable
CDSC.
The Fund may also state total return performance for its Classes in the
form of an average annual return. This average annual return figure will be
computed by taking the sum of a Class' annual returns, then dividing that figure
by the number of years in the overall period indicated. The computation will
reflect the impact of the maximum front-end sales charge or CDSC, if any, paid
on the illustrated investment amount against the first year's return.
The performance, as shown below, is the average annual total return
quotations of each Class of the Fund through December 31, 1997, computed as
described above. The average annual total return for Class
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<PAGE>
A Shares at offer reflects the maximum front-end sales charge of 3.75% paid on
the purchase of shares. The average annual total return for Class A Shares at
net asset value (NAV) does not reflect the payment of any 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 December 31, 1997. The average
annual total return for Class B Shares and Class C Shares excluding deferred
sales charge assumes the shares were not redeemed at December 31, 1997 and
therefore does not reflect the deduction of a CDSC.
Securities prices fluctuated during the periods covered and past
results should not be considered as representative of future performance.
Average Annual Total Return
Class A Shares Class A Shares
(at Offer) (at NAV)
-------------- --------------
1 year ended
12/31/97 7.05% 11.26%
Period 6/4/96(1)
through 12/31/97 7.98% 10.63%
(1) Date of initial public offering.
Average Annual Total Return
Class B Shares Class B Shares
(including CDSC) (excluding CDSC)
---------------- ----------------
1 year ended
12/31/97 6.41% 10.41%
Period 6/12/96(1)
through 12/31/97 9.07% 11.51%
(1) Date of initial public offering.
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Average Annual Total Return
Class C Shares Class C Shares
(including CDSC) (excluding CDSC)
---------------- ----------------
1 year ended
12/31/97 9.41% 10.41%
Period 6/7/96(1)
through 12/31/97 9.90% 9.90%
(1) Date of initial public offering.
As stated in the Prospectus, the Fund may also quote the current yield
for each Class in advertisements and investor communications. The yield
computation is determined by dividing the net investment income per share earned
during the period by the maximum offering price per share on the last day of the
period and annualizing the resulting figure, according to the following formula:
a--b 6
YIELD = 2[(-------- + 1) -- 1]
cd
Where: a = dividends and interest earned during the
period;
b = expenses accrued for the period (net of
reimbursements);
c = the average daily number of shares
outstanding during the period that were
entitled to receive dividends;
d = the maximum offering price per share on the
last day of the period.
The above formula will be used in calculating quotations of yield of
each Class, based on specified 30-day periods identified in advertising by the
Fund. The yields as of December 31, 1997 using this formula were 6.00%,
5.47% and 5.47% for Class A Shares, Class B Shares and Class C Shares,
respectively. Yield assumes the maximum front-end sales charge, if any, and does
not reflect the deduction of any CDSC or Limited CDSC and also reflects
voluntary waivers in effect during the period. Actual yield may be affected by
variations in front-end sales charges on investments. Past performance, such as
is reflected in quoted yields, should not be considered as a representation of
the results which may be realized from an investment in any class of the Fund in
the future.
The Fund may also publish a tax-equivalent yield for a Class based on
federal and, if applicable, state tax rates, which demonstrates the taxable
yield necessary to produce an after-tax yield equivalent to the Class' yield.
The taxable equivalent yield is based on current Federal marginal income tax
rates combined with Minnesota marginal income tax rates. 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.
-22-
<PAGE>
The taxable equivalent yields for each Class of the Fund for the 30-day
period ended December 31, 1997 were:
34.12% 36.87% 41.44% 44.73%
------ ------ ------ ------
Class A 9.11% 9.50% 10.25% 10.86%
Class B 8.30% 8.66% 9.34% 9.90%
Class C 8.30% 8.66% 9.34% 9.90%
These yields were computed by dividing that portion of a Class' yield
which is tax-exempt by one minus the stated income tax rate and adding the
product to that portion, if any, of the yield that is not tax-exempt. These
yields also reflect the expense limitations in effect during the period.
Investors should note that the income earned and dividends paid by the
Fund will vary with the fluctuation of interest rates and performance of the
portfolio. The net asset value of the fund may change. Unlike money market
funds, the Fund invests in longer-term securities that fluctuate in value and do
so in a manner inversely correlated with changing interest rates. The Fund's net
asset value will tend to rise when interest rates fall. Conversely, the Fund's
net asset value will tend to fall as interest rates rise. Normally, fluctuations
in interest rates have a greater effect on the prices of longer-term bonds. The
value of the securities held in the Fund will vary from day to day and investors
should consider the volatility of the Fund's net asset value as well as its
yield before making a decision to invest.
Total return performance of each Class will reflect the appreciation or
depreciation of principal, reinvestment of income and any capital gains
distributions paid during any indicated period, and the impact of the maximum
front-end sales charge or CDSC, if any, paid on the illustrated investment
amount, annualized. The results will not reflect any income taxes, if
applicable, payable by shareholders on the reinvested distributions included in
the calculations. As securities prices fluctuate, an illustration of past
performance should not be considered as representative of future results.
From time to time, the Fund may also quote its Classes' actual total
return performance , dividend results and other performance information in
advertising and other types of literature . This information may be compared to
that of other mutual funds with similar investment objectives and to stock, bond
and other relevant indices or to rankings prepared by independent services or
other financial or industry publications that monitor the performance of mutual
funds. For example, the performance of the Fund (or Class) may be compared to
data prepared by Lipper Analytical Services, Inc., Morningstar, Inc. or the
performance of unmanaged indices compiled or maintained by statistical research
firms such as Lehman Brothers or Salomon Brothers, Inc.
Lipper Analytical Services, Inc. maintains statistical performance
databases, as reported by a diverse universe of independently-managed mutual
funds. Morningstar, Inc. is a mutual fund rating service that rates mutual funds
on the basis of risk-adjusted performance. Rankings that compare the Fund's
performance to another fund in appropriate categories over specific time periods
also may be quoted in advertising and other types of literature. The total
return performance reported for these indices will reflect the reinvestment of
all distributions on a quarterly basis and market price fluctuations. The
indices do not take into account any sales charge or other fees. A direct
investment in an unmanaged index is not possible.
Salomon Brothers and Lehman Brothers are statistical research firms that
maintain databases of international market, bond market, corporate and
government-issued securities of various maturities. This information, as well as
unmanaged indices compiled and maintained by these firms, will be used in
preparing
-23-
<PAGE>
comparative illustrations. In addition, the performance of multiple indices
compiled and maintained by these firms may be combined to create a blended
performance result for comparative purposes. Generally, the indices selected
will be representative of the types of securities in which the Fund may invest
and the assumptions that were used in calculating the blended performance will
be described.
The Fund may also promote its Classes' yield and/or total return
performance and use comparative performance information computed by and
available from certain industry and general market research and publications,
such as Lipper Analytical Services, Inc., IBC/Donoghue's Money Market Report and
Morningstar, Inc.
Comparative information on the Consumer Price Index may also be included
in advertisements or other literature. The Consumer Price Index, as prepared by
the U.S. Bureau of Labor Statistics, is the most commonly used measure of
inflation. It indicates the cost fluctuations of a representative group of
consumer goods. It does not represent a return from an investment.
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 Fund may use the performance of these
capital markets in order to demonstrate general risk-versus-reward investment
scenarios. Performance comparisons may also include the value of a hypothetical
investment in any of these capital markets. The risks associated with the
security types in any capital market may or may not correspond directly to those
of the Fund. The Fund may also compare performance to that of other compilations
or indices that may be developed and made available in the future.
The Fund may include discussions or illustrations of the potential
investment goals of a prospective investor (including materials that describe
general principles of investing, such as asset allocation, diversification, risk
tolerance, and goal setting, questionnaires designed to help create a personal
financial profile, worksheets used to project savings needs based on assumed
rates of inflation and hypothetical rates of return and action plans offering
investment alternatives), investment management techniques, policies or
investment suitability of a Fund (such as value investing, market timing, dollar
cost averaging, asset allocation, constant ratio transfer, automatic account
rebalancing, the advantages and disadvantages of investing in tax-deferred and
taxable investments or global or international investments), economic and
political conditions, the relationship between sectors of the economy and the
economy as a whole, the effects of inflation and historical performance of
various asset classes, including but not limited to, stocks, bonds and Treasury
bills. From time to time advertisements, sales literature, communications to
shareholders or other materials may summarize the substance of information
contained in shareholder reports (including the investment composition of the
Fund), as well as the views as to current market, economic, trade and interest
rate trends, legislative, regulatory and monetary developments, investment
strategies and related matters believed to be of relevance to the Fund. In
addition, selected indices may be used to illustrate historic performance of
selected asset classes. The Fund may also include in advertisements, sales
literature,
-24-
<PAGE>
communications to shareholders or other materials, charts, graphs or drawings
which illustrate the potential risks and rewards of investment in various
investment vehicles, including but not limited to, domestic and international
stocks, and/or bonds, treasury bills and shares of the Fund. In addition,
advertisements, sales literature, communications to shareholders or other
materials may include a discussion of certain attributes or benefits to be
derived by an investment in the Fund and/or other mutual funds, shareholder
profiles and hypothetical investor scenarios, timely information on financial
management, tax and retirement planning (such as information on Roth IRAs and
Educational IRAs) and investment alternatives to certificates of deposit and
other financial instruments. Such sales literature, communications to
shareholders or other materials may include symbols, headlines or other material
which highlight or summarize the information discussed in more detail therein.
Materials may refer to the CUSIP numbers of the Fund and may illustrate
how to find the listings of the Fund in newspapers and periodicals. Materials
may also include discussions of other Fund products, and services.
The Fund may quote various measures of volatility and benchmark
correlation in advertising. In addition, the Fund may compare these measures to
those of other funds. Measures of volatility seek to compare the historical
share price fluctuations or total returns to those of a benchmark. Measures of
benchmark correlation indicate how valid a comparative benchmark may be.
Measures of volatility and correlation may be calculated using averages of
historical data. The Fund may advertise its current interest rate sensitivity,
duration, weighted average maturity or similar maturity characteristics.
Advertisements and sales materials relating to the Fund may include information
regarding the background and experience of its portfolio managers.
The following tables present examples, for purposes of illustration
only, of cumulative total return performance for each Class through December
31, 1997. For these purposes, the calculations reflect maximum sales charges,
if any, and assume the reinvestment of any capital gains distributions and
income dividends paid during the indicated periods. The performance does not
reflect 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 the purchase of shares but may also be
shown without reflecting the impact of any front-end sales charge. The
performance of Class B Shares and Class C Shares is calculated both with the
applicable CDSC included and excluded.
The net asset value of a Class fluctuates so shares, when redeemed, may
be worth more or less than the original investment, and a Class' results should
not be considered as representative of future performance.
-25-
<PAGE>
Cumulative Total Return
Minnesota High Yield Municipal Bond Fund(1)
<TABLE>
<CAPTION>
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>
3 months 3 months 3 months
ended ended ended
12/31/97 (0.51%) 12/31/97 (0.80%) 3.20% 12/31/97 2.20% 3.20%
6 months 6 months 6 months
ended ended ended
12/31/97 2.99%(3) 12/31/97 2.60% 6.60% 12/31/97 5.61% 6.61%
9 months 9 months 9 months
ended ended ended
12/31/97 6.34% 12/31/97 4.84% 9.84% 12/31/97 8.84% 9.84%
1 year 1 year 1 year
ended ended ended
12/31/97 7.05% 12/31/97 6.41% 10.41% 12/31/97 9.41% 10.41%
Period Period Period
6/4/96(4) 6/12/96(4) 6/7/96(4)
through through through
12/31/97 12.86% 12/31/97 14.45% 18.45% 12/31/97 15.95% 15.95%
</TABLE>
(1) Reflects voluntary waivers in effect during the period(s).
(2) Beginning June 9, 1997, the CDSC schedule for Class B Shares changed as
follows: (i) 4% if shares are redeemed within two years of purchase;
(ii) 3% if shares are redeemed during the third or fourth year following
purchase; (iii) 2% if shares are redeemed during the fifth year following
purchase; and (iv) 1% if shares are redeemed during the sixth year
following purchase. The above figures have been calculated using this new
schedule.
(3) For the six months ended December 31, 1997, cumulative total return for
Class A Shares at net asset value was 7.00%.
(4) Date of initial public offering.
Because every investor's goals and risk threshold are different, the
Distributor, as distributor for the Fund and other mutual funds available from
the Delaware Investments family, will provide general information about
investment alternatives and scenarios that will allow investors to assess their
personal goals. This information will include general material about investing
as well as materials reinforcing various industry-accepted principles of prudent
and responsible personal financial planning. One typical way of addressing these
issues is to compare an individual's goals and the length of time the individual
has to attain these goals to his or her risk threshold. In addition, the
Distributor will provide information that discusses the Manager's overriding
investment philosophy and how that philosophy impacts the Fund's, and other
funds in the Delaware Investments family, investment disciplines employed in
seeking their objectives. The Distributor may also from time to time cite
general or specific information about the institutional clients of the Manager,
including the number of such clients serviced by the Manager.
-26-
<PAGE>
Dollar-Cost Averaging
For many people, deciding when to invest can be a difficult decision.
Security prices tend to move up and down over various market cycles and logic
says to invest when prices are low. However, even experts can't always pick the
highs and the lows. By using a strategy known as dollar-cost averaging, you
schedule your investments ahead of time. If you invest a set amount on a regular
basis, that money will always buy more shares when the price is low and fewer
when the price is high. You can choose to invest at any regular interval--for
example, monthly or quarterly--as long as you stick to your regular schedule.
Dollar-cost averaging looks simple and it is, but there are important things to
remember.
Dollar-cost averaging works best over longer time periods, and it
doesn't guarantee a profit or protect against losses in declining markets. If
you need to sell your investment when prices are low, you may not realize a
profit no matter what investment strategy you utilize. That's why dollar-cost
averaging can make sense for long-term goals. Since the potential success of a
dollar-cost averaging program depends on continuous investing, even through
periods of fluctuating prices, you should consider your dollar-cost averaging
program a long-term commitment and invest an amount you can afford and probably
won't need to withdraw. You also should consider your financial ability to
continue to purchase shares during periods of high fund share prices. Delaware
Investments offers three services -- Automatic Investing Plan, Direct Deposit
Purchase Plan and the Wealth Builder Option --that can help to keep your regular
investment program on track. See Investing by Electronic Fund Transfer -Direct
Deposit Purchase Plan, Automatic Investing Plan and Wealth Builder Option under
Investment Plans for a complete description of these services, including
restrictions or limitations.
The example below illustrates how dollar-cost averaging can work. In a
fluctuating market, the average cost per share over a period of time will be
lower than the average price per share for the same time period.
Number
Investment Price Per of Shares
Amount Share Purchased
---------- --------- ---------
Month 1 $100 $10.00 10
Month 2 $100 $12.50 8
Month 3 $100 $ 5.00 20
Month 4 $100 $10.00 10
--------------------------------------------------------------
$400 $37.50 48
Total Amount Invested: $400
Total Number of Shares Purchased: 48
Average Price Per Share: $9.38 ($37.50/4)
Average Cost Per Share: $8.33 ($400/48 shares)
This example is for illustration purposes only. It is not intended to
represent the actual performance of any stock or bond fund in the Delaware
Investments family.
-27-
<PAGE>
THE POWER OF COMPOUNDING
When you opt to reinvest your current income for additional Fund
shares, your investment is given yet another opportunity to grow. It's called
the Power of Compounding. The Fund may include illustrations showing the power
of compounding in advertisements and other types of literature.
-28-
<PAGE>
TRADING PRACTICES AND BROKERAGE
Fund transactions are executed by the Manager on behalf of the Fund
in accordance with the standards described below.
Brokers, dealers and banks are selected to execute transactions for the
purchase or sale of portfolio securities on the basis of the Manager's judgment
of their professional capability to provide the service. The primary
consideration is to have brokers, dealers or banks execute transactions at best
price and execution. Best price and execution refers to many factors, including
the price paid or received for a security, the commission charged, the
promptness and reliability of execution, the confidentiality and placement
accorded the order and other factors affecting the overall benefit obtained by
the account on the transaction. Trades are generally made on a net basis where
securities are either bought or sold directly from or to a broker, dealer or
bank. In these instances, there is no direct commission charged, but there is a
spread (the difference between the buy and sell price) which is the equivalent
of a commission. When a commission is paid, the Fund pays reasonably competitive
brokerage commission rates based upon the professional knowledge of its trading
department as to rates paid and charged for similar transactions throughout the
securities industry. In some instances, the Fund pays a minimal share
transaction cost when the transaction presents no difficulty.
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.
As provided in the Securities Exchange Act of 1934 (the "1934 Act") and
the Fund's Investment Management Agreement, higher commissions are permitted to
be paid to broker/dealers who provide brokerage and research services than to
broker/dealers who do not provide such services, if such higher commissions are
deemed reasonable in relation to the value of the brokerage and research
services provided. Although transactions are directed to broker/dealers who
provide such brokerage and research services, Mutual Funds, Inc. believes that
the commissions paid to such broker/dealers are not, in general, higher than
commissions that would be paid to broker/dealers not providing such services and
that such commissions are reasonable in relation to the value of the brokerage
and research services provided. In some instances, services may be provided to
the Manager which constitute in some part brokerage and research services used
by the Manager in connection with its investment decision-making process and
constitute in some part services used by the Manager in connection with
administrative or other functions not related to its investment decision-making
process. In such cases, the Manager will make a good faith allocation of
brokerage and research services and will pay out of its own resources for
services used by the Manager in connection with administrative or other
functions not related to its investment decision-making process. In addition, so
long as no fund is disadvantaged, portfolio transactions which generate
commissions or their equivalent are allocated to broker/dealers who provide
daily portfolio pricing services to the Fund and to other funds available from
the Delaware Investments family. Subject to best price and execution,
commissions allocated to brokers providing such pricing services may or may not
be generated by the funds receiving the pricing service.
-29-
<PAGE>
The Manager may place a combined order for two or more accounts or
funds engaged in the purchase or sale of the same security if, in its judgment,
joint execution is in the best interest of each participant and will result in
best price and execution. Transactions involving commingled orders are allocated
in a manner deemed equitable to each account or fund. When a combined order is
executed in a series of transactions at different prices, each account
participating in the order may be allocated an average price obtained from the
executing broker. It is believed that the ability of the accounts to participate
in volume transactions will generally be beneficial to the accounts and funds.
Although it is recognized that, in some cases, the joint execution of orders
could adversely affect the price or volume of the security that a particular
account or fund may obtain, it is the opinion of the Manager and Mutual Funds,
Inc.'s Board of Directors that the advantages of combined orders outweigh the
possible disadvantages of separate transactions.
Consistent with the Conduct Rules of the National Association of
Securities Dealers, Inc. (the "NASD"), and subject to seeking best price and
execution, the Manager may place orders with broker/dealers that have agreed to
defray certain expenses of the funds available from the Delaware Investments
family, such as custodian fees, and may, at the request of the Distributor, give
consideration to sales of shares of such funds as a factor in the selection of
brokers and dealers to execute portfolio transactions.
Portfolio Turnover
Portfolio trading will be undertaken principally to accomplish the
Fund's objective in relation to anticipated movements in the general level of
interest rates. The Fund is free to dispose of portfolio securities at any time,
subject to complying with the Code and the 1940 Act, when changes in
circumstances or conditions make such a move desirable in light of the
investment objective. The Fund will not attempt to achieve or be limited to a
predetermined rate of portfolio turnover, such a turnover always being
incidental to transactions undertaken with a view to achieving the Fund's
investment objective. However, it is generally anticipated that the Fund's
portfolio turnover rate will be less than 100%.
The degree of portfolio activity may affect brokerage costs of the Fund
and taxes payable by the Fund's shareholders to the extent of any net realized
capital gains. The Fund's portfolio turnover rate is not expected to exceed
100%; however, under certain market conditions the Fund may experience a rate of
portfolio turnover which could exceed 100%. The Fund's portfolio turnover rate
is calculated by dividing the lesser of purchases or sales of portfolio
securities for the particular fiscal year by the monthly average of the value of
the portfolio securities owned by the Fund, during the particular fiscal year,
exclusive of securities whose maturities at the time of acquisition are one year
or less. A turnover rate of 100% would occur, for example, if all the
investments in the Fund's portfolio at the beginning of the year were replaced
by the end of the year.
During the period June 7, 1996 (date of initial sale) through December
31, 1996 and for the fiscal year ended December 31, 1997, the Fund's portfolio
turnover rates were 15% and 23%, respectively.
The Fund may hold securities for any period of time. The Fund's
portfolio turnover will be increased if the Fund writes a large number of call
options which are subsequently exercised. The portfolio turnover rate also may
be affected by cash requirements from redemptions and repurchases of Fund
shares. Total brokerage costs generally increase with higher portfolio turnover
rates.
-30-
<PAGE>
PURCHASING SHARES
The Distributor serves as the national distributor for the Fund's
shares - Class A Shares, Class B Shares and Class C Shares, and has agreed to
use its best efforts to sell shares of the Fund. See the Prospectus for
information on how to invest. Shares of the Fund are offered on a continuous
basis, and may be purchased through authorized investment dealers or directly by
contacting Mutual Funds, Inc. or the Distributor.
The minimum initial investment generally is $1,000 for Class A Shares,
Class B Shares and Class C Shares. Subsequent purchases of such classes
generally must be at least $100. The initial and subsequent minimum investments
for Class A Shares will be waived for purchases by officers, directors and
employees of any fund in the Delaware Investments family, the Manager or any
of the its affiliates if the purchases are made pursuant to a payroll deduction
program. Shares purchased pursuant to the Uniform Gifts to Minors Act or Uniform
Transfers to Minors Act and shares purchased in connection with an Automatic
Investing Plan are subject to a minimum initial purchase of $250 and a minimum
subsequent purchase of $25. Accounts opened under the Asset Planner service
are subject to a minimum initial investment of $2,000 per Asset Planner Strategy
selected.
Each purchase of Class B Shares is subject to a maximum purchase
limitation of $250,000. For Class C Shares, each purchase must be in an amount
that is less than $1,000,000. Mutual Funds, Inc. will reject any purchase order
for more than $250,000 of Class B Shares and $1,000,000 or more of Class C
Shares. An investor may exceed these limitations by making cumulative purchases
over a period of time. An investor should keep in mind, however, that reduced
front-end sales charges apply to investments of $100,000 or more in Class A
Shares, and that Class A Shares are subject to lower annual 12b-1 Plan expenses
than Class B Shares and Class C Shares and generally are not subject to a CDSC.
Selling dealers are responsible for transmitting orders promptly.
Mutual Funds, Inc. reserves the right to reject any order for the purchase of
shares of the Fund if in the opinion of management such rejection is in the
Fund's best interests.
The NASD has adopted amendments to its Conduct Rules, as amended,
relating to investment company sales charges. Mutual Funds, Inc. and the
Distributor intend to operate in compliance with these rules.
Class A Shares are purchased at the offering price which reflects a
maximum front-end sales charge of 3.75%; however, lower front-end sales charges
apply for larger purchases. Class A Shares are also subject to annual 12b-1
Plan expenses.
Class B Shares are purchased at net asset value and are subject to a
CDSC of: (i) 4% if shares are redeemed within two years of purchase; (ii) 3% if
shares are redeemed during the third or fourth year following purchase; (iii) 2%
if shares are redeemed during the fifth year following purchase; (iv) 1% if
shares are redeemed during the sixth year following purchase; and (v) 0%
thereafter. Class B Shares are also subject to annual 12b-1 Plan expenses which
are higher than those to which Class A Shares are subject and are assessed
against Class B Shares for approximately eight years after purchase. Class B
Shares will automatically convert to Class A Shares at the end of approximately
eight years after purchase and, thereafter, be subject to annual 12b-1 Plan
expenses of up to a maximum of 0.25% of average daily net assets of such shares.
See Automatic Conversion of Class B Shares under Classes of Shares in the
Prospectus.
Class C Shares are purchased at net asset value and are subject to a
CDSC of 1% if shares are redeemed within 12 months following purchase. Class C
Shares are also subject to annual 12b-1 Plan expenses for the life of
-31-
<PAGE>
the investment which are equal to those to which Class B Shares are subject.
Unlike Class B Shares, Class C Shares do not convert to another class.
Class A Shares, Class B Shares and Class C Shares represent a
proportionate interest in a Fund's assets and will receive a proportionate
interest in that Fund's income, before application, as to Class A Shares, Class
B Shares and Class C Shares, of any expenses under that Fund's 12b-1 Plans.
Certificates representing shares purchased are not ordinarily issued in
the Class A Shares, unless a shareholder submits a specific request.
Certificates are not issued in the case of Class B Shares or Class C Shares.
However, purchases not involving the issuance of certificates are confirmed to
the investor and credited to the shareholder's account on the books maintained
by Delaware Service Company, Inc. (the "Transfer Agent"). The investor will have
the same rights of ownership with respect to such shares as if certificates had
been issued. An investor that is permitted to obtain a certificate may receive a
certificate representing full share denominations purchased by sending a letter
signed by each owner of the account to the Transfer Agent requesting the
certificate. No charge is assessed by Mutual Funds, Inc. for any certificate
issued. A shareholder may be subject to fees for replacement of a lost or stolen
certificate, under certain conditions, including the cost of obtaining a bond
covering the lost or stolen certificate. Please contact the Fund for further
information. Investors who hold certificates representing any of their shares
may only redeem those shares by written request. The investor's certificate(s)
must accompany such request.
Alternative Purchase Arrangements
The alternative purchase arrangements of Class A Shares, Class B Shares
and Class C Shares of the Fund permit investors to choose the method of
purchasing shares that is most suitable for their needs given the amount of
their purchase, the length of time they expect to hold their shares and other
relevant circumstances. Investors should determine whether, given their
particular circumstances, it is more advantageous to purchase Class A Shares of
a Fund and incur a front-end sales charge and annual 12b-1 Plan expenses of up
to a maximum of 0.25% of the average daily net assets of Class A Shares or to
purchase either Class B or Class C Shares of a Fund and have the entire initial
purchase amount invested in the Fund with the investment thereafter subject to a
CDSC and annual 12b-1 Plan expenses.
Class A Shares
Purchases of $100,000 or more of Class A Shares at the offering price
carry reduced front-end sales charges and may include a series of purchases
over a 13-month period under a Letter of Intention signed by the purchaser. See
Front-End Sales Charge Alternative - Class A Shares in the Prospectus for a
table illustrating reduced front-end sales charges. See also Special Purchase
Features -- Class A Shares, below, for more information on ways in which
investors can avail themselves of reduced front-end sales charges and other
purchase features.
Certain dealers who enter into an agreement to provide extra training
and information on 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
-32-
<PAGE>
effected. See Front-End Sales Charge Alternative - Class A Shares in the
Prospectus for the applicable schedule and further details.
Contingent Deferred Sales Charge - Class B Shares and Class C Shares
Class B Shares and Class C Shares are purchased without a front-end
sales charge. Class B Shares redeemed within six years of purchase may be
subject to a CDSC at the rates set forth above, and Class C Shares redeemed
within 12 months of purchase may be subject to a CDSC of 1%. CDSCs are charged
as a percentage of the dollar amount subject to the CDSC. The charge will be
assessed on an amount equal to the lesser of the net asset value at the time of
purchase of the shares being redeemed or the net asset value of those shares at
the time of redemption. No CDSC will be imposed on increases in net asset value
above the initial purchase price, nor will a CDSC be assessed on redemptions of
shares acquired through reinvestment of dividends or capital gains
distributions. See Waiver of Contingent Deferred Sales Charge - Class B Shares
and Class C Shares under Redemption and Exchange in the Prospectus for a list of
the instances in which the CDSC is waived. During the seventh year after
purchase and, thereafter, until converted automatically into Class A Shares,
Class B Shares will still be subject to the annual 12b-1 Plan expenses of up to
1% of average daily net assets of those shares. At the end of approximately
eight years after purchase, the investor's Class B Shares will be automatically
converted into Class A Shares of the Fund. See Automatic Conversion of Class B
Shares under Classes of Shares in the Prospectus. Such conversion will
constitute a tax-free exchange for federal income tax purposes. See Taxes in the
Prospectus.
Plans Under Rule 12b-1
Pursuant to Rule 12b-1 under the 1940 Act, Mutual Funds, Inc. has
adopted a separate plan for each of the Class A Shares, Class B Shares and Class
C Shares of the Fund (the "Plans"). Each Plan permits the Fund to pay for
certain distribution, promotional and related expenses involved in the marketing
of only the class of shares to which the Plan applies. Such shares are not
included in calculating the Plans' fees.
The Plans permit the Fund, pursuant to its Distribution Agreement, to
pay out of the assets of Class A Shares, Class B Shares and Class C Shares
monthly fees to the Distributor for its services and expenses in distributing
and promoting sales of shares of such classes. These expenses include, among
other things, preparing and distributing advertisements, sales literature and
prospectuses and reports used for sales purposes, compensating sales and
marketing personnel, and paying distribution and maintenance fees to securities
brokers and dealers who enter into agreements with the Distributor. The Plan
expenses relating to Class B Shares and Class C Shares are also used to pay the
Distributor for advancing the commission costs to dealers with respect to the
initial sale of such shares.
In addition, the Fund may make payments out of the assets of Class A
Shares, Class B Shares and Class C Shares directly to other unaffiliated
parties, such as banks, who either aid in the distribution of shares of, or
provide services to, such classes.
The maximum aggregate fee payable by the Fund under its Plans, and the
Fund's Distribution Agreement, is on an annual basis, up to 0.25% of average
daily net assets of Class A Shares, and up to 1% (0.25% of which are service
fees to be paid to the Distributor, dealers and others for providing personal
service and/or maintaining shareholder accounts) of each of the Class B Shares'
and Class C Shares' average daily net assets for the year.
Mutual Funds, Inc.'s Board of Directors may reduce these amounts at any time.
All of the distribution expenses incurred by the Distributor and
others, such as broker/dealers, in excess of the amount paid on behalf of Class
A Shares, Class B Shares and Class C Shares would be borne by such persons
without any payment from the Classes. Subject to seeking best price and
execution, the Fund may, from time to time, buy or sell portfolio securities
from or to firms which receive payments under the Plans. From time to time,
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the Distributor may pay additional amounts from its own resources to dealers for
aid in distribution or for aid in providing administrative services to
shareholders.
The Plans and the Distribution Agreement, as amended, have all been
approved by the Board of Directors of Mutual Funds, Inc., including a majority
of the directors who are not "interested persons" (as defined in the 1940 Act)
of Mutual Funds, Inc. and who have no direct or indirect financial interest in
the Plans, by vote cast in person at a meeting duly called for the purpose of
voting on the Plans and such Agreements. Continuation of the Plans and the
Distribution Agreements, as amended, must be approved annually by the Board of
Directors in the same manner as specified above.
Each year, the directors must determine whether continuation of the
Plans is in the best interest of shareholders of, respectively, Class A Shares,
Class B Shares and Class C Shares of the Fund and that there is a reasonable
likelihood of the Plan relating to a Class providing a benefit to that Class.
The Plans and the Distribution Agreement, as amended, may be terminated with
respect to a Class at any time without penalty by a majority of those directors
who are not "interested persons" or by a majority vote of the relevant Class'
outstanding voting securities . Any amendment materially increasing the
percentage payable under the Plans must likewise be approved by a majority vote
of the relevant Class' outstanding voting securities , as well as by a majority
vote of those directors who are not "interested persons." With respect to the
Class A Shares' Plan, any material increase in the maximum percentage payable
thereunder must also be approved by a majority of the outstanding voting
securities of the Fund's B Class. Also, any other material amendment to the
Plans must be approved by a majority vote of the directors including a majority
of the noninterested directors of Mutual Funds, Inc. having no interest in the
Plans. In addition, in order for the Plans to remain effective, the selection
and nomination of directors who are not "interested persons" of Mutual Funds,
Inc. must be effected by the directors who themselves are not "interested
persons" and who have no direct or indirect financial interest in the Plans.
Persons authorized to make payments under the Plans must provide written reports
at least quarterly to the Board of Directors for their review.
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For the fiscal year ended December 31, 1997, payments from Class A
Shares, Class B Shares and Class C Shares of the Fund amounted to $32,539,
$59,368 and $21,060, respectively. For the period May 1, 1997 through December
31, 1997, such amounts were used for the following purposes:
A Class B Class C Class
------- ------- -------
Advertising -- -- --
Annual/Semi-Annual Reports $348 -- --
Broker Trails $13,645 $10,238 $3,189
Broker Sales Charges -- $13,261 $10,860
Dealer Service Expenses -- $259 $157
Interest on Broker Sales Charges -- $14,232 $2,046
Commissions to Wholesalers $11 -- --
Promotional-Broker Meetings $1,015 $486 $112
Promotional-Other $11,851 -- --
Prospectus Printing $4,185 -- --
Telephone -- $38 $32
Wholesaler Expenses -- $764 --
Other -- -- --
Other Payments to Dealers -- Class A Shares, Class B Shares and Class C Shares
From time to time, at the discretion of the Distributor, all
registered broker/dealers whose aggregate sales of Fund Classes exceed certain
limits as set by the Distributor, may receive from the Distributor an additional
payment of up to 0.25% of the dollar amount of such sales. The Distributor may
also provide additional promotional incentives or payments to dealers that sell
shares of funds in the Delaware Investments fmaily. 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 purchased without a front-end sales charge under
the Dividend Reinvestment Plan and, under certain circumstances, the Exchange
Privilege and the 12-Month Reinvestment Privilege.
Current and former officers, directors and employees of Mutual Funds,
Inc., any other fund in the Delaware Investments family, the Manager or any
of the Manager's current affiliates and those that may in the future be created,
legal counsel to the funds, and registered representatives and employees of
broker/dealers who have entered into Dealer's Agreements with the Distributor
may purchase Class A Shares of the Fund and any such class of shares of any of
the other funds available from the Delaware Investments family, including
any fund that may be created, at the net asset value per share. Family members
(regardless of age) of such persons at their direction, and any employee benefit
plan established by any of the foregoing funds, corporations, counsel or
broker/dealers may also purchase Class A Shares at net asset value. Class A
Shares may also be purchased at net asset value by current and former officers,
directors and employees (and members of their families) of the Dougherty
Financial Group LLC. Purchases of Class A Shares may also be made by clients
of registered representatives of an authorized investment dealer at net asset
value within 12 months after 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
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asset value by bank employees who provide services in connection with agreements
between the bank and unaffiliated brokers or dealers concerning sales of shares
of funds in the Delaware Investments family. Officers, directors and key
employees of institutional clients of the Manager or any of its affiliates may
purchase Class A Shares at net asset value. Moreover, purchases may be effected
at net asset value for the benefit of the clients of brokers, dealers and
registered investment advisers affiliated with a broker or dealer, if such
broker, dealer or investment adviser has entered into an agreement with the
Distributor providing specifically for the purchase of Class A Shares in
connection with special investment products, such as wrap accounts or similar
fee based programs.
Investors in Delaware Investments Unit Investment Trusts may reinvest
monthly dividend checks and/or repayment of invested capital into Class A Shares
of any of the funds available from the Delaware Investments family at net
asset value.
Mutual Funds, Inc. must be notified in advance that an investment
qualifies for purchase at net asset value.
Letter of Intention
The reduced front-end sales charges described above with respect to
Class A Shares are also applicable to the aggregate amount of purchases made
within a 13-month period pursuant to a written Letter of Intention provided by
the Distributor and signed by the purchaser, and not legally binding on the
signer or Mutual Funds, Inc., which provides for the holding in escrow by the
Transfer Agent of 5% of the total amount of Class A Shares intended to be
purchased until such purchase is completed within the 13-month period. A Letter
of Intention may be dated to include shares purchased up to 90 days prior to the
date the Letter is signed. The 13-month period begins on the date of the
earliest purchase. If the intended investment is not completed, except as noted
below, the purchaser will be asked to pay an amount equal to the difference
between the front-end sales charge on Class A Shares purchased at the reduced
rate and the front-end sales charge otherwise applicable to the total shares
purchased. If such payment is not made within 20 days following the expiration
of the 13-month period, the Transfer Agent will surrender an appropriate number
of the escrowed shares for redemption in order to realize the difference. Such
purchasers may include the value (at offering price at the level designated in
their Letter of Intention) of all their shares of the Fund and of any class of
any of the other mutual funds available from the Delaware Investments family
(except shares of any fund in the Delaware Investments family which do not
carry a front-end sales charge, CDSC or Limited CDSC, other than shares of
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.
Combined Purchases Privilege
In determining the availability of the reduced front-end sales charge
previously set forth with respect to Class A Shares, purchasers may combine the
total amount of any combination of Class A Shares, Class B Shares and/or Class C
Shares of the Fund, as well as shares of any other class of any of the other
Delaware Investments funds (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). 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 holding in
the Delaware Investments family.
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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 fund in the
Delaware Investments family which do not carry a front-end sales charge, CDSC
or Limited CDSC, other than shares of Delaware Group Premium Fund, Inc.
beneficially owned in connection with the ownership of variable insurance
products, unless they were acquired through an exchange from a fund in the
Delaware Investments family which carried a front-end sales charge, CDSC or
Limited CDSC). If, for example, any such purchaser has previously purchased and
still holds Class A Shares and/or shares of any other of the classes described
in the previous sentence with a value of $40,000 and subsequently purchases
$60,000 at offering price of additional shares of Class A Shares, the charge
applicable to the $60,000 purchase would currently be 3.00%. For the purpose of
this calculation, the shares presently held shall be valued at the public
offering price that would have been in effect were the shares purchased
simultaneously with the current purchase. Investors should refer to the table of
sales charges for Class A Shares in the Prospectus to determine the
applicability of the Right of Accumulation to their particular circumstances.
12-Month Reinvestment Privilege
Holders of Class A Shares of the Fund who redeem such shares have one
year from the date of redemption to reinvest all or part of their redemption
proceeds in Class A Shares of the Fund or in Class A Shares of any of the other
funds available from the Delaware Investments family, subject to applicable
eligibility and minimum purchase requirements, in states where shares of such
other funds may be sold, at net asset value without the payment of a front-end
sales charge. This privilege does not extend to Class A Shares where the
redemption of the shares triggered the payment of a Limited CDSC. Persons
investing redemption proceeds from direct investments in mutual funds
available from the Delaware Investments family offered without a front-end
sales charge will be required to pay the applicable sales charge when purchasing
Class A Shares. The reinvestment privilege does not extend to a redemption of
either Class B Shares or Class C Shares.
Any such reinvestment cannot exceed the redemption proceeds (plus any
amount necessary to purchase a full share). The reinvestment will be made at the
net asset value next determined after receipt of remittance. A redemption and
reinvestment could have income tax consequences. It is recommended that a tax
adviser be consulted with respect to such transactions. Any reinvestment
directed to a fund in which the investor does not then have an account will be
treated like all other initial purchases of a fund's shares. Consequently, an
investor should obtain and read carefully the prospectus for the fund in which
the investment is intended to be made before investing or sending money. The
prospectus contains more complete information about the fund, including charges
and expenses.
Investors should consult their financial advisers or the Transfer Agent,
which also serves as the Fund's shareholder servicing agent, about the
applicability of the Limited CDSC (see Contingent Deferred Sales Charge for
Certain Redemptions of Class A Shares Purchased at Net Asset Value under
Redemption and Exchange in the Prospectus) in connection with the features
described above.
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INVESTMENT PLANS
Reinvestment Plan/Open Account
Unless otherwise designated by shareholders in writing, dividends from
net investment income and distributions from realized securities profits, if
any, will be automatically reinvested in additional shares of the respective
Classes in which an investor has an account (based on the net asset value of the
Fund in effect on the reinvestment date) and will be credited to the
shareholder's account on that date. Confirmations of each dividend payment from
net investment income will be mailed to shareholders quarterly. A confirmation
of each distribution from realized securities profits, if any, will be mailed to
shareholders in the first quarter of the fiscal year.
Under the Reinvestment Plan/Open Account, shareholders may purchase and
add full and fractional shares to their plan accounts at any time either through
their investment dealers or by sending a check or money order to the Fund Class.
Such purchases, which must meet the minimum subsequent purchase requirements set
forth in the Prospectus and this Part B, are made for Class A Shares at the
public offering price and for Class B Shares and Class C Shares at the net asset
value, at the end of the day of receipt. A reinvestment plan may be terminated
at any time. This plan does not assure a profit nor protect against depreciation
in a declining market.
Reinvestment of Dividends in Other Delaware Investments Funds
Subject to applicable eligibility and minimum initial purchase
requirements and the limitations set forth below, holders of Class A Shares,
Class B Shares and Class C Shares may automatically reinvest dividends and/or
distributions in any of the mutual funds available from the Delaware
Investments family, including the Fund, in states where their shares may be
sold. Such investments will be at net asset value at the close of business on
the reinvestment date without any front-end sales charge or service fee. The
shareholder must notify the Transfer Agent in writing and must have established
an account in the fund into which the dividends and/or distributions are to be
invested. Any reinvestment directed to a fund in which the investor does not
then have an account will be treated like all other initial purchases of a
fund's shares. Consequently, an investor should obtain and read carefully the
prospectus for the fund in which the investment is intended to be made before
investing or sending money. The prospectus contains more complete information
about the fund, including charges and expenses. See also Additional Methods of
Adding to Your Investment - Dividend Reinvestment Plan under How to Buy Shares
in the Prospectus.
Subject to the following limitations, dividends and/or distributions
from other funds available from the Delaware Investments family may be
invested in shares of the Fund, provided an account has been established.
Dividends from Class A Shares may not be directed to Class B Shares or Class C
Shares. Dividends from Class B Shares may only be directed to other Class B
Shares and dividends from Class C Shares may only be directed to other Class C
Shares.
Investing by Electronic Fund Transfer
Direct Deposit Purchase Plan -- Investors may arrange for the Fund to
accept for investment in Class A Shares, Class B Shares or Class C Shares,
through an agent bank, preauthorized government or private recurring payments.
This method of investment assures the timely credit to the shareholder's account
of payments such as social security, veterans' pension or compensation benefits,
federal salaries, Railroad Retirement benefits, private payroll checks,
dividends, and disability or pension fund benefits. It also eliminates lost,
stolen and delayed checks.
Automatic Investing Plan -- Shareholders of Class A Shares, Class B
Shares and Class C Shares may make automatic investments by authorizing, in
advance, monthly payments directly from their checking account for
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deposit into their Fund account. This type of investment will be handled in
either of the following ways. (1) If the shareholder's bank is a member of the
National Automated Clearing House Association ("NACHA"), the amount of the
investment will be electronically deducted from his or her account by Electronic
Fund Transfer ("EFT"). The shareholder's checking account will reflect a debit
each month at a specified date although no check is required to initiate the
transaction. (2) If the shareholder's bank is not a member of NACHA, deductions
will be made by preauthorized checks, known as Depository Transfer Checks.
Should the shareholder's bank become a member of NACHA in the future, his or her
investments would be handled electronically through EFT.
* * *
Initial investments under the Direct Deposit Purchase Plan and the
Automatic Investing Plan must be for $250 or more and subsequent investments
under such Plans must be for $25 or more. An investor wishing to take advantage
of either service must complete an authorization form. Either service can be
discontinued by the shareholder at any time without penalty by giving written
notice.
Payments to the Fund from the federal government or its agencies on
behalf of a shareholder may be credited to the shareholder's account after such
payments should have been terminated by reason of death or otherwise. Any such
payments are subject to reclamation by the federal government or its agencies.
Similarly, under certain circumstances, investments from private sources may be
subject to reclamation by the transmitting bank. In the event of a reclamation,
the Fund may liquidate sufficient shares from a shareholder's account to
reimburse the government or the private source. In the event there are
insufficient shares in the shareholder's account, the shareholder is expected to
reimburse the Fund.
Direct Deposit Purchases by Mail
Shareholders may authorize a third party, such as a bank or employer, to
make investments directly to their Fund accounts. The Fund will accept these
investments, such as bank-by-phone, annuity payments and payroll allotments, by
mail directly from the third party. Investors should contact their employers or
financial institutions who in turn should contact Mutual Funds, Inc. for proper
instructions.
Wealth Builder Option
Shareholders can use the Wealth Builder Option to invest in the Classes
through regular liquidations of shares in their accounts in other mutual funds
available from the Delaware Investments family. Shareholders of the Classes
may elect to invest in one or more of the other mutual funds available from
the Delaware Investments family through the Wealth Builder Option. See Wealth
Builder Option and Redemption and Exchange in the Prospectus.
Under this automatic exchange program, shareholders can authorize
regular monthly investments (minimum of $100 per fund) to be liquidated from
their account and invested automatically into other mutual funds available
from the Delaware Investments family, subject to the conditions and
limitations set forth in the Prospectus. The investment will be made on the 20th
day of each month (or, if the fund selected is not open that day, the next
business day) at the public offering price or net asset value, as applicable, of
the fund selected on the date of investment. No investment will be made for any
month if the value of the shareholder's account is less than the amount
specified for investment.
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
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their financial ability to continue to participate in the program through
periods of low fund share prices. This program involves automatic exchanges
between two or more fund accounts and is treated as a purchase of shares of the
fund into which investments are made through the program. See Exchange Privilege
for a brief summary of the tax consequences of exchanges. Shareholders can
terminate their participation in Wealth Builder at any time by giving written
notice to the fund from which exchanges are made.
Asset Planner
To invest in funds in the Delaware Investments family using the Asset
Planner asset allocation service, you should complete an Asset Planner Account
Registration Form, which is available only from a financial adviser or
investment dealer. Effective September 1, 1997, the Asset Planner Service is
only available to financial advisers or investment dealers who have previously
used this service. The Asset Planner service offers a choice of four predesigned
asset allocation strategies (each with a different risk/reward profile) in
predetermined percentages in funds in the Delaware Investments family. With the
help of a financial adviser, you may also design a customized asset allocation
strategy.
The sales charge on an investment through the Asset Planner service is
determined by the individual sales charges of the underlying funds and their
percentage allocation in the selected Strategy. Exchanges from existing accounts
in the Delaware Investments family into the Asset Planner service may be made at
net asset value under the circumstances described under Investing by Exchange in
the Prospectus. Also see Buying Class A Shares at Net Asset Value under Classes
of Shares. The minimum initial investment per Strategy is $2,000; subsequent
investments must be at least $100. Individual fund minimums do not apply to
investments made using the Asset Planner service. Class A Shares, Class B Shares
and Class C Shares are available through the Asset Planner service. Generally,
only shares within the same class may be used within the same Strategy. However,
Class A Shares of the Fund and of other funds available from the Delaware
Investments family may be used in the same Strategy with consultant class shares
that are offered by certain other funds in the Delaware Investments family.
An annual maintenance fee, currently $35 per Strategy, is due at the
time of initial investment and by September 30 of each subsequent year. The fee,
payable to Delaware Service Company, Inc. to defray extra costs associated with
administering the Asset Planner service, will be deducted automatically from one
of the funds within your Asset Planner account if not paid by September 30.
However, effective November 1, 1996, the annual maintenance fee is waived until
further notice. Investors who utilize the Asset Planner for an IRA will continue
to pay an annual IRA fee of $15 per Social Security number. Investors will
receive a customized quarterly Strategy Report summarizing all Asset Planner
investment performance and account activity during the prior period.
Confirmation statements will be sent following all transactions other than those
involving a reinvestment of distributions.
Certain shareholder services are not available to investors using the
Asset Planner service, due to its special design. These include Delaphone,
Checkwriting, Wealth Builder Option and Letter of Intention. Systematic
Withdrawal Plans are available after the account has been open for two years.
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DETERMINING OFFERING PRICE AND NET ASSET VALUE
Orders for purchases of Class A Shares are effected at the offering
price next calculated by the Fund in which shares are being purchased after
receipt of the order by the Fund, its agent or certain other authorized
persons. Orders for purchases of Class B Shares and Class C Shares are effected
at the net asset value per share next calculated by the Fund in which shares are
being purchased after receipt of the order by the Fund, its agent or certain
other authorized persons. Selling dealers are responsible for transmitting
orders promptly.
The offering price for Class A Shares consists of the net asset value
per share plus any applicable front-end sales charges. Offering price and net
asset value are computed as of the close of regular trading on the New York
Stock Exchange (ordinarily, 4 p.m., Eastern time) on days when the Exchange is
open. The New York Stock Exchange is scheduled to be open Monday through Friday
throughout the year except for New Year's Day, Martin Luther King, Jr.'s
Birthday, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving and Christmas. When the New York Stock Exchange is closed, the
Fund will generally be closed, pricing calculations will not be made and
purchase and redemption orders will not be processed.
An example showing how to calculate the net asset value per share and,
in the case of Class A Shares, the offering price per share, is included in the
Fund's financial statements which are incorporated by reference into this Part
B.
The Fund's net asset value per share is computed by adding the value of
all the Fund's securities and other assets, deducting any liabilities of the
Fund, and dividing by the number of Fund shares outstanding. Expenses and fees
are accrued daily. Portfolio securities, except for bonds, which are primarily
traded on a national or foreign securities exchange are valued at the last sale
price on that exchange. Options are valued at the last reported sales price or,
if no sales are reported, at the mean between bid and asked prices. Securities
not traded on a particular day, over-the-counter securities and government and
agency securities are valued at the mean value between bid and asked prices.
Money market instruments having a maturity of less than 60 days are valued at
amortized cost. Debt securities (other than short-term obligations) are valued
on the basis of valuations provided by a pricing service when such prices are
believed to reflect the fair value of such securities. Use of a pricing service
has been approved by the Board of Directors. Subject to the foregoing,
securities for which market quotations are not readily available and other
assets are valued at fair value as determined in good faith and in a method
approved by the Board of Directors.
Each Class of the Fund will bear, pro-rata, all of the common expenses
of the Fund. The net asset values of all outstanding shares of each Class of the
Fund will be computed on a pro-rata basis for each outstanding share based on
the proportionate participation in the Fund represented by the value of shares
of that Class. All income earned and expenses incurred by the Fund will be borne
on a pro-rata basis by each outstanding share of a Class, based on each Class'
percentage in the Fund represented by the value of shares of such Classes. Due
to the specific distribution expenses and other costs that may be allocable to
each Class, the dividends paid to each Class may vary. However, the net asset
value per share of each Class is expected to be equivalent.
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REDEMPTION AND REPURCHASE
Any shareholder may require the Fund to redeem shares by sending a
written request, signed by the record owner or owners exactly as the shares are
registered, to the Fund at 1818 Market Street, Philadelphia, PA 19103. In
addition, certain expedited redemption methods described below are available
when stock certificates have not been issued. Certificates are issued for Class
A Shares only if a shareholder specifically requests them. Certificates are not
issued for Class B Shares or Class C Shares. If stock certificates have been
issued for shares being redeemed, they must accompany the written request. For
redemptions of $50,000 or less paid to the shareholder at the address of record,
the request must be signed by all owners of the shares or the investment dealer
of record, but a signature guarantee is not required. When the redemption is for
more than $50,000, or if payment is made to someone else or to another address,
signatures of all record owners are required and a signature guarantee may be
required. Each signature guarantee must be supplied by an eligible guarantor
institution. The Fund reserves the right to reject a signature guarantee
supplied by an eligible institution based on its creditworthiness. The Fund may
request further documentation from corporations, retirement plans, executors,
administrators, trustees or guardians.
In addition to redemption of Fund shares, the Distributor, acting as
agent of the Fund, offers to repurchase Fund shares from broker/dealers acting
on behalf of shareholders. The redemption or repurchase price, which may be more
or less than the shareholder's cost, is the net asset value per share next
determined after receipt of the request in good order by the Fund , or certain
other authorized persons, subject to any applicable CDSC or Limited CDSC. See
Distribution and Service under Investment Management Agreement. This is computed
and effective at the time the offering price and net asset value are determined.
See Determining Offering Price and Net Asset Value. The Fund and the Distributor
end their business days at 5 p.m., Eastern time. This offer is discretionary and
may be completely withdrawn without further notice by the Distributor.
Orders for the repurchase of Fund shares which are submitted to the
Distributor prior to the close of its business day will be executed at the net
asset value per share computed that day (subject to the applicable CDSC or
Limited CDSC), if the repurchase order was received by the broker/dealer from
the shareholder prior to the time the offering price and net asset value are
determined on such day. The selling dealer has the responsibility of
transmitting orders to the Distributor promptly. Such repurchase is then settled
as an ordinary transaction with the broker/dealer (who may make a charge to the
shareholder for this service) delivering the shares repurchased.
Certain redemptions of Class A Shares purchased at net asset value may
result in the imposition of a Limited CDSC. See Contingent Deferred Sales Charge
for Certain Redemptions of Class A Shares Purchased at Net Asset Value under
Redemption and Exchange in the Prospectus. Class B Shares are subject to a CDSC
of: (i) 4% if shares are redeemed within two years of purchase; (ii) 3% if
shares are redeemed during the third or fourth year following purchase; (iii) 2%
if shares are redeemed during the fifth year following purchase; (iv) 1% if
shares are redeemed during the sixth year following purchase; and (v) 0%
thereafter. Class C Shares are subject to a CDSC of 1% if shares are redeemed
within 12 months following purchase. See Contingent Deferred Sales Charge -
Class B Shares and Class C Shares under Classes of Shares in the Prospectus.
Except for the applicable CDSC or Limited CDSC and, with respect to the
expedited payment by wire described below for which, in the case of the Classes,
there is currently a $7.50 bank wiring cost, neither the Fund nor the Fund's
Distributor charges a fee for redemptions or repurchases, but such fees could be
charged at any time in the future.
Payment for shares redeemed will ordinarily be mailed the next business
day, but in no case later than seven days, after receipt of a redemption request
in good order; 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.
-42-
<PAGE>
The Fund will process written or telephone redemption requests to the
extent that the purchase orders for the shares being redeemed have already
settled. The Fund will honor redemption requests as to shares for which a check
was tendered as payment, but the Fund will not mail or wire the proceeds until
it is reasonably satisfied that the check has cleared. This potential delay can
be avoided by making investments by wiring Federal Funds.
If a shareholder has been credited with a purchase by a check which is
subsequently returned unpaid for insufficient funds or for any other reason, the
Fund will automatically redeem from the shareholder's account the shares
purchased by the check plus any dividends earned thereon. Shareholders may be
responsible for any losses to the Fund or to the Distributor.
In case of a suspension of the determination of the net asset value
because the New York Stock Exchange is closed for other than weekends or
holidays, or trading thereon is restricted or an emergency exists as a result of
which disposal by the Fund of securities owned by it is not reasonably
practical, or it is not reasonably practical for the Fund fairly to value its
assets, or in the event that the SEC has provided for such suspension for the
protection of shareholders, the Fund may postpone payment or suspend the right
of redemption or repurchase. In such case, the shareholder may withdraw the
request for redemption or leave it standing as a request for redemption at the
net asset value next determined after the suspension has been terminated.
Payment for shares redeemed or repurchased may be made either in cash or
kind, or partly in cash and partly in kind. Any portfolio securities paid or
distributed in kind would be valued as described in Determining Offering Price
and Net Asset Value. Subsequent sale by an investor receiving a distribution in
kind could result in the payment of brokerage commissions. However, Mutual
Funds, Inc. has elected to be governed by Rule 18f-1 under the 1940 Act pursuant
to which the Fund is obligated to redeem shares solely in cash up to the lesser
of $250,000 or 1% of the net asset value of the Fund during any 90-day period
for any one shareholder.
The value of the Fund's investments is subject to changing market
prices. Thus, a shareholder reselling shares to the Fund may sustain either a
gain or loss, depending upon the price paid and the price received for such
shares.
Small Accounts
Before the Fund involuntarily redeems shares from an account that, under
the circumstances noted in the Prospectus, has remained below the minimum
amounts required by the Prospectus and sends the proceeds to the shareholder,
the shareholder will be notified in writing that the value of the shares in the
account is less than the minimum required and will be allowed 60 days from the
date of notice to make an additional investment to meet the required minimum.
See The Conditions of Your Purchase under How to Buy Shares in the Prospectus.
Any redemption in an inactive account established with a minimum investment may
trigger mandatory redemption. No CDSC or Limited CDSC will apply to the
redemptions described in this paragraph.
* * *
The Fund has made available certain redemption privileges, as described
below. The Fund reserves the right to suspend or terminate these expedited
payment procedures upon 60 days' written notice to shareholders.
Expedited Telephone Redemptions
Shareholders of the Classes or their investment dealers of record
wishing to redeem any amount of shares of $50,000 or less for which certificates
have not been issued may call the Shareholder Service Center at 800-523-1918
prior to the time the offering price and net asset value are determined, as
noted above, and have the
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<PAGE>
proceeds mailed to them at the address of record. Checks payable to the
shareholder(s) of record will normally be mailed the next business day, but no
later than seven days, after the receipt of the redemption request. This option
is only available to individual, joint and individual fiduciary-type accounts.
In addition, redemption proceeds of $1,000 or more can be transferred to
your predesignated bank account by wire or by check by calling the phone numbers
listed above. An authorization form must have been completed by the shareholder
and filed with the Fund before the request is received. Payment will be made by
wire or check to the bank account designated on the authorization form as
follows:
1. Payment by Wire: Request that Federal Funds be wired to the bank
account designated on the authorization form. Redemption proceeds will normally
be wired on the next business day following receipt of the redemption request.
There is a $7.50 wiring fee (subject to change) charged by CoreStates Bank, N.A.
which will be deducted from the withdrawal proceeds each time the shareholder
requests a redemption. If the proceeds are wired to the shareholder's account at
a bank which is not a member of the Federal Reserve System, there could be a
delay in the crediting of the funds to the shareholder's bank account.
2. Payment by Check: Request a check be mailed to the bank account
designated on the authorization form. Redemption proceeds will normally be
mailed the next business day, but no later than seven days, from the date of the
telephone request. This procedure will take longer than the Payment by Wire
option (1 above) because of the extra time necessary for the mailing and
clearing of the check after the bank receives it.
Redemption Requirements: In order to change the name of the bank and
the account number it will be necessary to send a written request to the Fund
and a signature guarantee may be required. Each signature guarantee must be
supplied by an eligible guarantor institution. The Fund reserves the right to
reject a signature guarantee supplied by an eligible institution based on its
creditworthiness.
To reduce the shareholder's risk of attempted fraudulent use of the
telephone redemption procedure, payment will be made only to the bank account
designated on the authorization form.
If expedited payment under these procedures could adversely affect the
Fund, the Fund may take up to seven days to pay the shareholder.
Neither the Fund nor the Fund's Transfer Agent is responsible for any
shareholder loss incurred in acting upon written or telephone instructions for
redemption or exchange of Fund shares which are reasonably believed to be
genuine. With respect to such telephone transactions, the Fund will follow
reasonable procedures to confirm that instructions communicated by telephone are
genuine (including verification of a form of personal identification) as, if it
does not, the Fund or the Transfer Agent may be liable for any losses due to
unauthorized or fraudulent transactions. Telephone instructions received by
shareholders of the Fund Classes are generally tape recorded. A written
confirmation will be provided for all purchase, exchange and redemption
transactions initiated by telephone.
Systematic Withdrawal Plans
Shareholders of Class A Shares, Class B Shares and Class C Shares who
own or purchase $5,000 or more of shares at the offering price, or net asset
value, as applicable, for which certificates have not been issued may establish
a Systematic Withdrawal Plan for monthly withdrawals of $25 or more, or
quarterly withdrawals of $75 or more, although the Fund does not recommend any
specific amount of withdrawal. Shares purchased with the initial investment and
through reinvestment of cash dividends and realized securities profits
distributions will be credited to the shareholder's account and sufficient full
and fractional shares will be redeemed at the net asset value calculated on the
third business day preceding the mailing date.
-44-
<PAGE>
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 purchases of
additional shares may be disadvantageous to the shareholder. Purchases of Class
A Shares through a periodic investment program in a fund managed by the Manager
must be terminated before a Systematic Withdrawal Plan with respect to such
shares can take effect, except if the shareholder is investing in funds in the
Delaware Investments family which do not carry a sales charge. Redemptions of
Class A Shares pursuant to a Systematic Withdrawal Plan may be subject to a
Limited CDSC if the purchase was made at net asset value and a dealer's
commission has been paid on that purchase. Redemptions of Class B Shares or
Class C Shares pursuant to a Systematic Withdrawal Plan may be subject to a
CDSC, unless the annual amount selected to be withdrawn is less than 12% of the
account balance on the date that the Systematic Withdrawal Plan was established.
See Waiver of Contingent Deferred Sales Charge - Class B Shares and Class C
Shares and Waiver of Limited Contingent Deferred Sales Charge - Class A Shares
under Redemption and Exchange in the Prospectus. Shareholders should consult
their financial advisers to determine whether a Systematic Withdrawal Plan would
be suitable for them.
An investor wishing to start a Systematic Withdrawal Plan must
complete an authorization form. If the recipient of Systematic Withdrawal Plan
payments is other than the registered shareholder, the shareholder's signature
on this authorization must be guaranteed. Each signature guarantee must be
supplied by an eligible guarantor institution. The Fund reserves the right to
reject a signature guarantee supplied by an eligible institution based on its
creditworthiness. This plan may be terminated by the shareholder or the Transfer
Agent at any time by giving written notice.
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<PAGE>
DISTRIBUTIONS AND TAXES
The Fund declares a dividend to shareholders of each Class from net
investment income on a daily basis. Dividends are declared each day the Fund is
open and paid monthly. Net investment income earned on days when the Fund is not
open will be declared as a dividend on the next business day. Purchases of
shares of the Fund by wire begin earning dividends when converted into Federal
Funds and are available for investment, normally the next business day after
receipt. However, if the Fund is given prior notice of Federal Funds wire and
an acceptable written guarantee of timely receipt from an investor satisfying
the Fund's credit policies, the purchase will start earning dividends on the
date the wire is received. Investors desiring to guarantee wire payments must
have an acceptable financial condition and credit history in the sole discretion
of the Fund. Mutual Funds, Inc. reserves the right to terminate this option at
any time. Purchases by check earn dividends upon conversion to Federal Funds,
normally one business day after receipt.
Each Class of shares of the Fund will share proportionately in the
investment income and expenses of the Fund, except that Class A Shares, Class B
Shares and Class C Shares alone will incur distribution fees under their
respective 12b-1 Plans.
Dividends are automatically reinvested in additional shares of the
same Class of the respective Fund at net asset value, unless an election to
receive dividends in cash has been made. Payment by check of cash dividends will
ordinarily be mailed within three business days after the payable date. Dividend
payments of $1.00 or less will be automatically reinvested, notwithstanding a
shareholder's election to receive dividends in cash. If such a shareholder's
dividends increase to greater than $1.00, the shareholder would have to file a
new election in order to begin receiving dividends in cash again. If a
shareholder redeems an entire account, all dividends accrued to the time of the
withdrawal will be paid by separate check at the end of that particular monthly
dividend period, consistent with the payment and mailing schedule described
above. Any check in payment of dividends or other distributions which cannot be
delivered by the United States Post Office or which remains uncashed for a
period of more than one year may be reinvested in the shareholder's account at
the then-current net asset value and the dividend option may be changed from
cash to reinvest. The Fund may deduct from a shareholder's account the costs of
the Fund's effort to locate a shareholder if a shareholder's mail is returned by
the United States Post Office or the Fund is otherwise unable to locate the
shareholder or verify the shareholder's mailing address. These costs may include
a percentage of the account when a search company charges a percentage fee in
exchange for their location services.
Any distributions from net realized securities profits will be made
once a year. Payment would be made during the first quarter of the next fiscal
year. Such distributions will be reinvested in shares, unless the shareholders
elect to receive them in cash. The Fund will mail a quarterly statement showing
the dividends paid and all the transactions made during the period.
Under the Taxpayer Relief Act of 1997 (the "1997 Act"), the Fund is
required to track its sales of portfolio securities and to report its capital
gain distributions to you according to the following categories of holding
periods:
"Pre-Act long-term capital gains" or "28 percent rate gain":
securities sold by the Fund before May 7, 1997, that were held for
more than 12 months. These gains will be taxable to individual
investors at a maximum rate of 28%.
"Mid-term capital gains" or "28 percent rate gain": securities sold by
the Fund after July 28, 1997 that were held more than one year but not
more than 18 months. These gains will be taxable to individual
investors at a maximum rate of 28%.
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<PAGE>
"1997 Act long-term capital gains" or "20 percent rate gain":
securities sold by the Fund between May 7, 1997 and July 28, 1997 that
were held for more than 12 months, and securities sold by the Fund
after July 28, 1997 that were held for more than 18 months. 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 as though purchased after December 31, 2000. These gains will
be taxable to individual investors at a maximum rate of 18% for
investors in the 28% or higher federal income tax brackets, and at a
maximum rate of 8% for investors in the 15% federal income tax bracket
when sold after the 5 year holding period.
See also Accounting and Tax Issues.
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<PAGE>
INVESTMENT MANAGEMENT AGREEMENT
The Manager, located at One Commerce Square, Philadelphia, PA 19103,
furnishes investment management services to the Fund, subject to the supervision
and direction of Mutual Funds, Inc.'s Board of Directors.
The Manager and its predecessors have been managing the funds in
Delaware Investments since 1938. On December 31, 1997, the Manager and its
affiliates within the Delaware Investments family, including Delaware
International Advisers Ltd., were managing in the aggregate more than $40
billion in assets in the various institutional or separately managed
(approximately $24,040,760,000) and investment company (approximately
$16,482,523,000) accounts.
Prior to May 1, 1997, Voyageur Fund Managers, Inc. ("Voyageur") had
been retained under an investment advisory contract to act as the Fund's
investment adviser, subject to the authority of the Board of Directors. Voyageur
was an indirect, wholly-owned subsidiary of Dougherty Financial Group, Inc.
("DFG"). After the close of business on April 30, 1997, Voyageur became an
indirect, wholly owned subsidiary of Lincoln National Corporation ("Lincoln
National") as a result of Lincoln National's acquisition of DFG. LNC,
headquartered in Fort Wayne, Indiana, owns and operates insurance and investment
management businesses, including Delaware Management Holding, Inc. ("DMH").
Affiliates of DMH serve as adviser, distributor and transfer agent for the
Delaware Investments family.
Because Lincoln National's acquisition of DFG resulted in a change of
control of Voyageur, the Fund's previous investment advisory agreement with
Voyageur was "assigned", as that term is defined by the 1940 Act, and the
previous agreements therefore terminated upon the completion of the acquisition.
The Board of Directors of Mutual Funds, Inc. unanimously approved new advisory
agreements at a meeting held in person on February 14, 1997, and called for a
shareholders meeting to approve the new agreements. At a meeting held on April
11, 1997, the shareholders of the Fund approved its Investment Management
Agreement with Voyageur, an indirect wholly-owned subsidiary of LNC, to become
effective after the close of business on April 30, 1997, the date the
acquisition was completed. On May 30, 1997, Voyageur was merged into the Manager
and the Manager became the investment manager for the Fund.
The Investment Management Agreement into which the Fund's 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 by vote of a majority of the outstanding voting
securities of the Fund, and only if the terms and the renewal thereof have been
approved by the vote of a majority of the directors of Mutual Funds, Inc. who
are not parties thereto or interested persons of any such party, cast in person
at a meeting called for the purpose of voting on such approval. The Agreement is
terminable without penalty on 60 days' notice by the directors of Mutual Funds,
Inc. or by the Manager. The Agreement will terminate automatically in the event
of its assignment.
Under its Investment Management Agreement, the Fund pays the Manager
an annual fee equal to 0.65% of its average daily net assets.
Beginning June 9, 1997, the Manager has elected voluntarily to waive
that portion, if any, of the annual management fees payable by the Fund and to
pay certain expenses of the Fund to the extent necessary to ensure that the
Total Operating Expenses of Class A Shares, Class B Shares and Class C Shares of
the Fund (exclusive of taxes, interest, brokerage commissions, extraordinary
expenses but including 12b-1 fees) do not exceed, on an annual basis, 0.30%,
1.05% and 1.05%, respectively, through December 31, 1997.
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<PAGE>
The Fund is responsible for all of its own expenses other than those
borne by the Manager under the Investment Management Agreement and those borne
by the Distributor under the Distribution Agreement. In connection with the
merger transaction described above, the Manager has agreed for a period of two
years ending on April 30, 1999, to pay the operating expenses (excluding
interest expense, taxes, brokerage fees, commissions and Rule 12b-1 fees) of the
Fund which exceed 1% of the Fund's average daily net assets on an annual basis
up to certain limits as set forth in this Part B. This agreement replaces a
similar provision in the Fund's investment advisory contracts with the Fund's
predecessor investment adviser.
On December 31, 1997, the total net assets of Mutual Funds, Inc. were
$242,960,530.
Investment management fees incurred by the Fund for the last 2 fiscal
periods follow:
Period Incurred Paid Waived
------ -------- ---- ------
Year Ended
December 31, 1997 $136,823 $-0- $136,823
Period Ended
December 31, 1996 $ 17,203 $-0- $ 17,203
Under the general supervision of the Board of Directors, the Manager
makes and executes all investment decisions for the Fund. The Manager pays the
salaries of all directors, officers and employees of Mutual Funds, Inc.
who are affiliated with the Manager. The Fund pays all of its other expenses.
Distribution and Service
The Distributor, Delaware Distributors, L.P., located at 1818 Market
Street, Philadelphia, PA 19103, serves as the national distributor of the Fund's
shares under a Distribution Agreement 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 the Fund on behalf of Class A, Class B and
Class C Shares under their respective 12b-1 Plans. The Distributor is an
indirect, wholly owned subsidiaries 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
the Fund's shareholder servicing, dividend disbursing and transfer agent
pursuant to an Amended and Restated Shareholders Services Agreement dated as of
April 30, 1997. The Transfer Agent also provides accounting services to the Fund
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 Fund has authorized one or more brokers to accept on its behalf
purchase and redemption orders in addition to the Transfer Agent. Such brokers
are authorized to designate other intermediaries to accept purchase and
redemption orders on the behalf of the Fund. For purposes of pricing, the Fund
will be deemed to have received a purchase or redemption order when an
authorized broker or, if applicable, a broker's authorized designee, accepts the
order. Investors may be charged a fee when effecting transactions through a
broker or agent.
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<PAGE>
OFFICERS AND DIRECTORS
The business and affairs of Mutual Funds, Inc. are managed under the
direction of its Board of Directors.
Certain officers and directors of Mutual Funds, Inc. hold identical
positions in each of the other funds available from the Delaware Investments
family. On February 28, 1998, Mutual Funds, Inc.'s officers and directors owned
less than 1% of the outstanding shares of each Class of the Fund.
As of February 28, 1998, management believes the following
shareholders held 5% or more of the outstanding shares of a Class:
<TABLE>
<CAPTION>
Class Name and Address of Account Share Amount Percentage
- ----- --------------------------- ------------ ----------
<S> <C> <C> <C>
Minnesota High Yield Marvin J. Schmidtz 110,255 5.70%
Municipal Bond Fund 1616 Rice Creek Road
Class A Shares: Minneapolis, MN 55432
Minnesota High Yield Merrill Lynch, Pierce, Fenner & Smith 177,213 19.07%
Municipal Bond Fund For the Sole Benefit of its Customers
Class B Shares Attn: Fund Administration
4800 Deer Lake Drive East, Third Floor
Jacksonville, FL 32246
Minnesota High Yield Merrill Lynch, Pierce, Fenner & Smith 75,784 21.58%
Municipal Bond Fund For the Sole Benefit of its Customers
Class C Shares Attn: Fund Administration
4800 Deer Lake Drive East, Third Floor
Jacksonville FL 32246
Bonnie D. Kersting and 37,626 10.71%
Steven M. Kersting TTEES
Bonnie D. Kersting REV TRUST
17751 Layton Path
Lakeville , MN 55044
</TABLE>
DMH Corp., Delvoy, Inc., Delaware Management Company, Inc., 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 Corporation ("Lincoln National") was completed. DMH and the
Manager are now indirect, wholly owned subsidiaries, and subject to the ultimate
control, of Lincoln National. Lincoln National, with headquarters in Fort Wayne,
Indiana, is a diversified organization with operations in many aspects of the
financial services industry, including insurance and investment management.
-50-
<PAGE>
As noted under Investment Management Agreement, after the close of
business on April 30, 1997, Voyageur became an indirect wholly-owned subsidiary
of Lincoln National as a result of Lincoln National's acquisition of DGF.
Certain officers and directors of Mutual Funds, Inc. hold identical
positions in each of the other funds available from the Delaware Investments
family. Directors and principal officers of Mutual Funds, Inc. are noted below
along with their ages and their business experience for the past five years.
Unless otherwise noted, the address of each officer and director is One Commerce
Square, Philadelphia, PA 19103.
-51-
<PAGE>
*Wayne A. Stork (60)
Chairman and Director of Mutual Funds, Inc., 33 other investment
companies in the Delaware Investments family and Delaware
Capital Management, Inc.
Chairman, President, Chief Executive Officer and Director of DMH Corp.,
Delaware Distributors, Inc. and Founders Holdings, Inc.
Chairman, President, Chief Executive Officer, Chief Investment Officer
and Director/Trustee of Delaware Management Company, Inc.
and Delaware Management Business Trust
Chairman, President, Chief Executive Officer and Chief Investment
Officer of Delaware Management Company (a series of Delaware
Management Business Trust)
Chairman, Chief Executive Officer and Chief Investment Officer of
Delaware Investment Advisers (a series of Delaware Management
Business Trust)
Chairman, Chief Executive Officer and Director of Delaware
International Advisers Ltd., Delaware International Holdings
Ltd. and Delaware Management Holdings, Inc.
President and Chief Executive Officer of Delvoy, Inc.
Chairman of Delaware Distributors, L.P.
Director of Delaware Service Company, Inc. and Delaware Investment &
Retirement 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 of Mutual Funds, Inc.
and 33 other investment companies in the Delaware Investments
family
President and Director of Delaware Management Holdings, Inc.
President, Chief Executive Officer and Director of Lincoln National
Investment Companies, Inc.
President of Lincoln Funds Corporation
From 1992 to 1996, Mr. Nick was Managing Director of Lincoln National
UK plc and from 1989 to 1992, he was Senior Vice President
responsible for corporate planning and development for
Lincoln National Corporation.
Richard G. Unruh, Jr. (58)
Executive Vice President of Mutual Funds, Inc. and 33 other
investment companies in the Delaware Investments family,
Delaware Management Holdings, Inc., Delaware Management
Company (a series of Delaware Management Business Trust) and
Delaware Capital Management, Inc.
President of Delaware Investment Advisers (a series of Delaware
Management Business Trust)
Executive Vice President and Director/Trustee of Delaware Management
Company, Inc. and Delaware Management Business Trust
Director of Delaware International Advisers Ltd.
During the past five years, Mr. Unruh has served in various executive
capacities at different times within the Delaware
organization.
- ----------------------
* Director affiliated with the Fund's investment manager and considered an
"interested person" as defined in the 1940 Act.
-52-
<PAGE>
Paul E. Suckow (50)
Executive Vice President/Chief Investment Officer, Fixed Income of
Mutual Funds, Inc., 33 other investment companies in the
Delaware Investments family, Delaware Management Company,
Inc., Delaware Management Company (a series of Delaware
Management Business Trust), Delaware Investment Advisers (a
series of Delaware Management Business Trust) and Delaware
Management Holdings, Inc.
Executive Vice President and Director of Founders Holdings, Inc.
Executive Vice President of Delaware Capital Management, Inc. and
Delaware Management Business Trust
Director of Founders CBO Corporation
Director of HYPPCO Finance Company Ltd.
Before returning to Delaware Investments in 1993, Mr. Suckow was
Executive Vice President and Director of Fixed Income for
Oppenheimer Management Corporation, New York, NY from 1985 to
1992. Prior to that, Mr. Suckow was a fixed-income portfolio
manager for Delaware Investments.
David K. Downes (58)
Executive Vice President, Chief Operating Officer, Chief Financial
Officer of Mutual Funds, Inc., 33 other investment companies
in the Delaware Investments family, Delaware Management
Holdings, Inc, Founders CBO Corporation, Delaware Capital
Management, Inc., Delaware Management Company (a series of
Delaware Management Business Trust), Delaware Investment
Advisers (a series of Delaware Management Business Trust) and
Delaware Distributors, L.P.
Executive Vice President, Chief Financial Officer, Chief Administrative
Officer and Trustee of Delaware Management Business Trust
Executive Vice President, Chief Operating Officer, Chief Financial
Officer and Director of Delaware Management Company, Inc., DMH
Corp., Delaware Distributors, Inc., Founders Holdings, Inc.
and Delvoy, Inc.
President, Chief Executive Officer, Chief Financial Officer and
Director of Delaware Service Company, Inc.
President, Chief Operating Officer, Chief Financial Officer and
Director of Delaware International Holdings Ltd.
Chairman,Chief Executive Officer and Director of Delaware Management
Trust Company and Delaware Investment & Retirement 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 (70)
Director of Mutual Funds, Inc. and 33 other investment companies in the
Delaware Investments family
460 North Gulph Road, King of Prussia, PA 19406 Board Chairman,
Citadel Constructors, Inc.
From 1986 to 1988, Mr. Babich was a partner of Irwin & Leighton and
from 1988 to 1991, he was a partner of I&L Investors.
-53-
<PAGE>
Anthony D. Knerr (59)
Director of Mutual Funds, Inc. and 33 other investment companies in the
Delaware Investments family
500 Fifth Avenue, New York, NY 10110
Founder and Managing Director, Anthony Knerr & Associates
From 1982 to 1988, Mr. Knerr was Executive Vice President/Finance
and Treasurer of Columbia University, New York. From 1987 to
1989, he was also a lecturer in English at the University. In
addition, Mr. Knerr was Chairman of The Publishing Group,
Inc., New York, from 1988 to 1990. Mr. Knerr founded The
Publishing Group, Inc. in 1988.
Ann R. Leven (57)
Director of Mutual Funds, Inc. and 33 other investment companies in the
Delaware Investments family
785 Park Avenue, New York, NY 10021
Treasurer, National Gallery of Art
From 1984 to 1990, Ms. Leven was Treasurer and Chief Fiscal Officer
of the Smithsonian Institution, Washington, DC, and from 1975
to 1992, she was Adjunct Professor of Columbia Business
School.
W. Thacher Longstreth (77)
Director of Mutual Funds, Inc. and 33 other investment companies in the
Delaware Investments family
City Hall, Philadelphia, PA 19107
Philadelphia City Councilman.
Thomas F. Madison (62)
Director of Mutual Funds, Inc. and 33 other investment companies in the
Delaware Investments family
200 South Fifth Street, Suite 2100, Minneapolis, Minnesota 55402
President and Chief Executive Officer, MLM Partners, Inc.
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 of Mutual Funds, Inc. and 33 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.
-54-
<PAGE>
George M. Chamberlain, Jr. (51)
Senior Vice President, Secretary and General Counsel of Mutual Funds,
Inc., 33 other investment companies in the Delaware
Investments family, 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, General Counsel and Director/Trustee
of DMH Corp., Delaware Management Company, Inc., Delaware
Distributors, Inc., Delaware Service Company, Inc., Founders
Holdings, Inc., Delaware Investment & Retirement Services,
Inc., Delaware Capital Management, Inc., Delvoy, Inc.
and Delaware Management Business Trust
Executive Vice President, Secretary, General Counsel 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 Mutual Funds, Inc., 33
other investment companies in the Delaware Investments family
and Founders Holdings, Inc.
Senior Vice President/Corporate Controller and Treasurer of Delaware
Management Holdings, Inc., DMH Corp., Delaware Management
Company, Inc., Delaware Management Company (a series of
Delaware Management Business Trust), Delaware Distributors,
L.P., Delaware Distributors, Inc., Delaware Service Company,
Inc., Delaware Capital Management, Inc., Delaware
International Holdings Ltd., Delvoy, Inc. and Delaware
Management Business Trust
Chief Financial Officer/Treasurer of Delaware Investment &
Retirement 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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Michael P. Bishof (35)
Senior Vice President/Treasurer of Mutual Funds, Inc., 33 other
investment companies in the Delaware Investments family and
Founders Holdings, Inc.
Senior Vice President/Investment Accounting of Delaware Management
Company, Inc., Delaware Management Company (a series of
Delaware Management Business Trust) and Delaware Service
Company, Inc.
Senior Vice President and Treasurer/Manager of Investment Accounting
of Delaware Distributors, L.P. and Delaware Investment
Advisers (a series of Delaware Management Business Trust)
Senior Vice President and Manager of Investment Accounting of
Delaware International Holdings Ltd.
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.
John B. Fields (52)
Vice President/Senior Portfolio Manager of ten investment companies
in the Delaware Investments family, Delaware Capital
Management, Inc., Delaware Management Company, Inc, Delaware
Management Company (a series of Delaware Management Business
Trust) and Delaware Investment Advisers (a series of Delaware
Management Business Trust)
Trustee of Delaware Management Business Trust
Before joining Delaware Investments in 1992, Mr. Fields served as a
director of domestic equity risk management for DuPont,
Wilmington, DE.
Elizabeth Howell (35)
Vice President/Senior Portfolio Manager of Mutual Funds, Inc. and
seven other investment companies in the Delaware Investments
family and Delaware Management Company, Inc.
Before joining Delaware Investments in 1997, Ms. Howell was a
Senior Portfolio Manager with Voyageur Fund Managers, Inc., a
Portfolio Manager, Fixed Income with Windsor Financial Group,
a Municipal Credit Analyst with Loomis Sayles & Co. and a
Credit Analyst with Eaton Vance Management.
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The following is a compensation table listing for each director
entitled to receive compensation, the aggregate compensation received from
Mutual Funds, Inc. , the total compensation received from all funds in the
Delaware Investments family for the fiscal year ended December 31, 1997, and
an estimate of annual benefits to be received upon retirement under the Delaware
Investments Retirement Plan for Directors/Trustees as of December 31, 1997.
<TABLE>
<CAPTION>
Pension or
Retirement Total
Benefits Estimated Compensation from
Aggregate Accrued Annual all 34 Investment
Compensation as Part of Benefits Companies in
from Mutual Mutual Funds, Upon Delaware
Name Funds, Inc.(1) Inc. Expenses Retirement* Investments(2)
- ---- -------------- -------------- ----------- ------------------
<S> <C> <C> <C> <C>
W. Thacher Longstreth $879 None $38,500 $59,827
Ann R. Leven $924 None $38,500 $65,160
Walter P. Babich $916 None $38,500 $64,160
Anthony D. Knerr $916 None $38,500 $64,160
Charles E. Peck $784 None $38,500 $56,682
Thomas F. Madison $879 None $38,500 $43,537
</TABLE>
* Under the terms of the Delaware Investments Retirement Plan for
Directors/Trustees, each disinterested director who, at the time of his or
her retirement from the Board, has attained the age of 70 and served on the
Board for at least five continuous years, is entitled to receive payments
from each fund available from the Delaware Investments family for a period
equal to the lesser of the number of years that such person served as a
director or the remainder of such person's life. The amount of such payments
will be equal, on an annual basis, to the amount of the annual retainer that
is paid to directors of each fund at the time of such person's retirement.
If an eligible director retired as of December 31, 1997, he or she would be
entitled to annual payments totaling $38,500, in the aggregate, from all of
the funds available from the Delaware Investments family, based on the
number of funds available from the Delaware Investments family as of that
date.
(1) The current Board of Directors was elected by shareholders of Mutual Funds,
Inc. on April 11, 1997 and began serving on May 1, 1997. With the exception
of Thomas F. Madison, none of the current directors had served on the prior
Board. Compensation figures are estimates of payments for Mutual Funds,
Inc.'s current fiscal year.
(2) Each independent director currently receives a total annual retainer fee of
$38,500 for serving as a director or trustee for all funds in Delaware
Investments, plus $3,145 for each Board Meeting attended. Ann R. Leven,
Walter P. Babich, and Anthony D. Knerr serve on the Fund's audit committee;
Ms. Leven is the chairperson. Members of the audit committee currently
receive additional annual compensation of $5,000 from all funds, with the
exception of the chairperson, who receives $6,000.
EXCHANGE PRIVILEGE
The exchange privileges available for shareholders of the Classes and
for shareholders of classes of other funds available from the Delaware
Investments family are set forth in the relevant prospectuses for such
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classes. The following supplements that information. The 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 available from 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 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 available from the Delaware Investments family. Telephone exchanges
may be subject to limitations as to amounts or frequency. The Transfer Agent and
the Fund reserve the right to record exchange instructions received by telephone
and to reject exchange requests at any time in the future.
As described in the Fund's Prospectus, neither the Fund nor the
Transfer Agent is responsible for any shareholder loss incurred in acting upon
written or telephone instructions for redemption or exchange of Fund shares
which are reasonably believed to be genuine.
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Right to Refuse Timing Accounts
With regard to accounts that are administered by market timing services
("Timing Firms") to purchase or redeem shares based on changing economic and
market conditions ("Timing Accounts"), the Fund will refuse any new timing
arrangements, as well as any new purchases (as opposed to exchanges) in funds in
the Delaware Investments family from Timing Firms. The Fund reserves the right
to temporarily or permanently terminate the exchange privilege or reject any
specific purchase order for any person whose transactions seem to follow a
timing pattern who: (i) makes an exchange request out of the Fund within two
weeks of an earlier exchange request out of the Fund, or (ii) makes more than
two exchanges out of the Fund per calendar quarter, or (iii) exchanges shares
equal in value to at least $5 million, or more than 1/4 of 1% of the Fund's net
assets. Accounts under common ownership or control, including accounts
administered so as to redeem or purchase shares based upon certain predetermined
market indicators, will be aggregated for purposes of the exchange limits.
Restrictions on Timed Exchanges
Timing Accounts operating under existing timing agreements may only
execute exchanges between the following eight funds in the Delaware
Investments family: (1) Decatur Income Fund, (2) Decatur Total Return Fund, (3)
Delaware Fund, (4) Limited-Term Government Fund, (5) USA Fund, (6) Delaware
Cash Reserve, (7) Delchester Fund and (8) Tax-Free Pennsylvania Fund. No other
funds in the Delaware Investments family are available for timed exchanges.
Assets redeemed or exchanged out of Timing Accounts in funds available from the
Delaware Investments family not listed above may not be reinvested back into
that Timing Account. The 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).
The Fund also reserves the right to refuse the purchase side of an
exchange request by any Timing Account, person, or group if, in the Manager's
judgment, the Fund would be unable to invest effectively in accordance with its
investment objectives and policies, or would otherwise potentially be adversely
affected. A shareholder's purchase exchanges may be restricted or refused if the
Fund receives or anticipates simultaneous orders affecting significant portions
of the Fund's assets. In particular, a pattern of exchanges that coincide with a
"market timing" strategy may be disruptive to the 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.
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.
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<PAGE>
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.
U.S. Government Fund seeks high current income by investing primarily
in long-term debt obligations issued or guaranteed by the U.S. government,
its agencies or instrumentalities.
Limited-Term Government Fund seeks high, stable income by investing
primarily in a portfolio of short-and intermediate-term securities issued or
guaranteed by the U.S. government, its agencies or instrumentalities and
instruments secured by such securities. U.S. Government Money Fund seeks maximum
current income with preservation of principal and maintenance of liquidity by
investing only in short-term securities issued or guaranteed as to principal and
interest by the U.S. government, its agencies or instrumentalities, and
repurchase agreements collateralized by such securities, while maintaining a
stable net asset value.
Delaware Cash Reserve seeks the highest level of income consistent with
the preservation of capital and liquidity through investments in short-term
money market instruments, while maintaining a stable net asset value.
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 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.
Tax-Free Money Fund seeks high current income, exempt from federal
income tax, by investing in short-term municipal obligations, while maintaining
a stable net asset value.
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<PAGE>
Tax-Free 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.
International Equity Fund seeks to achieve long-term growth without
undue risk to principal by investing primarily in international securities that
provide the potential for capital appreciation and income. Global Bond Fund
seeks to achieve current income consistent with the preservation of principal by
investing primarily in global fixed-income securities that may also provide the
potential for capital appreciation. Global Assets Fund seeks to achieve
long-term total return by investing in global securities which will provide
higher current income than a portfolio comprised exclusively of equity
securities, along with the potential for capital growth. Emerging Markets Fund
seeks long-term capital appreciation by investing primarily in equity securities
of issuers located or operating in emerging countries.
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 15 funds available exclusively
as funding vehicles for certain insurance company separate accounts. Decatur
Total Return Series seeks the highest possible total rate of return by selecting
issues that exhibit the potential for capital appreciation while providing
higher than average dividend income. Delchester Series seeks as high a current
income as possible by investing in rated and unrated corporate bonds, U.S.
government securities and commercial paper. Capital Reserves Series seeks a high
stable level of current income while minimizing fluctuations in principal by
investing in a diversified portfolio of short-and intermediate-term securities.
Cash Reserve Series seeks the highest level of income consistent with
preservation of capital and liquidity through investments in short-term money
market instruments. DelCap Series seeks long-term capital appreciation by
investing its assets in a diversified portfolio of securities exhibiting the
potential for significant growth. Delaware Series seeks a balance of capital
appreciation, income and preservation of capital. It uses a dividend-oriented
valuation strategy to select securities issued by established companies that are
believed to demonstrate potential for income and capital growth. International
Equity Series seeks long-term growth without undue risk to principal by
investing primarily in equity securities of foreign issuers that provide the
potential for capital appreciation and income. Value Series seeks capital
appreciation by investing in small- to mid-cap common stocks whose market values
appear low relative to their underlying value or future earnings and growth
potential. Emphasis will also be placed on securities of companies that may be
temporarily out of favor or whose value is not yet recognized by the market.
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
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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. Quantum 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.
Delaware-Voyageur US Government Securities Fund seeks to provide a high
level of current income consistent with the prudent investment risk by investing
in U.S. Treasury bills, notes, bonds, and other obligations issued or
unconditionally guaranteed by the full faith and credit of the U.S. Treasury,
and repurchase agreements fully secured by such obligations.
Delaware-Voyageur Tax-Free Arizona Insured Fund seeks to provide a high
level of current income exempt from federal income tax and the Arizona personal
income tax, consistent with the preservation of capital. Delaware-Voyageur
Minnesota Insured Fund seeks to provide a high level of current income exempt
from federal income tax and the Minnesota personal income tax, consistent with
the preservation of capital.
Delaware-Voyageur Tax-Free Minnesota Intermediate Fund seeks to provide
a high level of current income exempt from federal income tax and the Minnesota
personal income tax, consistent with preservation of capital. The Fund seeks to
reduce market risk by maintaining an average weighted maturity from five to ten
years.
Delaware-Voyageur Tax-Free California Insured Fund seeks to provide a
high level of current income exempt from federal income tax and the California
personal income tax, consistent with the preservation of capital.
Delaware-Voyageur Tax-Free Florida Insured Fund seeks to provide a high level of
current income exempt from federal income tax, consistent with the preservation
of capital. The Fund will seek to select investments that will enable its shares
to be exempt from the Florida intangible personal property tax.
Delaware-Voyageur Tax-Free Florida Fund seeks to provide a high level of current
income exempt from federal income tax, consistent with the preservation of
capital. The Fund will seek to select investments that will enable its shares to
be exempt from the Florida intangible personal property tax. Delaware-Voyageur
Tax-Free Kansas Fund seeks to provide a high level of current income exempt from
federal income tax, the Kansas personal income tax and the Kansas Intangible
personal property tax, consistent with the preservation of capital.
Delaware-Voyageur Tax-Free Missouri Insured Fund seeks to provide a high level
of current income exempt from federal income tax and the Missouri personal
income tax, consistent with the preservation of capital. Delaware-Voyageur
Tax-Free New Mexico Fund seeks to provide a high level of current income exempt
from federal income tax and the New Mexico personal income tax, consistent with
the preservation of capital. Delaware-Voyageur Tax-Free Oregon Insured Fund
seeks to provide a high level of current income exempt from federal income tax
and the Oregon personal income tax, consistent with the preservation of capital.
Delaware-Voyageur Tax-Free Utah Fund seeks to provide a high level of current
income exempt from federal income tax, consistent with the preservation of
capital. Delaware-Voyageur Tax-Free Washington Insured Fund seeks to provide a
high level of current income exempt from federal income tax, consistent with the
preservation of capital.
Delaware-Voyageur Tax-Free Florida Intermediate Fund seeks to provide a
high level of current income exempt from federal income tax, consistent with the
preservation of capital. The Fund will seek to select
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investments that will enable its shares to be exempt from the Florida intangible
personal property tax. The Fund seeks to reduce market risk by maintaining an
average weighted maturity from five to ten years.
Delaware-Voyageur Tax-Free Arizona Fund seeks to provide a high level
of current income exempt from federal income tax and the Arizona personal income
tax, consistent with the preservation of capital. Delaware-Voyageur Tax-Free
California Fund seeks to provide a high level of current income exempt from
federal income tax and the California personal income tax, consistent with the
preservation of capital. Delaware-Voyageur Tax-Free Iowa Fund seeks to provide a
high level of current income exempt from federal income tax and the Iowa
personal income tax, consistent with the preservation of capital.
Delaware-Voyageur Tax-Free Idaho Fund seeks to provide a high level of current
income exempt from federal income tax and the Idaho personal income tax,
consistent with the preservation of capital. National High Yield Municipal Fund
seeks to provide a high level of income exempt from federal income tax,
primarily through investment in medium and lower grade municipal obligations.
Delaware-Voyageur Tax-Free New York Fund seeks to provide a high level of
current income exempt from federal income tax and the personal income tax of the
state of New York and the city of New York, consistent with the preservation of
capital. Delaware-Voyageur Tax-Free Wisconsin Fund seeks to provide a high level
of current income exempt from federal income tax and the Wisconsin personal
income tax, consistent with the preservation of capital.
Delaware-Voyageur Tax-Free Colorado Fund seeks to provide a high level
of current income exempt from federal income tax and the Colorado personal
income tax, consistent with the preservation of capital.
Aggressive Growth Fund seeks long-term capital appreciation, which the
Fund attempts to achieve by investing primarily in equity securities believed to
have the potential for high earnings growth. Although the Fund, in seeking its
objective, may receive current income from dividends and interest, income is
only an incidental consideration in the selection of the Fund's investments.
Growth Stock Fund has an objective of long-term capital appreciation. The Fund
seeks to achieve its objective from equity securities diversified among
individual companies and industries. Tax-Efficient Equity Fund seeks to obtain
for taxable investors a high total return on an after-tax basis. The Fund will
attempt to achieve this objective by seeking to provide a high long-term
after-tax total return through managing its portfolio in a manner that will
defer the realization of accrued capital gains and minimize dividend income.
Delaware-Voyageur Tax-Free Minnesota Fund seeks to provide a high level
of current income exempt from federal income tax and the Minnesota personal
income tax, consistent with the preservation of capital. Delaware-Voyageur
Tax-Free North Dakota Fund seeks to provide a high level of current income
exempt from federal income tax and the North Dakota personal income tax,
consistent with the preservation of capital.
For more complete information about any of the funds in the Delaware
Investments family, including charges and expenses, you can obtain a prospectus
from the Distributor. Read it carefully before you invest or forward funds.
Each of the summaries above is qualified in its entirety by the
information contained in each fund's prospectus(es).
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GENERAL INFORMATION
The Manager is the investment manager of the Fund. The Manager also
provides investment management services to certain of the other funds
available from the Delaware Investments family. The Manager, through a
separate division, also manages private investment accounts. While investment
decisions of the 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 the Fund.
The Manager, or its affiliate Delaware International Advisers Ltd.,
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 15 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 as available outside the annuity. See
Delaware Group Premium Fund, Inc., above.
Access persons and advisory persons of Delaware Investments, as
those terms are defined in SEC Rule 17j-1 under the 1940 Act, who provide
services to the Manager, Delaware International Advisers Ltd. or their
affiliates, are permitted to engage in personal securities transactions subject
to the exceptions set forth in Rule 17j-1 and the following general restrictions
and procedures: (1) certain blackout periods apply to personal securities
transactions of those persons; (2) transactions must receive advance clearance
and must be completed on the same day as the clearance is received; (3) certain
persons are prohibited from investing in initial public offerings of securities
and other restrictions apply to investments in private placements of securities;
(4) opening positions may only be closed-out at a profit after a 60-day holding
period has elapsed; and (5) the Compliance Officer must be informed periodically
of all securities transactions and duplicate copies of brokerage confirmations
and account statements must be supplied to the Compliance Officer.
The Distributor acts as national distributor for the Fund and for the
other mutual funds available from the Delaware Investments family. Prior to
May 31, 1997, Voyageur Fund Distributors, Inc. served as the national
distributor for the Fund. The Distributor received net commissions from each
Fund on behalf of Class A Shares, after reallowances to dealers, as follows:
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Class A Shares
Total
Fiscal Amount of Amounts Net
Period Underwriting Reallowed Commission
Ended Commissions to Dealers to Distributor
------ ------------ ---------- --------------
12/31/97 $137,364 $19,727 $117,637
The Distributor received in the aggregate CDSC payments with
respect to each Class of the Fund as follows:
CDSC Payments
Fiscal
Period
Ended A Class B Class C Class
------ ------- ------- -------
12/31/97 $-0- $14,833 $2,925
12/31/96 -0- -0- -0-
The Transfer Agent, an affiliate of the Manager, acts as
shareholder servicing, dividend disbursing and transfer agent for each Fund and
for the other mutual funds available from the Delaware Investments family.
The Transfer Agent is paid a fee by the Fund for providing these services
consisting of an annual per account charge of $11.00 plus transaction charges
for particular services according to a schedule. Compensation is fixed each year
and approved by the Board of Directors, including a majority of the unaffiliated
directors. The Transfer Agent also provides accounting services to the Fund.
Those services include performing all functions related to calculating the
Fund's net asset value and providing all financial reporting services,
regulatory compliance testing and other related accounting services. For its
services, the Transfer Agent is paid a fee based on total assets of all funds
available from the Delaware Investments family for which it provides such
accounting services. Such fee is equal to 0.25% multiplied by the total amount
of assets in the complex for which the Transfer Agent furnishes accounting
services, where such aggregate complex assets are $10 billion or less, and 0.20%
of assets if such aggregate complex assets exceed $10 billion. The fees are
charged to each fund, including the Fund, on an aggregate pro-rata basis. The
asset-based fee payable to the Transfer Agent is subject to a minimum fee
calculated by determining the total number of investment portfolios and
associated classes.
The Manager and its affiliates own the name "Delaware Group."
Norwest Bank Minnesota, N.A. ("Norwest"), Sixth Street &
Marquette Avenue, Minneapolis, Minnesota 55402 is custodian of the Fund's
securities and cash. As custodian for the Fund, Norwest maintains a separate
account or accounts for the Fund; receives, holds and releases portfolio
securities on account of the Fund; receives and disburses money on behalf of the
Fund; and collects and receives income and other payments and distributions on
account of the Fund's portfolio securities.
Capitalization
Mutual Funds, Inc. has a present authorized capitalization of 10
trillion shares of capital stock with a $.01 par value per share.
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The Board of Directors has allocated the following number of
shares to the Fund and its respective classes:
Minnesota High Yield Municipal Bond Fund 100 billion
Class A Shares 10 billion
Class B Shares 10 billion
Class C Shares 10 billion
All shares have no preemptive rights, are fully transferable and, when
issued, are fully paid and nonassessable and, except as described above, have
equal voting rights.
Shares of each Class of the Fund represent a proportionate interest in
the assets of the Fund, and have the same voting and other rights and
preferences as the other classes of the Fund. Shareholders of Class A Shares,
Class B Shares and Class C Shares of a Fund may vote only on matters affecting
the 12b-1 Plan that relates to the Class of shares that they hold. However,
Class B Shares may vote on any proposal to increase materially the fees to be
paid by the Fund under the 12b-1 Plan relating to its Class A Shares. General
expenses of the Fund will be allocated on a pro-rata basis to the classes
according to asset size, except that expenses of the 12b-1 Plans of the Fund's
Class A Shares, Class B Shares and Class C Shares will be allocated solely to
those classes.
Effective June 9, 1997, the name of Voyageur Minnesota High Yield
Municipal Bond Fund changed to Delaware-Voyageur Minnesota High Yield Municipal
Bond Fund.
Noncumulative Voting
Mutual Funds, Inc.'s shares have noncumulative voting rights which
means that the holders of more than 50% of the shares of Mutual Funds, Inc.
voting for the election of directors can elect all the directors if they choose
to do so, and, in such event, the holders of the remaining shares will not be
able to elect any directors.
This Part B does not include all of the information contained in the
Registration Statement which is on file with the SEC.
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APPENDIX A - GENERAL CHARACTERISTICS AND RISKS OF OPTIONS AND FUTURES
General Characteristics and Risks of Options and Futures
General. As described in Options and Futures under Investment
Objectives and Policies in the Prospectus, the Fund may purchase and sell
options on the securities in which it may invest and the Fund may purchase and
sell options on futures contracts (as defined below) and may purchase and sell
futures contracts. The Fund intend to engage in such transactions if it appears
advantageous to Voyageur to do so in order to pursue the Fund's investment
objectives, to seek to hedge against the effects of market conditions and to
seek to stabilize the value of its assets. The Fund will engage in hedging and
risk management transactions from time to time in Voyageur's discretion, and may
not necessarily be engaging in such transactions when movements in interest
rates that could affect the value of the assets of the Fund occur.
Conditions in the securities, futures and options markets will
determine whether and in what circumstances the Fund will employ any of the
techniques or strategies described below. The Fund's ability to pursue certain
of these strategies may be limited by applicable regulations of the Commodity
Futures Trading Commission (the "CFTC") and the federal tax requirements
applicable to regulated investment companies. Transactions in options and
futures contracts may give rise to income that is subject to regular federal
income tax and, accordingly, in normal circumstances the Fund does not intend to
engage in such practices to a significant extent.
The use of futures and options, and the possible benefits and
attendant risks, are discussed below.
Futures Contracts and Related Options. The Fund may enter into
contracts for the purchase or sale for future delivery (a "futures contract")
of fixed-income securities or contracts based on financial indices including any
index of securities in which the Fund may invest. A "sale" of a futures
contract means the undertaking of a contractual obligation to deliver the
securities, or the cash value of an index, called for by the contract at a
specified price during a specified delivery period. A "purchase" of a futures
contract means the undertaking of a contractual obligation to acquire the
securities, or cash value of an index, at a specified price during a specified
delivery period. The Fund may also purchase and sell (write) call and put
options on financial futures contracts. An option on a futures contract gives
the purchaser the right, in return for the premium paid, to assume a position in
a futures contract at a specified exercise price at any time during, or at the
termination of, the period specified in the terms of the option. Upon exercise,
the writer of the option delivers the futures contract to the holder at the
exercise price. The Fund would be required to deposit with its custodian initial
margin and maintenance margin with respect to put and call options on futures
contracts written by it.
Although some financial futures contracts by their terms call for the
actual delivery or acquisition of securities, in most cases the contractual
commitment is closed out before delivery without having to make or take delivery
of the security. The offsetting of a contractual obligation is accomplished by
purchasing (or selling, as the case may be) on a commodities exchange an
identical futures contract calling for delivery in the same period. The Fund's
ability to establish and close out positions in futures contracts and options on
futures contracts will be subject to the liquidity of the market. Although the
Fund generally will purchase or sell only those futures contracts and options
thereon for which there appears to be a liquid market, there is no assurance
that a liquid market on an exchange will exist for any particular futures
contract or option thereon at any particular time. Where it is not possible to
effect a closing transaction in a contract or to do so at a satisfactory price,
the Fund would have to make or take delivery under the futures contract, or, in
the case of a purchased option, exercise the option. The Fund would be required
to maintain initial margin deposits with respect to the futures contract and to
make variation margin payments until the contract is closed. The Fund will incur
brokerage fees when they purchase or sell futures contracts.
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At the time a futures contract is purchased or sold, the Fund must
deposit in a custodial account cash or securities as a good faith deposit
payment (known as "initial margin"). It is expected that the initial margin on
futures contracts the Fund may purchase or sell may range from approximately
1.5% to approximately 5% of the value of the securities (or the securities
index) underlying the contract. In certain circumstances, however, such as
during periods of high volatility, the Fund may be required by an exchange to
increase the level of its initial margin payment. Initial margin requirements
may be increased generally in the future by regulatory action. An outstanding
futures contract is valued daily in a process known as "marking to market." If
the market value of the futures contract has changed, the Fund will be required
to make or will be entitled to receive a payment in cash or specified high
quality debt securities in an amount equal to any decline or increase in the
value of the futures contract. These additional deposits or credits are
calculated and required on a daily basis and are known as "variation margin."
There may be an imperfect correlation between movements in prices of
the futures contract the Fund purchases or sells and the portfolio securities
being hedged. In addition, the ordinary market price relationships between
securities and related futures contracts may be subject to periodic distortions.
Specifically, temporary price distortions could result if, among other things,
participants in the futures market elect to close out their contracts through
offsetting transactions rather than meet variation margin requirements,
investors in futures contracts decide to make or take delivery of underlying
securities rather than engage in closing transactions or if, because of the
comparatively lower margin requirements in the futures market than in the
securities market, speculators increase their participation in the futures
market. Because price distortions may occur in the futures market and because
movements in the prices of securities may not correlate precisely with movements
in the prices of futures contracts purchased or sold by the Fund in a hedging
transaction, even if Voyageur correctly forecasts market trends the Fund's
hedging strategy may not be successful. If this should occur, the Fund could
lose money on the futures contracts and also on the value of its portfolio
securities.
Although the Fund believes that the use of futures contracts and
options thereon will benefit it, if Voyageur's judgment about the general
direction of securities prices or interest rates is incorrect, the Fund's
overall performance may be poorer than if it had not entered into futures
contracts or purchased or sold options thereon. For example, if the Fund seeks
to hedge against the possibility of an increase in interest rates, which
generally would adversely affect the price of fixed-income securities held in
its portfolio, and interest rates decrease instead, the Fund will lose part or
all of the benefit of the increased value of its assets which it has hedged due
to the decrease in interest rates because it will have offsetting losses in its
futures positions. In addition, particularly in such situations, the Fund may
have to sell assets from its portfolio to meet daily margin requirements at a
time when it may be disadvantageous to do so.
Options on Securities. The Fund may purchase and sell (write) options
on securities, which options may be either exchange-listed or over-the-counter
options. The Fund may write call options only if the call option is "covered."
A call option written by the Fund is covered if the Fund owns the securities
underlying the option or has a contractual right to acquire them or owns
securities which are acceptable for escrow purposes. The Fund may write put
options only if the put option is "secured." A put option written by the Fund
is secured if the Fund, which is obligated as a writer of a put option, invests
an amount, not less than the exercise price of a put option, in eligible
securities.
The writer of an option may have no control over when the underlying
securities must be sold, in the case of a call option, or purchased, in the case
of a put option; the writer may be assigned an exercise notice at any time prior
to the termination of the obligation. Whether or not an option expires
unexercised, the writer retains the amount of the premium. This amount, of
course, may, in the case of a covered call option, be offset by a decline in the
market value of the underlying security during the option period. If a call
option is exercised, the writer experiences a profit or loss from the sale of
the underlying security. If a put option is exercised, the writer must
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fulfill the obligation to purchase the underlying security at the exercise price
which will usually exceed the then market value of the underlying security.
The writer of an option that wishes to terminate its obligation may
effect a "closing purchase transaction." This is accomplished by buying an
option of the same series as the option previously written. The effect of the
purchase is that the writer's position will be canceled by the clearing
corporation. However, a writer may not effect a closing purchase transaction
after being notified of the exercise of an option. Likewise, an investor who is
the holder of an option may liquidate its position by effecting a "closing sale
transaction." This is accomplished by selling an option of the same series as
the option previously purchased. There is no guarantee that either a closing
purchase or a closing sale transaction can be effected.
Effecting a closing transaction in the case of a written call option
will permit the Fund to write another call option on the underlying security
with either a different exercise price or expiration date or both, or in the
case of a written put option will permit the Fund to write another put option to
the extent that the exercise price thereof is secured by deposited cash or
short-term securities. Also, effecting a closing transaction will permit the
cash or proceeds from the concurrent sale of any securities subject to the
option to be used for other Fund investments. If the Fund desires to sell a
particular security from its portfolio on which it has written a call option, it
will effect a closing transaction prior to or concurrent with the sale of the
security.
The Fund will realize a profit from a closing transaction if the price
of the transaction is less than the premium received from writing the option or
is more than the premium paid to purchase the option; the Fund will realize a
loss from a closing transaction if the price of the transaction is more than the
premium received from writing the option or is less than the premium paid to
purchase the option. Because increases in the market price of a call option will
generally reflect increases in the market price of the underlying security, any
loss resulting from the repurchase of a call option is likely to be offset in
whole or in part by appreciation of the underlying security owned by the Fund.
An option position may be closed out only where there exists a
secondary market for an option of the same series. If a secondary market does
not exist, it might not be possible to effect closing transactions in particular
options with the result that the Fund would have to exercise the options in
order to realize any profit. If the Fund is unable to effect a closing purchase
transaction in a secondary market, it will not be able to sell the underlying
security until the option expires or it delivers the underlying security upon
exercise. Reasons for the absence of a liquid secondary market include the
following: (i) there may be insufficient trading interest in certain options,
(ii) restrictions may be imposed by a national securities exchange ("Exchange")
on opening transactions or closing transactions or both, (iii) trading halts,
suspensions or other restrictions may be imposed with respect to particular
classes or series of options or underlying securities, (iv) unusual or
unforeseen circumstances may interrupt normal operations on an Exchange, (v) the
facilities of an Exchange or the Options Clearing Corporation may not at all
times be adequate to handle current trading volume, or (vi) one or more
Exchanges could, for economic or other reasons, decide or be compelled at some
future date to discontinue the trading of options (or a particular class or
series of options), in which event the secondary market on that Exchange (or in
that class or series of options) would cease to exist, although outstanding
options on that Exchange that had been issued by the Options Clearing
Corporation as a result of trades on that Exchange would continue to be
exercisable in accordance with their terms.
The Fund may purchase put options to hedge against a decline in the
value of its portfolio. By using put options in this way, the Fund will reduce
any profit it might otherwise have realized in the underlying security by the
amount of the premium paid for the put option and by transaction costs.
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The Fund may purchase call options to hedge against an increase in the
price of securities that the Fund anticipates purchasing in the future. The
premium paid for the call option plus any transaction costs will reduce the
benefit, if any, realized by the Fund upon exercise of the option, and, unless
the price of the underlying security rises sufficiently, the option may expire
worthless to the Fund.
The Fund may purchase and sell options that are exchange-traded or
that are traded over-the counter ("OTC options"). Exchange-traded options in
the United States are issued by a clearing organization affiliated with the
exchange on which the option is listed which, in effect, guarantees every
exchange-traded option transaction. In contrast, OTC options are contracts
between the Fund and its counterparty with no clearing organization guarantee.
Thus, when the Fund purchases OTC options, it must rely on the dealer from which
it purchased the OTC option to make or take delivery of the securities
underlying the option. Failure by the dealer to do so would result in the loss
of the premium paid by the Fund as well as the loss of the expected benefit of
the transaction.
Although the Fund will enter into OTC options only with dealers that
agree to enter into, and which are expected to be capable of entering into,
closing transactions with the Fund, there can be no assurance that the Fund will
be able to liquidate an OTC option at a favorable price at any time prior to
expiration. Until the Fund is able to effect a closing purchase transaction in a
covered OTC call option the Fund has written, it will not be able to liquidate
securities used as cover until the option expires or is exercised or different
cover is substituted. This may impair the Fund's ability to sell a portfolio
security at a time when such a sale might be advantageous. In the event of
insolvency of the counterparty, the Fund may be unable to liquidate an OTC
option. In the case of options written by the Fund, the inability to enter into
a closing purchase transaction may result in material losses to the Fund.
Regulatory Restrictions. To the extent required to comply with
applicable SEC releases and staff positions, when entering into futures
contracts or certain option transactions, such as writing a put option, the Fund
will maintain, in a segregated account, cash or liquid high-grade securities
equal to the value of such contracts. Compliance with such segregation
requirements may restrict the Fund's ability to invest in intermediate- and
long-term Tax Exempt Obligations.
The Fund intend to comply with CFTC regulations and avoid "commodity
pool operator" status. These regulations require that futures and options
positions be used (a) for "bona fide hedging purposes" (as defined in the
regulations) or (b) for other purposes so long as aggregate initial margins and
premiums required in connection with non-hedging positions do not exceed 5% of
the liquidation value of the Fund's portfolio. The Fund currently does not
intend to engage in transactions in futures contracts or options thereon for
speculation.
Accounting Considerations. When the Fund writes an option, an amount
equal to the premium received by it is included in the Fund's Statement of
Assets and Liabilities as a liability. The amount of the liability subsequently
is marked to market to reflect the current market value of the option written.
When the Fund purchases an option, the premium paid by the Fund is recorded as
an asset and subsequently is adjusted to the current market value of the option.
In the case of a regulated futures contract purchased or sold by the
Fund, an amount equal to the initial margin deposit is recorded as an asset. The
amount of the asset subsequently is adjusted to reflected changes in the amount
of the deposit as well as changes in the value of the contract.
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FINANCIAL STATEMENTS
KPMG Peat Marwick LLP served as the independent auditors for the Fund
through December 31, 1996 and, in its capacity as such, audited the annual
financial statements of the Fund. Beginning May 1, 1997, Ernst & Young LLP began
serving in such capacity. The Fund's Statements of Net Assets, Statements of
Operations, Statements of Changes in Net Assets, Financial Highlights and Notes
to Financial Statements, as well as the report of Ernst & Young LLP, independent
auditors, for the fiscal year ended December 31, 1997 are included in its Annual
Report to shareholders. The financial statements, financial highlights, the
notes relating thereto and the report of Ernst & Young LLP, listed above are
incorporated by reference from the Annual Report into this Part B.
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Delaware Investments includes funds with a wide range of investment
objectives. Stock funds, income funds, national and state-specific tax-exempt
funds, money market funds, global and international funds and closed-end funds
give investors the ability to create a portfolio that fits their personal
financial goals. For more information, shareholders of the Fund Classes should
contact their financial adviser or call Delaware Investments at 800-523-4640.
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
- --------------------------------------------------------------------------------
DELAWARE-VOYAGEUR MINNESOTA HIGH
YIELD MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
A CLASS
- --------------------------------------------------------------------------------
B CLASS
- --------------------------------------------------------------------------------
C CLASS
================================================================================
CLASSES OF VOYAGEUR MUTUAL
FUNDS, INC.
- --------------------------------------------------------------------------------
PART B
STATEMENT OF
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
APRIL 30, 1998
[GRAPHIC OMITTED]
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PART B--STATEMENT OF ADDITIONAL INFORMATION
APRIL 30, 1998
- --------------------------------
VOYAGEUR MUTUAL FUNDS, INC.
- --------------------------------
1818 Market Street
Philadelphia, PA 19103
- --------------------------------
For Prospectus and Performance of Class A Shares, Class B Shares and Class C
Shares: Nationwide 800-523-4640
Information on Existing Accounts of Class A Shares, Class B Shares and Class C
Shares: (SHAREHOLDERS ONLY) Nationwide 800-523-1918
Dealer Services: (BROKER/DEALERS ONLY) Nationwide 800-362-7500
- --------------------------------
TABLE OF CONTENTS
- --------------------------------
Cover Page
- --------------------------------
Investment Restrictions and Policies
- --------------------------------
Accounting and Tax Issues
- --------------------------------
Performance Information
- --------------------------------
Trading Practices and Brokerage
- --------------------------------
Purchasing Shares
- --------------------------------
Investment Plans
- --------------------------------
Determining Offering Price and Net Asset Value
- --------------------------------
Redemption and Repurchase
- --------------------------------
Distributions and Taxes
- --------------------------------
Investment Management Agreement
- --------------------------------
Officers and Directors
- --------------------------------
Exchange Privilege
- --------------------------------
General Information
- --------------------------------
Appendix A -- General Characteristics and Risks of Options and Futures
- --------------------------------
Financial Statements
- --------------------------------
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Voyageur Mutual Funds, Inc. ("Mutual Funds, Inc.") is a
professionally-managed mutual fund of the series type. This Statement of
Additional Information ("Part B" of Mutual Funds, Inc.'s registration statement)
describes National High Yield Municipal Bond Fund series (the "Fund") of Mutual
Funds, Inc. The Fund offers Class A Shares, Class B Shares and Class C Shares
(individually, a "Class" and collectively the "Classes").
Class B Shares and Class C Shares of the Fund may be purchased at a
price equal to the next determined net asset value per share. Class A Shares may
be purchased at the public offering price, which is equal to the next determined
net asset value per share, plus a front-end sales charge. Class A Shares are
subject to a maximum front-end sales charge of 3.75% and annual 12b-1 Plan
expenses of up to 0.25%. Class B Shares are subject to a contingent deferred
sales charge ("CDSC") which may be imposed on redemptions made within six years
of purchase and annual 12b-1 Plan expenses of up to 1% which are assessed
against Class B Shares for approximately eight years after purchase. See
Automatic Conversion of Class B Shares under Classes of Shares in the Fund's
Prospectus. Class C Shares are subject to a CDSC which may be imposed on
redemptions made within 12 months of purchase and annual 12b-1 Plan expenses of
up to 1% which are assessed against Class C Shares for the life of the
investment.
This Part B supplements the information contained in the current
Prospectus for the Fund dated April 30, 1998 as it may be amended from time to
time. It should be read in conjunction with the Prospectus. Part B is not itself
a prospectus but is, in its entirety, incorporated by reference into the
Prospectus. A Prospectus may be obtained by writing or calling your investment
dealer or by contacting the Fund's national distributor, Delaware Distributors,
L.P. (the "Distributor"), 1818 Market Street, Philadelphia, PA 19103.
All references to "shares" in this Part B refer to all Classes of
shares of the Fund, except where noted.
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INVESTMENT RESTRICTIONS AND POLICIES
Investment Restrictions
The Fund has adopted certain investment restrictions set forth below
which, together with the investment objectives of the Fund and other policies
which are specifically identified as fundamental in the Prospectus or herein
cannot be changed without approval by holders of a majority of the outstanding
voting shares of the Fund. As defined in the Investment Company Act of 194
("1940 Act"), this means the lesser of the vote of (1) 67% of the shares of the
Fund at a meeting where more than 50% of the outstanding shares of the Fund are
present in person or by proxy or (2) more than 50% of the outstanding shares of
the Fund. The following investment restrictions apply to the Fund. The Fund will
not:
(1) Borrow money (provided that the Fund may enter into reverse
repurchase agreements with respect to not more than 10% of its total assets),
except from banks for temporary or emergency purposes in an amount not exceeding
20% of the value of the Fund's total assets, including the amount borrowed. The
Fund may not borrow for leverage purposes, provided that the Fund may enter into
reverse repurchase agreements for such purposes, and securities will not be
purchased while outstanding borrowings exceed 5% of the value of the Fund's
total assets.
(2) Underwrite securities issued by other persons except to the extent
that, in connection with the disposition of portfolio investments, the Fund may
be deemed to be an underwriter under federal securities laws.
(3) Purchase or sell real estate, although it may purchase securities
which are secured by or represent interests in real estate.
(4) Make loans, except by purchase of debt obligations in which the
Fund may invest consistent with its investment policies, and through repurchase
agreements.
(5) Invest 25% or more if its total assets in the securities of any
industry, although, for purposes of this limitation, tax-exempt securities and
U.S. government obligations are not considered to be part of any industry.
(6) Issue any senior securities (as defined in the 1940 Act), except as
set forth in investment restriction number (1) above, and except to the extent
that using options, futures contracts and options on futures contracts,
purchasing or selling on a when-issued or forward commitment basis or using
similar investment strategies may be deemed to constitute issuing a senior
security.
(7) Purchase or sell commodities or futures or options contracts with
respect to physical commodities. This restriction shall not restrict the Fund
from purchasing or selling, on a basis consistent with any restrictions
contained in its then-current prospectus, any financial contracts or instruments
which may be deemed commodities (including, by way of example and not by way of
limitation, options, futures, and options on futures with respect, in each case,
to interest rates, currencies, stock indices, bond indices or interest rate
indices).
The following non-fundamental investment restrictions may be changed by
the Board of the Fund at any time. The Fund will not:
(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) Write puts if, as a result, more than 50% of the Fund's assets
would be required to be segregated to cover such puts.
(4) Make short sales of securities or maintain a short position for the
account of the Fund, unless at all times when a short position is open it owns
an equal amount of such securities or owns securities which, without payment of
any further consideration, are convertible into or exchangeable for securities
of the same issue as, and equal in amount to, the securities sold short.
Except for the Fund's policy with respect to borrowing, any investment
restriction or limitation which involves a maximum percentage of securities or
assets shall not be considered to be violated unless an excess over the
percentage occurs immediately after an acquisition of securities or a
utilization of assets and such excess results therefrom.
The investment objectives, policies and restrictions of the Fund are
set forth in the Prospectus. Certain additional investment information is set
forth below.
Diversification
Although the Fund is characterized as a non-diversified fund under the
1940 Act, the Fund intends to conduct its operations so that it will qualify
under the Internal Revenue Code of 1986, as amended (the "Code") as a "regulated
investment company." In order to qualify as a regulated investment company, the
Fund must limit its investments so that, at the close of each quarter of the
taxable year, with respect to at least 50% of its total assets, not more than 5%
of its total assets will be invested in the securities of a single issuer. In
addition, the Code requires that not more than 25% in value of the Fund's total
assets may be invested in the securities of a single issuer at the close of each
quarter of the taxable year.
For purposes of such diversification, the identification of the issuer
of Municipal Obligations depends on the terms and conditions of the security. If
a state or a political subdivision thereof pledges its full faith and credit to
payment of a security, the state or the political subdivision, respectively, is
deemed the sole issuer of the security. If the assets and revenues of an agency,
authority or instrumentality of a state or a political subdivision thereof are
separate from those of the state or political subdivision and the security is
backed only by the assets and revenues of the agency, authority or
instrumentality, such agency, authority or instrumentality is deemed to be the
sole issuer. Moreover, if the security is backed only by revenues of an
enterprise or specific projects of the state, a political subdivision or agency,
authority or instrumentality, such as utility revenue bonds, and the full faith
and credit of the governmental unit is not pledged to the payment thereof, such
enterprise or specific project is deemed the sole issuer.
Similarly, in the case of an industrial development bond, if that bond
is backed only by certain revenues to be received from the non-governmental user
of the project financed by the bond, then such non-governmental user is deemed
to be the sole issuer. If, however, in any of the above cases, a state,
political subdivision or some other entity guarantees a security and the value
of all securities issued or guaranteed by the guarantor and owned by the Fund
exceeds 10% of the value of the Fund's total assets, the guarantee is considered
a separate security and is treated as an issue of the guarantor. Investments in
municipal obligations refunded with escrowed U.S. government securities will be
treated as investments in U.S. government securities for purposes of determining
the Fund's compliance with the 1940 Act diversification requirements.
Municipal Obligations
Municipal Obligations are generally issued to obtain funds for various
public purposes, including the construction or improvement of a wide range of
public facilities such as airports, bridges, highways, housing, hospitals, mass
transportation, schools, streets and water and sewer works. Other public
purposes for which Municipal Obligations may be issued include refunding
outstanding obligations, obtaining funds for general
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<PAGE>
operating expenses and lending such funds to other public institutions and
facilities. In addition, Municipal Obligations may be issued by or on behalf of
public bodies to obtain funds to provide for the construction, equipping, repair
or improvement of housing facilities, convention or trade show facilities,
airport, mass transit, industrial, port or parking facilities and certain local
facilities for water supply, gas, electricity, sewage or solid waste disposal.
Securities in which the Fund may invest, including Municipal
Obligations, are subject to the provisions of bankruptcy, insolvency,
reorganization and other laws affecting the rights and remedies of creditors,
such as the federal Bankruptcy Code, and laws, if any, which may be enacted by
Congress or a state's legislature extending the time for payment of principal or
interest, or both, or imposing other constraints upon enforcement of such
obligations within constitutional limitations. There is also the possibility
that, as a result of litigation or other conditions, the power or ability of
issuers to meet their obligations for the payment of interest on and principal
of their Municipal Obligations may be materially affected.
From time to time, legislation has been introduced in Congress for the
purpose of restricting the availability of or eliminating the federal income tax
exemption for interest on Municipal Obligations, some of which have been
enacted. Additional proposals may be introduced in the future which, if enacted,
could affect the availability of Municipal Obligations for investment by the
Fund and the value of the Fund's portfolio. In such event, management of the
Fund may discontinue the issuance of shares to new investors and may reevaluate
the Fund's investment objective and policies and submit possible changes in the
structure of the Fund for shareholder approval.
To the extent that the ratings given by Moody's Investors Service, Inc.
("Moody's"), Fitch IBCA, Inc. (formerly Fitch Investors Service, L.P.)
("Fitch"), or Standard & Poor's Ratings Group ("S&P") for Municipal Obligations
may change as a result of changes in such organizations or their rating systems,
the Fund will attempt to use comparable ratings as standards for their
investments in accordance with the investment policies contained in the Fund's
Prospectus and this Part B. The ratings of Moody's, Fitch and S&P represent
their opinions as to the quality of the Municipal Obligations which they
undertake to rate. It should be emphasized, however, that ratings are relative
and subjective and are not absolute standards of quality. Although these ratings
provide an initial criterion for selection of portfolio investments, the Fund's
investment adviser, Delaware Management Company (the "Manager"), will subject
these securities to other evaluative criteria prior to investing in such
securities.
Floating and Variable Rate Demand Notes
Variable rate master demand notes, in which the Fund may invest, are
unsecured demand notes that permit the indebtedness thereunder to vary and
provide for periodic adjustments in the interest rate according to the terms of
the instrument. Because master demand notes are direct lending arrangements
between the Fund and the issuer, they are not normally traded. Although there is
no secondary market in the notes, the Fund may demand payment of principal and
accrued interest at any time. While the notes are not typically rated by credit
rating agencies, issuers of variable amount master demand notes (which are
normally manufacturing, retail, financial, and other business concerns) must
satisfy the same criteria as set forth above for commercial paper. In
determining average weighted portfolio maturity, a variable amount master demand
note will be deemed to have a maturity equal to the period of time remaining
until the principal amount can be recovered from the issuer through demand.
A variable rate note is one whose terms provide for the adjustment of
its interest rate on set dates and which, upon such adjustment, can reasonably
be expected to have a market value that approximates its par value. A floating
rate note is one whose terms provide for the adjustment of its interest rate
whenever a specified interest rate changes and which, at any time, can
reasonably be expected to have a market value that approximates its par value.
Such notes are frequently not rated by credit rating agencies; however, unrated
variable and floating rate notes purchased by the Fund will be determined by the
Fund's Manager under guidelines established by the Fund's Board
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of Directors to be of comparable quality at the time of purchase to rated
instruments eligible for purchase under the Fund's investment policies. In
making such determinations, the Manager will consider the earning power, cash
flow and other liquidity ratios of the issuers of such notes (such issuers
include financial, merchandising, bank holding and other companies) and will
continuously monitor their financial condition. Although there may be no active
secondary market with respect to a particular variable or floating rate note
purchased by the Fund, the Fund may re-sell the note at any time to a third
party. The absence of such an active secondary market, however, could make it
difficult for the Fund to dispose of the variable or floating rate note involved
in the event the issuer of the note defaulted on its payment obligations, and
the Fund could, for this or other reasons, suffer a loss to the extent of the
default. Variable or floating rate notes may be secured by bank letters of
credit.
Variable and floating rate notes for which no readily available market
exists will be purchased in an amount which, together with securities with legal
or contractual restrictions on resale or for which no readily available market
exists (including repurchase agreements providing for settlement more than seven
days after notice), exceed 10% of the Fund's total assets only if such notes are
subject to a demand feature that will permit the Fund to demand payment of the
Principal within seven days after demand by the Fund. If not rated, such
instruments must be found by the Fund's Manager and/or sub-adviser under
guidelines established by the Fund's Board of Directors, to be of comparable
quality to instruments that are rated high quality. A rating may be relied upon
only if it is provided by a nationally recognized statistical rating
organization that is not affiliated with the issuer or guarantor of the
instruments.
Escrow Secured Bonds or Defeased Bonds
Escrow secured bonds or defeased bonds are created when an issuer
refunds in advance of maturity (or pre-refunds) some of its outstanding bonds
and it becomes necessary or desirable to set aside funds for redemption or
payment of the bonds at a future date or dates. In an advance refunding, the
issuer will use the proceeds of a new bond issue to purchase high grade interest
bearing debt securities which are then deposited in an irrevocable escrow
account held by an escrow agent to secure all future payments of principal and
interest of the advance refunded bond. Escrow secured bonds will often receive a
AAA rating from S&P, Moody's and Fitch.
State or Municipal Lease Obligations
Municipal leases may take the form of a lease with an option to
purchase, an installment purchase contract, a conditional sales contract or a
participation certificate in any of the foregoing. In determining leases in
which the Fund will invest, the Manager will evaluate the credit rating of the
lessee and the terms of the lease. Additionally, the Manager may require that
certain municipal leases be secured by a letter of credit or put arrangement
with an independent financial institution. State or municipal lease obligations
frequently have the special risks described below which are not associated with
general obligation or revenue bonds issued by public bodies.
The United States Constitution and the statutes of many states contain
requirements with which the state and municipalities must comply whenever
incurring debt. These requirements may include approving voter referendums, debt
limits, interest rate limits and public sale requirements. Leases have evolved
as a means for public bodies to acquire property and equipment without needing
to comply with all of the constitutional and statutory requirements for the
issuance of debt. The debt-issuance limitations may be inapplicable for one or
more of the following reasons: (1) the inclusion in many leases or contracts of
"non-appropriation" clauses that provide that the public body has no obligation
to make future payments under the lease or contract unless money is appropriated
for such purpose by the appropriate legislative body on a yearly or other
periodic basis (the "non-appropriation" clause); (2) the exclusion of a lease or
conditional sales contract from the definition of indebtedness under relevant
state law; or (3) the lease provides for termination at the option of the public
body at the end of each fiscal year for any reason or, in some cases,
automatically if not affirmatively renewed.
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If the lease is terminated by the public body for non-appropriation or
another reason not constituting a default under the lease, the rights of the
lessor or holder of a participation interest therein are limited to repossession
of the leased property without any recourse to the general credit of the public
body. The disposition of the leased property by the lessor in the event of
termination of the lease might, in many cases, prove difficult or result in
loss.
Concentration Policy
As a fundamental policy, the Fund may not invest 25% or more of its
total assets in the securities of any industry, although, for purposes of this
limitation, tax-exempt securities and U.S. government obligations are not
considered to be part of any industry. The Fund may invest 25% or more of its
total assets in industrial development revenue bonds. In addition, it is
possible that the Fund from time to time will invest 25% or more of its total
assets in a particular segment of the municipal bond market, such as housing,
health care, utility, transportation, education or industrial obligations. In
such circumstances, economic, business, political or other changes affecting one
bond (such as proposed legislation affecting the financing of a project;
shortages or price increases of needed materials; or a declining market or need
for the project) might also affect other bonds in the same segment, thereby
potentially increasing market or credit risk.
Housing Obligations. The Fund may invest, from time to time, 25% or
more of its total assets in obligations of public bodies, including state and
municipal housing authorities, issued to finance the purchase of single-family
mortgage loans or the construction of multifamily housing projects. Economic and
political developments, including fluctuations in interest rates, increasing
construction and operating costs and reductions in federal housing subsidy
programs, may adversely impact on revenues of housing authorities. Furthermore,
adverse economic conditions may result in an increasing rate of default of
mortgagors on the underlying mortgage loans. In the case of some housing
authorities, inability to obtain additional financing also could reduce revenues
available to pay existing obligations. Single-family mortgage revenue bonds are
subject to extraordinary mandatory redemption at par at any time in whole or in
part from the proceeds derived from prepayments of underlying mortgage loans and
also from the unused proceeds of the issue within a stated period which may be
within a year from the date of issue.
Health Care Obligations. The Fund may invest, from time to time, 25% or
more of its total assets in obligations issued by public bodies, including state
and municipal authorities, to finance hospital or health care facilities or
equipment. The ability of any health care entity or hospital to make payments in
amounts sufficient to pay maturing principal and interest obligations is
generally subject to, among other things, the capabilities of its management,
the confidence of physicians in management, the availability of physicians and
trained support staff, changes in the population or economic condition of the
service area, the level of and restrictions on federal funding of Medicare and
federal and state funding of Medicaid, the demand for services, competition,
rates, government regulations and licensing requirements and future economic and
other conditions, including any future health care reform.
Utility Obligations. The Fund may invest, from time to time, 25% or
more of its total assets in obligations issued by public bodies, including state
and municipal utility authorities, to finance the operation or expansion of
utilities. Various future economic and other conditions may adversely impact
utility entities, including inflation, increases in financing requirements,
increases in raw material costs and other operating costs, changes in the demand
for services and the effects of environmental and other governmental
regulations.
Transportation Obligations. The Fund may invest, from time to time, 25%
or more of its total assets in obligations issued by public bodies, including
state and municipal authorities, to finance airports and highway, bridge and
toll road facilities. The major portion of an airport's gross operating income
is generally derived from fees received from signatory airlines pursuant to use
agreements which consist of annual payments for airport use, occupancy of
certain terminal space, service fees and leases. Airport operating income may
therefore be affected by the ability of the airlines to meet their obligations
under the use agreements. The air transport industry is
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experiencing significant variations in earnings and traffic, due to increased
competition, excess capacity, increased costs, deregulation, traffic constraints
and other factors, and several airlines are experiencing severe financial
difficulties. The revenues of issuers which derive their payments from bridge,
road or tunnel toll revenues could be adversely affected by competition from
toll-free vehicular bridges and roads and alternative modes of transportation.
Such revenues could also be adversely affected by a reduction in the
availability of fuel to motorists or significant increases in the costs thereof.
Education Obligations. The Fund may invest, from time to time, 25% or
more of its total assets in obligations of issuers which are, or which govern
the operation of, schools, colleges and universities and whose revenues are
derived mainly from tuition, dormitory revenues, grants and endowments. General
problems of such issuers include the prospect of a declining percentage of the
population consisting of college aged individuals, possible inability to raise
tuition and fees sufficiently to cover increased operating costs, the
uncertainty of continued receipt of federal grants, state funding and alumni
support, and government legislation or regulations which may adversely affect
the revenues or costs of such issuers.
Industrial Revenue Obligations. The Fund may invest, from time to time,
25% or more of its total assets in obligations issued by public bodies,
including state and municipal authorities, to finance the cost of acquiring,
constructing or improving various industrial projects. These projects are
usually operated by corporate entities. Issuers are obligated only to pay
amounts due on the bonds to the extent that funds are available from the
unexpended proceeds of the bonds or receipts or revenues of the issuer under an
arrangement between the issuer and the corporate operator of a project. The
arrangement may be in the form of a lease, installment sale agreement,
conditional sale agreement or loan agreement, but in each case the payments of
the issuer are designed to be sufficient to meet the payments of amounts due on
the bonds. Regardless of the structure, payment of bonds is solely dependent
upon the creditworthiness of the corporate operator of the project and, if
applicable, the corporate guarantor. Corporate operators or guarantors may be
affected by many factors which may have an adverse impact on the credit quality
of the particular company or industry. These include cyclicality of revenues and
earnings, regulatory and environmental restrictions, litigation resulting from
accidents or deterioration resulting from leveraged buy-outs or takeovers. The
bonds may be subject to special or extraordinary redemption provisions which may
provide for redemption at par or accredited value, plus, if applicable, a
premium.
Other Risks. The exclusion from gross income for purposes of federal
income taxes for certain housing, health care, utility, transportation,
education and industrial revenue bonds depends on compliance with relevant
provisions of the Code. The failure to comply with these provisions could cause
the interest on the bonds to become includable in gross income, possibly
retroactively to the date of issuance, thereby reducing the value of the bonds,
subjecting shareholders to unanticipated tax liabilities and possibly requiring
the Fund to sell the bonds at the reduced value. Furthermore, such a failure to
meet these ongoing requirements may not enable the holder to accelerate payment
of the bond or require the issuer to redeem the bond.
Taxable Obligations
As set forth in the Prospectus, the Fund may invest to a limited extent
in obligations and instruments, the interest on which is includable in gross
income for purposes of federal income taxation.
Government Obligations
The Fund may invest in securities issued or guaranteed by the U.S.
government or its agencies or instrumentalities. These securities include a
variety of Treasury securities, which differ in their interest rates, maturities
and times of issuance. Treasury Bills generally have maturities of one year or
less; Treasury Notes generally have maturities of one to ten years; and Treasury
Bonds generally have maturities of greater than ten years. Some obligations
issued or guaranteed by U.S. government agencies and instrumentalities, such as
Government National Mortgage Association pass-through certificates, are
supported by the full faith and credit of the U.S.
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Treasury; other obligations, such as those of the Federal Home Loan Banks, are
secured by the right of the issuer to borrow from the Treasury; other
obligations, such as those issued by the Federal National Mortgage Association,
are supported by the discretionary authority of the U.S. government to purchase
certain obligations of the agency or instrumentality; and other obligations,
such as those issued by the Student Loan Marketing Association, are supported
only by the credit of the instrumentality itself. Although the U.S. government
provides financial support to such U.S. government-sponsored agencies or
instrumentalities, no assurance can be given that it will always do so, since it
is not so obligated by law. The Fund will invest in such securities only when
the Manager is satisfied that the credit risk with respect to the issuer is
minimal.
Repurchase Agreements
A repurchase agreement is a short-term investment by which the
purchaser acquires ownership of a debt security and the seller agrees to
repurchase the obligation at a future time and set price, thereby determining
the yield during the purchaser's holding period. Should an issuer of a
repurchase agreement fail to repurchase the underlying security, the loss to the
Fund, if any, would be the difference between the repurchase price and the
market value of the security. The Fund will limit its investments in repurchase
agreements to those which the Manager, under the guidelines of the Board of
Directors, determines to present minimal credit risks and which are of high
quality. In addition, the Fund must have collateral of at least 102% of the
repurchase price, including the portion representing the Fund's yield under such
agreements which is monitored on a daily basis.
The funds available from the Delaware Investments family have obtained
an exemption from the joint- transaction prohibitions of Section 17(d) of the
1940 Act to allow funds in the Delaware Investments family jointly to invest
cash balances. The Fund may invest cash balances in a joint repurchase agreement
in accordance with the terms of the Order and subject generally to the
conditions described below.
Other Taxable Investments
The Fund also may invest in certificates of deposit, bankers'
acceptances and other time deposits. Certificates of deposit are certificates
representing the obligation of a bank to repay the funds deposited (plus
interest thereon) at a time certain after the deposit. Bankers' acceptances are
credit instruments evidencing the obligation of a bank to pay a draft drawn on
it by a customer. Time deposits are non-negotiable deposits maintained in a
banking institution for a specified period of time at a stated interest rate.
Options
The Fund may purchase call options, write call options on a covered
basis, write secured put options and purchase put options on a covered basis
only, and will not engage in option writing strategies for speculative purposes.
The Fund may invest in options that are either listed on a national
securities exchange (an "Exchange") or traded over-the-counter. Certain
over-the-counter options may be illiquid. Thus, it may not be possible to close
option positions and this may have an adverse impact on the Fund's ability to
effectively hedge its securities. The Fund will not, however, invest more than
15% of its assets in illiquid securities.
A. Covered Call Writing--The Fund may write covered call options from
time to time on such portion of its portfolio, without limit, as the Manager
determines is appropriate in seeking to obtain the Fund's investment objective.
A call option gives the purchaser of such option the right to buy, and the
writer, in this case the Fund, has the obligation to sell the underlying
security at the exercise price during the option period. The advantage to the
Fund of writing covered calls is that the Fund receives a premium which is
additional income. However, if the security rises in value, the Fund may not
fully participate in the market appreciation.
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During the option period, a covered call option writer may be assigned
an exercise notice by the broker/dealer through whom such call option was sold,
requiring the writer to deliver the underlying security against payment of the
exercise price. This obligation is terminated upon the expiration of the option
period or at such earlier time in which the writer effects a closing purchase
transaction. A closing purchase transaction cannot be effected with respect to
an option once the option writer has received an exercise notice for such
option.
With respect to options on actual portfolio securities owned by the
Fund, the Fund may enter into closing purchase transactions. A closing purchase
transaction is one in which the Fund, when obligated as a writer of an option,
terminates its obligation by purchasing an option of the same series as the
option previously written.
Closing purchase transactions will ordinarily be effected to realize a
profit on an outstanding call option, to prevent an underlying security from
being called, to permit the sale of the underlying security or to enable the
Fund to write another call option on the underlying security with either a
different exercise price or expiration date or both. The Fund may realize a net
gain or loss from a closing purchase transaction depending upon whether the net
amount of the original premium received on the call option is more or less than
the cost of effecting the closing purchase transaction. Any loss incurred in a
closing purchase transaction may be partially or entirety offset by the premium
received from a sale of a different call option on the same underlying security.
Such a loss may also be wholly or partially offset by unrealized appreciation in
the market value of the underlying security. Conversely, a gain resulting from a
closing purchase transaction could be offset in whole or in part by a decline in
the market value of the underlying security.
If a call option expires unexercised, the Fund will realize a
short-term capital gain in the amount of the premium on the option less the
commission paid. Such a gain, however, may be offset by depreciation in the
market value of the underlying security during the option period. If a call
option is exercised, the Fund will realize a gain or loss from the sale of the
underlying security equal to the difference between the cost of the underlying
security and the proceeds of the sale of the security plus the amount of the
premium on the option less the commission paid.
The market value of a call option generally reflects the market price
of an underlying security. Other principal factors affecting market value
include supply and demand, interest rates, the price volatility of the
underlying security and the time remaining until the expiration date.
The Fund will write call options only on a covered basis, which means
that the Fund will own the underlying security subject to a call option at all
times during the option period. Unless a closing purchase transaction is
effected, the Fund would be required to continue to hold a security which it
might otherwise wish to sell or deliver a security it would want to hold.
Options written by the Fund will normally have expiration dates between one and
nine months from the date written. The exercise price of a call option may be
below, equal to or above the current market value of the underlying security at
the time the option is written.
B. Purchasing Call Options--The Fund may purchase call options to the
extent that premiums paid by the Fund do not aggregate more than 2% of the
Fund's total assets. The advantage of purchasing call options is that the Fund
may alter portfolio characteristics, and modify portfolio maturities without
incurring the cost associated with portfolio transactions.
The Fund may, following the purchase of a call option, liquidate its
position by effecting a closing sale transaction. This is accomplished by
selling an option of the same Fund as the option previously purchased. The Fund
will realize a profit from a closing sale transaction if the price received on
the transaction is more than the premium paid to purchase the original call
option; the Fund will realize a loss from a closing sale transaction if the
price received on the transaction is less than the premium paid to purchase the
original call option.
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Although the Fund will generally purchase only those call options for
which there appears to be an active secondary market, there is no assurance that
a liquid secondary market on an Exchange will exist for any particular option,
or at any particular time, and for some options no secondary market on an
Exchange may exist. In such event, it may not be possible to effect closing
transactions in particular options, with the results that the Fund would have to
exercise its options in order to realize any profit and would incur brokerage
commissions upon the exercise of such options and upon the subsequent
disposition of the underlying securities acquired through the exercise of such
options. Further, unless the price of the underlying security changes
sufficiently, a call option purchased by the Fund may expire without any value
to the Fund.
C. Purchasing Put Options--The Fund may invest up to 2% of its total
assets in the purchase of put options. The Fund will, at all times during which
it holds a put option, own the security covered by such option.
The Fund intends to purchase put options in order to protect against a
decline in the market value of the underlying security below the exercise price
less the premium paid for the option ("protective puts"). The ability to
purchase put options will allow the Fund to protect an unrealized gain in an
appreciated security in its portfolio without actually selling the security. If
the security does not drop in value, the Fund will lose the value of the premium
paid. The Fund may sell a put option which it has previously purchased prior to
the sale of the securities underlying such option. Such sales will result in a
net gain or loss depending on whether the amount received on the sale is more or
less than the premium and other transaction costs paid on the put option which
is sold.
The Fund may sell a put option purchased on individual portfolio
securities. Additionally, the Fund may enter into closing sale transactions. A
closing sale transaction is one in which the Fund, when it is the holder of an
outstanding option, liquidates its position by selling an option of the same
series as the option previously purchased.
D. Writing Put Options--The Fund may also write put options on a
secured basis which means that the Fund will maintain in a segregated account
with its custodian, cash or U.S. government securities in an amount not less
than the exercise price of the option at all times during the option period. The
amount of cash or U.S. government securities held in the segregated account will
be adjusted on a daily basis to reflect changes in the market value of the
securities covered by the put option written by the Fund. Secured put options
will generally be written in circumstances where the Manager wishes to purchase
the underlying security for the Fund's portfolio at a price lower than the
current market price of the security. In such event, the Fund would write a
secured put option at an exercise price which, reduced by the premium received
on the option, reflects the lower price it is willing to pay.
Following the writing of a put option, the Fund may wish to terminate
the obligation to buy the security underlying the option by effecting a closing
purchase transaction. This is accomplished by buying an option of the same
series as the option previously written. The Fund may not, however, effect such
a closing transaction after it has been notified of the exercise of the option.
Futures
Futures contracts are agreements for the purchase or sale for future
delivery of securities. While futures contracts provide for the delivery of
securities, deliveries usually do not occur. Contracts are generally terminated
by entering into an offsetting transaction. When the Fund enters into a futures
transaction, it must deliver to the futures commission merchant selected by the
Fund an amount referred to as "initial margin." This amount is maintained by the
futures commission merchant in an account at the Fund's custodian bank.
Thereafter, a "variation margin" may be paid by the Fund to, or drawn by the
Fund from, such account in accordance with controls set for such account,
depending upon changes in the price of the underlying securities subject to the
futures contract.
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In addition, when the Fund engages in futures transactions, to the
extent required by the Securities and Exchange Commission (the "SEC"), it will
maintain with its custodian, assets in a segregated account to cover its
obligations with respect to such contracts, which assets will consist of cash,
cash equivalents or high quality debt securities from its portfolio in an amount
equal to the difference between the fluctuating market value of such futures
contracts and the aggregate value of the margin payments made by the Fund with
respect to such futures contracts.
The Fund may enter into such futures contracts to protect against the
adverse effects of fluctuations in interest rates without actually buying or
selling such securities. Similarly, when it is expected that interest rates may
decline, futures contracts may be purchased to hedge in anticipation of
subsequent purchases of government securities at higher prices.
With respect to options on futures contracts, when the Fund is not
fully invested, it may purchase a call option on a futures contract to hedge
against a market advance due to declining interest rates. The writing of a call
option on a futures contract constitutes a partial hedge against declining
prices of the securities which are deliverable upon exercise of the futures
contract. If the futures price at the expiration of the option is below the
exercise price, the Fund will retain the full amount of the option premium which
provides a partial hedge against any decline that may have occurred in the
portfolio holdings. The writing of a put option on a futures contract
constitutes a partial hedge against increasing prices of the securities which
are deliverable upon exercise of the futures contract. If the futures price at
expiration of the option is higher than the exercise price, the Fund will retain
the full amount of the option premium which provides a partial hedge against any
increase in the price of government securities which the Fund intends to
purchase.
If a put or call option the Fund has written is exercised, the Fund
will incur a loss which will be reduced by the amount of the premium it
receives. Depending on the degree of correlation between the value of its
portfolio securities and changes in the value of its futures positions, the
Fund's losses from existing options on futures may, to some extent, be reduced
or increased by changes in the value of portfolio securities. The Fund will
purchase a put option on a futures contract to hedge the Fund's portfolio
against the risk of rising interest rates.
To the extent that interest rates move in an unexpected direction, the
Fund may not achieve the anticipated benefits of futures contracts or options on
futures contracts or may realize a loss. For example, if the Fund is hedged
against the possibility of an increase in interest rates which would adversely
affect the price of government securities held in its portfolio and interest
rates decrease instead, the Fund will lose part or all of the benefit of the
increased value of its government securities which it has because it will have
offsetting losses in its futures position. In addition, in such situations, if
the Fund had insufficient cash, it may be required to sell government securities
from its portfolio to meet daily variation margin requirements. Such sales of
government securities may, but will not necessarily, be at increased prices
which reflect the rising market. The Fund may be required to sell securities at
a time when it may be disadvantageous to do so.
Further, with respect to options on futures contracts, the Fund may
seek to close out an option position by writing or buying an offsetting position
covering the same securities or contracts and have the same exercise price and
expiration date. The ability to establish and close out positions on options
will be subject to the maintenance of a liquid secondary market, which cannot be
assured.
Risks of Transactions in Futures Contracts and Options.
Hedging Risks in Futures Contracts Transactions. There are several
risks in using securities index or interest rate futures contracts as hedging
devices. One risk arises because the prices of futures contracts may not
correlate perfectly with movements in the underlying index or financial
instrument due to certain market distortions. First, all participants in the
futures market are subject to initial margin and variation margin requirements.
Rather
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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 the Fund's portfolio
diverges from the financial instruments included in the applicable index.
Successful use of futures contracts by the Fund is subject to the
ability of the Manager to predict correctly movements in the direction of
interest rates or the relevant underlying securities market. If the Fund has
hedged against the possibility of an increase in interest rates adversely
affecting the value of fixed-income securities held in its portfolio and
interest rates decrease instead, the Fund will lose part or all of the benefit
of the increased value of its security which it has hedged because it will have
offsetting losses in its futures positions. In addition, in such situations, if
the Fund has insufficient cash, it may have to sell securities to meet daily
variation margin requirements. Such sales of securities may, but will not
necessarily, be at increased prices which reflect the rising market or decline
in interest rates. The Fund may have to sell securities at a time when it may be
disadvantageous to do so.
Liquidity of Futures Contracts. The Fund may elect to close some or all
of its contracts prior to expiration. The purpose of making such a move would be
to reduce or eliminate the hedge position held by the Fund. The Fund may close
its positions by taking opposite positions. Final determinations of variation
margin are then made, additional cash as required is paid by or to the Fund, and
the Fund realizes a loss or a gain.
Positions in futures contracts may be closed only on an Exchange or
board of trade providing a secondary market for such futures contracts. Although
the Fund intends to enter into futures contracts only on exchanges or boards of
trade where there appears to be an active secondary market, there is no
assurance that a liquid secondary market will exist for any particular contract
at any particular time.
In addition, most domestic futures exchanges and boards of trade limit
the amount of fluctuation permitted in futures contract prices during a single
trading day. The daily limit establishes the maximum amount that the price of a
futures contract may vary either up or down from the previous day's settlement
price at the end of a trading session. Once the daily limit has been reached in
a particular contract, no trades may be made that day at a price beyond that
limit. The daily limit governs only price movement during a particular trading
day and therefore does not limit potential losses because the limit may prevent
the liquidation of unfavorable positions. It is possible that futures contract
prices could move to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of futures positions
and subjecting some futures traders to substantial losses. In such event, it
will not be possible to close a futures position and, in the event of adverse
price movements, the Fund would be required to make daily cash payments of
variation margin. In such circumstances, an increase in the value of the portion
of the portfolio being hedged, if any, may partially or completely offset losses
on the futures contract. However, as described above, there is no guarantee that
the price of the securities being hedged will, in fact, correlate with the price
movements in the futures contract and thus provide an offset to losses on a
futures contract.
-13-
<PAGE>
Risk of Options. The use of options on financial instruments and
indexes and on interest rate and index futures contracts also involves
additional risk. Compared to the purchase or sale of futures contracts, the
purchase of call or put options involves less potential risk to the Fund because
the maximum amount at risk is the premium paid for the options (plus
transactions costs). The writing of a call option generates a premium, which may
partially offset a decline in the value of the Fund's portfolio assets. By
writing a call option, the Fund becomes obligated to sell an underlying
instrument or a futures contract, which may have a value higher than the
exercise price. Conversely, the writing of a put option generates a premium, but
the Fund becomes obligated to purchase the underlying instrument or futures
contract, which may have a value lower than the exercise price. Thus, the loss
incurred by the Fund in writing options may exceed the amount of the premium
received.
The effective use of options strategies is dependent, among other
things, on the Fund's ability to terminate options positions at a time when the
Manager deems it desirable to do so. Although the Fund will enter into an option
position only if the Manager believes that a liquid secondary market exists for
such option, there is no assurance that the Fund will be able to effect closing
transactions at any particular time or at an acceptable price. The Fund's
transactions involving options on futures contracts will be conducted only on
recognized exchanges.
The Fund's purchase or sale of put or call options will be based upon
predictions as to anticipated interest rates or market trends by the Manager,
which could prove to be inaccurate. Even if the expectations of the Manager are
correct, there may be an imperfect correlation between the change in the value
of the options and of the Fund's portfolio securities.
The writer of an option may have no control over when the underlying
securities must be sold, in the case of a call option, or purchased, in the case
of a put option; the writer may be assigned an exercise notice at any time prior
to the termination of the obligation. Whether or not an option expires
unexercised, the writer retains the amount of the premium. This amount, of
course, may, in the case of a covered call option, be offset by a decline in the
market value of the underlying security during the option period. If a call
option is exercised, the writer experiences a profit or loss from the sale of
the underlying security. If a put option is exercised, the writer must fulfill
the obligation to purchase the underlying security at the exercise price which
will usually exceed the then market value of the underlying security.
The writer of an option that wishes to terminate its obligation may
effect a "closing purchase transaction." This is accomplished by buying an
option of the same series as the option previously written. The effect of a
purchase is that the writer's position will be canceled by the clearing
corporation. However, a writer may not effect a closing purchase transaction
after being notified of the exercise of an option. Likewise, an investor who is
the holder of an option may liquidate its position by effecting a "closing sale
transaction." This is accomplished by selling an option of the same series as
the option previously purchased. There is no guarantee that either a closing
purchase or a closing sale transaction can be effected.
Effecting a closing transaction in the case of a written call option
will permit the Fund to write another call option on the underlying security
with either a different exercise price or expiration date or both, or in the
case of a written put option will permit the Fund to write another put option to
the extent that the exercise price thereof is secured by deposited cash or
short-term securities. Also, effecting a closing transaction will permit the
cash or proceeds from the concurrent sale of any securities subject to the
option to be used for other Fund investments. If the Fund desires to sell a
particular security from its portfolio on which it has written a call option, it
will effect a closing transaction prior to or concurrent with the sale of the
security.
The Fund will realize a profit from a closing transaction if the price
of the transaction is less than the premium received from writing the option or
is more than the premium paid to purchase the option; the Fund will realize a
loss from a closing transaction if the price of the transaction is more than the
premium received from
-14-
<PAGE>
writing the option or is less than the premium paid to purchase the option.
Because increases in the market price of a call option will generally reflect
increases in the market price of the underlying security, any loss resulting
from the repurchase of a call option is likely to be offset in whole or in part
by appreciation of the underlying security owned by the Fund.
An option position may be closed out only where there exists a
secondary market for an option of the same series. If a secondary market does
not exist, it might not be possible to effect closing transactions in particular
options with the result that the Fund would have to exercise the options in
order to realize any profit. If the Fund is unable to effect a closing purchase
transaction in a secondary market, it will not be able to sell the underlying
security until the option expires or it delivers the underlying security upon
exercise. Reasons for the absence of a liquid secondary market include the
following: (i) there may be insufficient trading interest in certain options,
(ii) restrictions may be imposed by an Exchange on opening transactions or
closing transactions or both, (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options or underlying securities, (iv) unusual or unforeseen circumstances may
interrupt normal operations on an Exchange, (v) the facilities of an Exchange or
the Options Clearing Corporation may not at all times be adequate to handle
current trading volume, or (vi) one or more Exchanges could, for economic or
other reasons, decide or be compelled at some future date to discontinue the
trading of options (or a particular class or series of options), in which event
the secondary market on that Exchange (or in that class or series of options)
would cease to exist, although outstanding options on that Exchange that had
been issued by the Options Clearing Corporation as a result of trades on that
Exchange would continue to be exercisable in accordance with their terms.
The Fund may purchase put options to hedge against a decline in the
value of their portfolios. By using put options in this way, the Fund will
reduce any profit they might otherwise have realized in the underlying security
by the amount of the premium paid for the put option and by transaction costs.
The Fund may purchase call options to hedge against an increase in
price of securities that the Fund anticipate purchasing in the future. The
premium paid for the call option plus any transaction costs will reduce the
benefit, if any, realized by the Fund upon exercise of the option, and, unless
the price of the underlying security rises sufficiently, the option may expire
worthless to the Fund.
As discussed above, options may be traded over-the-counter ("OTC
options"). In an over-the-counter trading environment, many of the protections
afforded to exchange participants will not be available. For example, there are
no daily price fluctuation limits, and adverse market movements could therefore
continue to an unlimited extent over a period of time. OTC options are illiquid
and it may not be possible for the Fund to dispose of options they have
purchased or terminate their obligations under an option they have written at a
time when the Manager believes it would be advantageous to do so. Accordingly,
OTC options are subject to the Fund's limitation that a maximum of 15% of its
net assets be invested in illiquid securities. In the event of the bankruptcy of
the writer of an OTC option, the Fund could experience a loss of all or part of
the value of the option. The Manager anticipates that options on Municipal
Obligations will consist primarily of OTC options.
Illiquid Investments
The Fund may invest no more than 15% of the value of its net assets in
illiquid securities.
The Fund may invest in restricted securities, including securities
eligible for resale without registration pursuant to Rule 144A ("Rule 144A
Securities") under the Securities Act of 1933 (the "1933 Act"). Rule 144A
permits many privately placed and legally restricted securities to be freely
traded among certain institutional buyers such as the Fund.
-15-
<PAGE>
While maintaining oversight, Mutual Funds, Inc.'s Board of Directors
has delegated to the Manager the day-to-day function of determining whether or
not individual Rule 144A Securities are liquid for purposes of a Fund's 15%
limitation on investments in illiquid assets. The Board has instructed the
Manager to consider the following factors in determining the liquidity of a Rule
144A Security: (i) the frequency of trades and trading volume for the security;
(ii) whether at least three dealers are willing to purchase or sell the security
and the number of potential purchasers; (iii) whether at least two dealers are
making a market in the security; and (iv) the nature of the security and the
nature of the marketplace trades (e.g., the time needed to dispose of the
security, the method of soliciting offers, and the mechanics of transfer).
If the Manager determines that a Rule 144A Security that was previously
determined to be liquid is no longer liquid and, as a result, the Fund's
holdings of illiquid securities exceed the Fund's 15% limit on investment in
such securities, the Manager will determine what action to take to ensure that
the Fund continues to adhere to such limitation.
-16-
<PAGE>
ACCOUNTING AND TAX ISSUES
When the Fund writes a call option, an amount equal to the premium
received by it is included in the section of the Fund's assets and liabilities
as an asset and as an equivalent liability. The amount of the liability is
subsequently "marked to market" to reflect the current market value of the
option written. The current market value of a written option is the last sale
price on the principal Exchange on which such option is traded or, in the
absence of a sale, the mean between the last bid and asked prices. If an option
which the Fund has written expires on its stipulated expiration date, the Fund
reports a realized gain. If the Fund enters into a closing purchase transaction
with respect to an option which the Fund has written, the Fund realizes a gain
(or loss if the cost of the closing transaction exceeds the premium received
when the option was sold) without regard to any unrealized gain or loss on the
underlying security, and the liability related to such option is extinguished.
Any such gain or loss is a short-term capital gain or loss for federal income
tax purposes. If a call option which the Fund has written is exercised, the Fund
realizes a capital gain or loss (long-term or short-term, depending on the
holding period of the underlying security) from the sale of the underlying
security and the proceeds from such sale are increased by the premium originally
received.
Other Tax Requirements -- The Fund has qualified, and intends to
continue to qualify, as a regulated investment company under Subchapter M of the
Code. The Fund must meet several requirements to maintain its status as a
regulated investment company. Among these requirements are that at least 90% of
its investment company taxable income be derived from dividends, interest,
payment with respect to securities loans and gains from the sale or disposition
of securities; that at the close of each quarter of its taxable year at least
50% of the value of its assets consists of cash and cash items, government
securities, securities of other regulated investment companies and, subject to
certain diversification requirements, other securities; and that less than 30%
of its gross income be derived from sales of securities held for less than three
months. This 30% rule is rescinded for tax years beginning after August 5, 1997.
The requirement that not more than 30% of the Fund's gross income be
derived from gains from the sale or other disposition of securities held for
less than three months may restrict the Fund in its ability to write covered
call options on securities which it has held less than three months, to write
options which expire in less than three months, to sell securities which have
been held less than three months and to effect closing purchase transactions
with respect to options which have been written less than three months prior to
such transactions. Consequently, in order to avoid realizing a gain within the
three-month period, the Fund may be required to defer the closing out of a
contract beyond the time when it might otherwise be advantageous to do so.
The straddle rules of Section 1092 may apply. Generally, the straddle
provisions require the deferral of losses to the extent of unrecognized gains
related to the offsetting positions in the straddle. Excess losses, if any, can
be recognized in the year of loss. Deferred losses will be carried forward and
recognized in the following year, subject to the same limitation.
-17-
<PAGE>
PERFORMANCE INFORMATION
From time to time, the Fund may state each of its Classes' total return
in advertisements and other types of literature. Any statement of total return
performance data for a Class will be accompanied by information on the average
annual compounded rate of return for that Class over, as relevant, the most
recent one-, five- and ten-year or life-of-fund periods, as applicable. Each
Fund may also advertise aggregate and average total return information for its
Classes over additional periods of time.
In presenting performance information for Class A Shares, the Limited
CDSC, applicable to only certain redemptions of those shares, will not be
deducted from any computation of total return. See the Prospectus for a
description of the Limited CDSC and the limited instances in which it applies.
All references to a CDSC in this Performance Information section will apply to
Class B Shares or Class C Shares of the Fund.
The average annual total rate of return for each Class is based on a
hypothetical $1,000 investment that includes capital appreciation and
depreciation during the stated periods. The following formula will be used for
the actual computations:
n
P(1 + T) = ERV
Where: P = a hypothetical initial purchase order of $1,000 from
which, in the case of only Class A Shares, the maximum
front-end sales charge is deducted;
T = average annual total return;
n = number of years; and
ERV = redeemable value of the hypothetical $1,000 purchase at
the end of the period after the deduction of the
applicable CDSC, if any, with respect to Class B Shares
and Class C Shares.
Aggregate or cumulative total return is calculated in a similar manner,
except that the results are not annualized. Each calculation assumes the maximum
front-end sales charge, if any, is deducted from the initial $1,000 investment
at the time it is made and that all distributions are reinvested at net asset
value, and with respect to Class B Shares and Class C Shares, reflects the
deduction of the CDSC that would be applicable upon complete redemption of such
shares. In addition, the Fund may present total return information that does not
reflect the deduction of the maximum front-end sales charge or any applicable
CDSC.
The Fund may also state total return performance for its Classes in the
form of an average annual return. This average annual return figure will be
computed by taking the sum of a Class' annual returns, then dividing that figure
by the number of years in the overall period indicated. The computation will
reflect the impact of the maximum front-end sales charge or CDSC, if any, paid
on the illustrated investment amount against the first year's return.
The performance, as shown below, is the average annual total return
quotations of each Class of the Fund through December 31, 1997, computed as
described above. The average annual total return for Class A Shares at offer
reflects the maximum front-end sales charge of 3.75% paid on the purchase of
shares. The average annual total return for Class A Shares at net asset value
(NAV) does not reflect the payment of any front-end sales
-18-
<PAGE>
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 December 31, 1997. The average
annual total return for Class B Shares and Class C Shares excluding deferred
sales charge assumes the shares were not redeemed at December 31, 1997 and
therefore does not reflect the deduction of a CDSC.
Securities prices fluctuated during the periods covered and past
results should not be considered as representative of future performance.
Average Annual Total Return
Class A Shares Class A Shares
(at Offer) (at NAV)
1 year ended
12/31/97 6.14% 10.32%
3 years ended
12/31/97 8.13% 9.52%
5 years ended
12/31/97 7.14% 7.97%
10 years ended
12/31/97 8.38% 8.79%
Period 9/22/86(1)
through 12/31/98 7.86% 8.22%
(1) Date of initial public offering.
Average Annual Total Return
Class B Shares Class B Shares
(including CDSC) (excluding CDSC)
1 year ended
12/31/97 5.57% 9.57%
Period 12/18/96(1)
through 12/31/97 5.81% 9.66%
(1) Date of initial public offering.
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<PAGE>
Aggregate Total Return
Class C Shares Class C Shares
(including CDSC) (excluding CDSC)
Period 5/26/97(1)
through 12/31/97 5.88% 6.88%
(1) Date of initial public offering.
The average annual total return for Class A Shares at offer reflects the
maximum front-end sales charge of 3.75% paid on the purchase of shares. The
average annual total return for Class A Shares at net asset value (NAV) does not
reflect the payment of any front-end sales charge.
As stated in the Prospectus, the Fund may also quote the current yield for
each Class in advertisements and investor communications. The yield computation
is determined by dividing the net investment income per share earned during the
period by the maximum offering price per share on the last day of the period and
annualizing the resulting figure, according to the following formula:
a--b 6
YIELD = 2[(----- + 1) -- 1]
cd
Where: a = dividends and interest earned during the period;
b = expenses accrued for the period (net of reimbursements);
c = the average daily number of shares outstanding during
the period that were entitled to receive dividends;
d = the maximum offering price per share on the last day of
the period.
The above formula will be used in calculating quotations of yield of each
Class, based on specified 30-day periods identified in advertising by the Fund.
The yields as of December 31, 1997 using this formula were 4.97%, 4.41% and
4.40% for Class A Shares, Class B Shares and Class C Shares, respectively. Yield
assumes the maximum front-end sales charge, if any, and does not reflect the
deduction of any CDSC or Limited CDSC and also reflects voluntary waivers in
effect during the period. Actual yield may be affected by variations in
front-end sales charges on investments. Past performance, such as is reflected
in quoted yields, should not be considered as a representation of the results
which may be realized from an investment in any class of the Fund in the future.
The Fund may also publish a tax-equivalent yield for a Class based on
federal and, if applicable, state tax rates, which demonstrates the taxable
yield necessary to produce an after-tax yield equivalent to the Class' yield.
For the 30-day period ended December 31, 1997, the tax-equivalent yield
(assuming a federal income tax rate of 31%) of Class A Shares, Class B Shares
and Class C Shares was 7.20%, 6.39% and 6.38%, respectively, reflecting
voluntary waivers in effect during the period. These yields were computed by
dividing that portion of a Class' yield which is tax-exempt by one minus a
stated income tax rate (in this case, a federal income tax rate of 31%) and
adding the product to that portion, if any, of the yield that is not tax-exempt.
In addition, a Fund may advertise a tax-equivalent yield assuming other income
tax rates, when applicable.
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<PAGE>
Investors should note that the income earned and dividends paid by the
Fund will vary with the fluctuation of interest rates and performance of the
portfolio. The net asset value of the fund may change. Unlike money market
funds, the Fund invests in longer-term securities that fluctuate in value and do
so in a manner inversely correlated with changing interest rates. The Fund's net
asset value will tend to rise when interest rates fall. Conversely, the Fund's
net asset value will tend to fall as interest rates rise. Normally, fluctuations
in interest rates have a greater effect on the prices of longer-term bonds. The
value of the securities held in the Fund will vary from day to day and investors
should consider the volatility of the Fund's net asset value as well as its
yield before making a decision to invest.
Total return performance of each Class will reflect the appreciation or
depreciation of principal, reinvestment of income and any capital gains
distributions paid during any indicated period, and the impact of the maximum
front-end sales charge or CDSC, if any, paid on the illustrated investment
amount, annualized. The results will not reflect any income taxes, if
applicable, payable by shareholders on the reinvested distributions included in
the calculations. As securities prices fluctuate, an illustration of past
performance should not be considered as representative of future results.
From time to time, the Fund may also quote its Classes' actual total
return performance, dividend results and other performance information in
advertising and other types of literature. This information may be compared to
that of other mutual funds with similar investment objectives and to stock, bond
and other relevant indices or to rankings prepared by independent services or
other financial or industry publications that monitor the performance of mutual
funds. For example, the performance of the Fund (or Class) may be compared to
data prepared by Lipper Analytical Services, Inc., Morningstar, Inc. or the
performance of unmanaged indices compiled or maintained by statistical research
firms such as Lehman Brothers or Salomon Brothers, Inc.
Lipper Analytical Services, Inc. maintains statistical performance
databases, as reported by a diverse universe of independently-managed mutual
funds. Morningstar, Inc. is a mutual fund rating service that rates mutual funds
on the basis of risk-adjusted performance. Rankings that compare the Fund's
performance to another fund in appropriate categories over specific time periods
also may be quoted in advertising and other types of literature. The total
return performance reported for these indices will reflect the reinvestment of
all distributions on a quarterly basis and market price fluctuations. The
indices do not take into account any sales charge or other fees. A direct
investment in an unmanaged index is not possible.
Salomon Brothers and Lehman Brothers are statistical research firms that
maintain databases of international market, bond market, corporate and
government-issued securities of various maturities. This information, as well as
unmanaged indices compiled and maintained by these firms, will be used in
preparing comparative illustrations. In addition, the performance of multiple
indices compiled and maintained by these firms may be combined to create a
blended performance result for comparative purposes. Generally, the indices
selected will be representative of the types of securities in which the Fund may
invest and the assumptions that were used in calculating the blended performance
will be described.
The Fund may also promote its Classes' yield and/or total return
performance and use comparative performance information computed by and
available from certain industry and general market research and publications,
such as Lipper Analytical Services, Inc., IBC/Donoghue's Money Market Report and
Morningstar, Inc.
Comparative information on the Consumer Price Index may also be included
in advertisements or other literature. The Consumer Price Index, as prepared by
the U.S. Bureau of Labor Statistics, is the most commonly
-21-
<PAGE>
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 Fund may use the performance of these
capital markets in order to demonstrate general risk-versus-reward investment
scenarios. Performance comparisons may also include the value of a hypothetical
investment in any of these capital markets. The risks associated with the
security types in any capital market may or may not correspond directly to those
of the Fund. The Fund may also compare performance to that of other compilations
or indices that may be developed and made available in the future.
The Fund may include discussions or illustrations of the potential
investment goals of a prospective investor (including materials that describe
general principles of investing, such as asset allocation, diversification, risk
tolerance, and goal setting, questionnaires designed to help create a personal
financial profile, worksheets used to project savings needs based on assumed
rates of inflation and hypothetical rates of return and action plans offering
investment alternatives), investment management techniques, policies or
investment suitability of the Fund (such as value investing, market timing,
dollar cost averaging, asset allocation, constant ratio transfer, automatic
account rebalancing, the advantages and disadvantages of investing in
tax-deferred and taxable investments or global or international investments),
economic and political conditions, the relationship between sectors of the
economy and the economy as a whole, the effects of inflation and historical
performance of various asset classes, including but not limited to, stocks,
bonds and Treasury bills. From time to time advertisements, sales literature,
communications to shareholders or other materials may summarize the substance of
information contained in shareholder reports (including the investment
composition of the Fund), as well as the views as to current market, economic,
trade and interest rate trends, legislative, regulatory and monetary
developments, investment strategies and related matters believed to be of
relevance to the Fund. In addition, selected indices may be used to illustrate
historic performance of selected asset classes. The Fund may also include in
advertisements, sales literature, communications to shareholders or other
materials, charts, graphs or drawings which illustrate the potential risks and
rewards of investment in various investment vehicles, including but not limited
to, domestic and international stocks, and/or bonds, treasury bills and shares
of the Fund. In addition, advertisements, sales literature, communications to
shareholders or other materials may include a discussion of certain attributes
or benefits to be derived by an investment in the Fund and/or other mutual
funds, shareholder profiles and hypothetical investor scenarios, timely
information on financial management, tax and retirement planning (such as
information on Roth IRAs and Educational IRAs) and investment alternatives to
certificates of deposit and other financial instruments. Such sales literature,
communications to shareholders or other materials may include symbols, headlines
or other material which highlight or summarize the information discussed in more
detail therein.
-22-
<PAGE>
Materials may refer to the CUSIP numbers of the Fund and may illustrate
how to find the listings of the Fund in newspapers and periodicals. Materials
may also include discussions of other Fund products and services.
The Fund may quote various measures of volatility and benchmark
correlation in advertising. In addition, the Fund may compare these measures to
those of other funds. Measures of volatility seek to compare the historical
share price fluctuations or total returns to those of a benchmark. Measures of
benchmark correlation indicate how valid a comparative benchmark may be.
Measures of volatility and correlation may be calculated using averages of
historical data. The Fund may advertise its current interest rate sensitivity,
duration, weighted average maturity or similar maturity characteristics.
Advertisements and sales materials relating to the Fund may include information
regarding the background and experience of its portfolio managers.
The following tables present examples, for purposes of illustration
only, of cumulative total return performance for each Class through December 31,
1997. For these purposes, the calculations reflect maximum sales charges, if
any, and assume the reinvestment of any capital gains distributions and income
dividends paid during the indicated periods. The performance does not reflect
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 the purchase of shares but may also be
shown without reflecting the impact of any front-end sales charge. The
performance of Class B Shares and Class C Shares is calculated both with the
applicable CDSC included and excluded.
The net asset value of a Class fluctuates so shares, when redeemed, may
be worth more or less than the original investment, and a Class' results should
not be considered as representative of future performance.
-23-
<PAGE>
Cumulative Total Return
National High Yield Municipal Bond Fund(3)
<TABLE>
<CAPTION>
Class A Class B Class B Class C Class C
Shares Shares Shares Shares Shares
--------- ---------- ----------- ---------- --------
(at offer) (including (excluding (including (excluding
CDSC)(2) CDSC) CDSC)(2) CDSC)
<S> <C> <C> <C> <C> <C> <C> <C>
3 months 3 months 3 months
ended ended ended
12/31/97 (0.95%) 12/31/97 (1.34%) 2.66% 12/31/97 1.76% 2.76%
6 months 6 months 6 months
ended ended ended
12/31/97 1.86%(4) 12/31/97 1.53% 5.53% 12/31/97 4.63% 5.63%
Period
9 months 9 months 5/26/97(1)
ended ended through
12/31/97 4.83% 12/31/97 4.36% 8.36% 12/31/97 5.88% 6.88%
1 year 1 year
ended ended
12/31/97 6.14% 12/31/97 5.57% 9.57%
Period
3 years 12/18/96(1)
ended through
12/31/97 30.07% 12/31/97 6.04% 10.04%
5 years
ended
12/31/97 41.20%
10 years
ended
12/31/97 123.57%
Period
9/22/86(1)
through
12/31/97 134.69%
</TABLE>
(1) Date of initial public offering.
(2) Beginning June 9, 1997, the CDSC schedule for Class B Shares changed as
follows: (i) 4% if shares are redeemed within two years of purchase; (ii) 3%
if shares are redeemed during the third or fourth year following purchase;
(iii) 2% if shares are redeemed during the fifth year following purchase;
and (iv) 1% if shares are redeemed during the sixth year following purchase.
The above figures have been calculated using this new schedule.
(3) Reflects voluntary waivers in effect during the period(s).
(4) For the six months ended December 31, 1997, cumulative total return for
Class A Shares at net asset value was 5.83%.
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<PAGE>
Because every investor's goals and risk threshold are different, the
Distributor, as distributor for the Fund and other mutual funds available from
the Delaware Investments family, will provide general information about
investment alternatives and scenarios that will allow investors to assess their
personal goals. This information will include general material about investing
as well as materials reinforcing various industry-accepted principles of prudent
and responsible personal financial planning. One typical way of addressing these
issues is to compare an individual's goals and the length of time the individual
has to attain these goals to his or her risk threshold. In addition, the
Distributor will provide information that discusses the Manager's overriding
investment philosophy and how that philosophy impacts the Fund's, and other
funds in the Delaware Investments family, investment disciplines employed in
seeking their objectives. The Distributor may also from time to time cite
general or specific information about the institutional clients of the Manager,
including the number of such clients serviced by the Manager.
Dollar-Cost Averaging
For many people, deciding when to invest can be a difficult decision.
Security prices tend to move up and down over various market cycles and logic
says to invest when prices are low. However, even experts can't always pick the
highs and the lows. By using a strategy known as dollar-cost averaging, you
schedule your investments ahead of time. If you invest a set amount on a regular
basis, that money will always buy more shares when the price is low and fewer
when the price is high. You can choose to invest at any regular interval--for
example, monthly or quarterly--as long as you stick to your regular schedule.
Dollar-cost averaging looks simple and it is, but there are important things to
remember.
Dollar-cost averaging works best over longer time periods, and it doesn't
guarantee a profit or protect against losses in declining markets. If you need
to sell your investment when prices are low, you may not realize a profit no
matter what investment strategy you utilize. That's why dollar-cost averaging
can make sense for long-term goals. Since the potential success of a dollar-cost
averaging program depends on continuous investing, even through periods of
fluctuating prices, you should consider your dollar-cost averaging program a
long-term commitment and invest an amount you can afford and probably won't need
to withdraw. You also should consider your financial ability to continue to
purchase shares during periods of high fund share prices. Delaware Investments
offers three services -- Automatic Investing Plan, Direct Deposit Purchase Plan
and the Wealth Builder Option --that can help to keep your regular investment
program on track. See Investing by Electronic Fund Transfer -Direct Deposit
Purchase Plan, Automatic Investing Plan and Wealth Builder Option under
Investment Plans for a complete description of these services, including
restrictions or limitations.
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The example below illustrates how dollar-cost averaging can work. In a
fluctuating market, the average cost per share over a period of time will be
lower than the average price per share for the same time period.
Number
Investment Price Per of Shares
Amount Share Purchased
Month 1 $100 $10.00 10
Month 2 $100 $12.50 8
Month 3 $100 $ 5.00 20
Month 4 $100 $10.00 10
--------------------------------------------------------------
$400 $37.50 48
Total Amount Invested: $400
Total Number of Shares Purchased: 48
Average Price Per Share: $9.38 ($37.50/4)
Average Cost Per Share: $8.33 ($400/48 shares)
This example is for illustration purposes only. It is not intended to
represent the actual performance of any stock or bond fund in the Delaware
Investments family.
THE POWER OF COMPOUNDING
When you opt to reinvest your current income for additional Fund
shares, your investment is given yet another opportunity to grow. It's called
the Power of Compounding. The Fund may include illustrations showing the power
of compounding in advertisements and other types of literature.
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TRADING PRACTICES AND BROKERAGE
Fund transactions are executed by the Manager on behalf of the Fund in
accordance with the standards described below.
Brokers, dealers and banks are selected to execute transactions for the
purchase or sale of portfolio securities on the basis of the Manager's judgment
of their professional capability to provide the service. The primary
consideration is to have brokers, dealers or banks execute transactions at best
price and execution. Best price and execution refers to many factors, including
the price paid or received for a security, the commission charged, the
promptness and reliability of execution, the confidentiality and placement
accorded the order and other factors affecting the overall benefit obtained by
the account on the transaction. Trades are generally made on a net basis where
securities are either bought or sold directly from or to a broker, dealer or
bank. In these instances, there is no direct commission charged, but there is a
spread (the difference between the buy and sell price) which is the equivalent
of a commission. When a commission is paid, the Fund pays reasonably competitive
brokerage commission rates based upon the professional knowledge of its trading
department as to rates paid and charged for similar transactions throughout the
securities industry. In some instances, the Fund pays a minimal share
transaction cost when the transaction presents no difficulty.
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.
As provided in the Securities Exchange Act of 1934 (the "1934 Act") and
the Fund's Investment Management Agreement, higher commissions are permitted to
be paid to broker/dealers who provide brokerage and research services than to
broker/dealers who do not provide such services, if such higher commissions are
deemed reasonable in relation to the value of the brokerage and research
services provided. Although transactions are directed to broker/dealers who
provide such brokerage and research services, Mutual Funds, Inc. believes that
the commissions paid to such broker/dealers are not, in general, higher than
commissions that would be paid to broker/dealers not providing such services and
that such commissions are reasonable in relation to the value of the brokerage
and research services provided. In some instances, services may be provided to
the Manager which constitute in some part brokerage and research services used
by the Manager in connection with its investment decision-making process and
constitute in some part services used by the Manager in connection with
administrative or other functions not related to its investment decision-making
process. In such cases, the Manager will make a good faith allocation of
brokerage and research services and will pay out of its own resources for
services used by the Manager in connection with administrative or other
functions not related to its investment decision-making process. In addition, so
long as no fund is disadvantaged, portfolio transactions which generate
commissions or their equivalent are allocated to broker/dealers who provide
daily portfolio pricing services to the Fund and to other funds available from
the Delaware Investments family. Subject to best price and execution,
commissions allocated to brokers providing such pricing services may or may not
be generated by the funds receiving the pricing service.
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The Manager may place a combined order for two or more accounts or
funds engaged in the purchase or sale of the same security if, in its judgment,
joint execution is in the best interest of each participant and will result in
best price and execution. Transactions involving commingled orders are allocated
in a manner deemed equitable to each account or fund. When a combined order is
executed in a series of transactions at different prices, each account
participating in the order may be allocated an average price obtained from the
executing broker. It is believed that the ability of the accounts to participate
in volume transactions will generally be beneficial to the accounts and funds.
Although it is recognized that, in some cases, the joint execution of orders
could adversely affect the price or volume of the security that a particular
account or fund may obtain, it is the opinion of the Manager and Mutual Funds,
Inc.'s Board of Directors that the advantages of combined orders outweigh the
possible disadvantages of separate transactions.
Consistent with the Conduct Rules of the National Association of
Securities Dealers, Inc. (the "NASD"), and subject to seeking best price and
execution, the Manager may place orders with broker/dealers that have agreed to
defray certain expenses of the funds available from the Delaware Investments
family, such as custodian fees, and may, at the request of the Distributor, give
consideration to sales of shares of such funds as a factor in the selection of
brokers and dealers to execute portfolio transactions.
Portfolio Turnover
Portfolio trading will be undertaken principally to accomplish the
Fund's objective in relation to anticipated movements in the general level of
interest rates. The Fund is free to dispose of portfolio securities at any time,
subject to complying with the Code and the 1940 Act, when changes in
circumstances or conditions make such a move desirable in light of the
investment objective. The Fund will not attempt to achieve or be limited to a
predetermined rate of portfolio turnover, such a turnover always being
incidental to transactions undertaken with a view to achieving the Fund's
investment objective. However, it is generally anticipated that the Fund's
portfolio turnover rate will be less than 100%.
The degree of portfolio activity may affect brokerage costs of the Fund
and taxes payable by the Fund's shareholders to the extent of any net realized
capital gains. The Fund's portfolio turnover rate is not expected to exceed
100%; however, under certain market conditions the Fund may experience a rate of
portfolio turnover which could exceed 100%. The Fund's portfolio turnover rate
is calculated by dividing the lesser of purchases or sales of portfolio
securities for the particular fiscal year by the monthly average of the value of
the portfolio securities owned by the Fund during the particular fiscal year,
exclusive of securities whose maturities at the time of acquisition are one year
or less. A turnover rate of 100% would occur, for example, if all the
investments in the Fund's portfolio at the beginning of the year were replaced
by the end of the year.
The Fund's portfolio turnover rates were 8% for the fiscal year ended
July 31, 1995, 0% for the fiscal year ended July 31, 1996, 8% for the period
August 1, 1996 through December 31, 1996 and 45% for the fiscal year ended
December 31, 1997.
The Fund may hold securities for any period of time. The Fund's
portfolio turnover will be increased if the Fund writes a large number of call
options which are subsequently exercised. The portfolio turnover rate also may
be affected by cash requirements from redemptions and repurchases of Fund
shares. Total brokerage costs generally increase with higher portfolio turnover
rates.
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PURCHASING SHARES
The Distributor serves as the national distributor for the Fund's
shares - Class A Shares, Class B Shares and Class C Shares, and has agreed to
use its best efforts to sell shares of the Fund. See the Prospectus for
information on how to invest. Shares of the Fund are offered on a continuous
basis, and may be purchased through authorized investment dealers or directly by
contacting Mutual Funds, Inc. or the Distributor.
The minimum initial investment generally is $1,000 for Class A Shares,
Class B Shares and Class C Shares. Subsequent purchases of such classes
generally must be at least $100. The initial and subsequent minimum investments
for Class A Shares will be waived for purchases by officers, directors and
employees of any fund in the Delaware Investments family, the Manager or any of
the its affiliates if the purchases are made pursuant to a payroll deduction
program. Shares purchased pursuant to the Uniform Gifts to Minors Act or Uniform
Transfers to Minors Act and shares purchased in connection with an Automatic
Investing Plan are subject to a minimum initial purchase of $250 and a minimum
subsequent purchase of $25. Accounts opened under the Asset Planner service are
subject to a minimum initial investment of $2,000 per Asset Planner Strategy
selected.
Each purchase of Class B Shares is subject to a maximum purchase
limitation of $250,000. For Class C Shares, each purchase must be in an amount
that is less than $1,000,000. Mutual Funds, Inc. will reject any purchase order
for more than $250,000 of Class B Shares and $1,000,000 or more of Class C
Shares. An investor may exceed these limitations by making cumulative purchases
over a period of time. An investor should keep in mind, however, that reduced
front-end sales charges apply to investments of $100,000 or more in Class A
Shares, and that Class A Shares are subject to lower annual 12b-1 Plan expenses
than Class B Shares and Class C Shares and generally are not subject to a CDSC.
Selling dealers are responsible for transmitting orders promptly.
Mutual Funds, Inc. reserves the right to reject any order for the purchase of
shares of the Fund if in the opinion of management such rejection is in the
Fund's best interests.
The NASD has adopted amendments to its Conduct Rules, as amended,
relating to investment company sales charges. Mutual Funds, Inc. and the
Distributor intend to operate in compliance with these rules.
Class A Shares are purchased at the offering price which reflects a
maximum front-end sales charge of 3.75%; however, lower front-end sales charges
apply for larger purchases. Class A Shares are also subject to annual 12b-1 Plan
expenses.
Class B Shares are purchased at net asset value and are subject to a
CDSC of: (i) 4% if shares are redeemed within two years of purchase; (ii) 3% if
shares are redeemed during the third or fourth year following purchase; (iii) 2%
if shares are redeemed during the fifth year following purchase; (iv) 1% if
shares are redeemed during the sixth year following purchase; and (v) 0%
thereafter. Class B Shares are also subject to annual 12b-1 Plan expenses which
are higher than those to which Class A Shares are subject and are assessed
against Class B Shares for approximately eight years after purchase. Class B
Shares will automatically convert to Class A Shares at the end of approximately
eight years after purchase and, thereafter, be subject to annual 12b-1 Plan
expenses of up to a maximum of 0.25% of average daily net assets of such shares.
See Automatic Conversion of Class B Shares under Classes of Shares in the
Prospectus.
Class C Shares are purchased at net asset value and are subject to a
CDSC of 1% if shares are redeemed within 12 months following purchase. Class C
Shares are also subject to annual 12b-1 Plan expenses for the life of the
investment which are equal to those to which Class B Shares are subject. Unlike
Class B Shares, Class C Shares do not convert to another class.
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Class A Shares, Class B Shares and Class C Shares represent a
proportionate interest in a Fund's assets and will receive a proportionate
interest in that Fund's income, before application, as to Class A Shares, Class
B Shares and Class C Shares, of any expenses under that Fund's 12b-1 Plans.
Certificates representing shares purchased are not ordinarily issued in
the Class A Shares, unless a shareholder submits a specific request.
Certificates are not issued in the case of Class B Shares or Class C Shares.
However, purchases not involving the issuance of certificates are confirmed to
the investor and credited to the shareholder's account on the books maintained
by Delaware Service Company, Inc. (the "Transfer Agent"). The investor will have
the same rights of ownership with respect to such shares as if certificates had
been issued. An investor that is permitted to obtain a certificate may receive a
certificate representing full share denominations purchased by sending a letter
signed by each owner of the account to the Transfer Agent requesting the
certificate. No charge is assessed by Mutual Funds, Inc. for any certificate
issued. A shareholder may be subject to fees for replacement of a lost or stolen
certificate under certain conditions, including the cost of obtaining a bond
covering the lost or stolen certificate. Please contact the Fund for further
information. Investors who hold certificates representing any of their shares
may only redeem those shares by written request. The investor's certificate(s)
must accompany such request.
Alternative Purchase Arrangements
The alternative purchase arrangements of Class A Shares, Class B Shares
and Class C Shares of the Fund permit investors to choose the method of
purchasing shares that is most suitable for their needs given the amount of
their purchase, the length of time they expect to hold their shares and other
relevant circumstances. Investors should determine whether, given their
particular circumstances, it is more advantageous to purchase Class A Shares of
a Fund and incur a front-end sales charge and annual 12b-1 Plan expenses of up
to a maximum of 0.25% of the average daily net assets of Class A Shares or to
purchase either Class B or Class C Shares of a Fund and have the entire initial
purchase amount invested in the Fund with the investment thereafter subject to a
CDSC and annual 12b-1 Plan expenses.
Class A Shares
Purchases of $100,000 or more of Class A Shares at the offering price
carry reduced front-end sales charges and may include a series of purchases over
a 13-month period under a Letter of Intention signed by the purchaser. See
Front-End Sales Charge Alternative - Class A Shares in the Prospectus for a
table illustrating reduced front-end sales charges. See also Special Purchase
Features -- Class A Shares, below, for more information on ways in which
investors can avail themselves of reduced front-end sales charges and other
purchase features.
Certain dealers who enter into an agreement to provide extra training
and information on the Delaware Investments family's products and services and
who increase sales of funds in the Delaware Investments family may receive an
additional commission of up to 0.15% of the offering price in connection with
sales of Class A Shares. Such dealers must meet certain requirements in terms of
organization and distribution capabilities and their ability to increase sales.
The Distributor should be contacted for further information on these
requirements as well as the basis and circumstances upon which the additional
commission will be paid. Participating dealers may be deemed to have additional
responsibilities under the securities laws.
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.
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Contingent Deferred Sales Charge - Class B Shares and Class C Shares
Class B Shares and Class C Shares are purchased without a front-end
sales charge. Class B Shares redeemed within six years of purchase may be
subject to a CDSC at the rates set forth above, and Class C Shares redeemed
within 12 months of purchase may be subject to a CDSC of 1%. CDSCs are charged
as a percentage of the dollar amount subject to the CDSC. The charge will be
assessed on an amount equal to the lesser of the net asset value at the time of
purchase of the shares being redeemed or the net asset value of those shares at
the time of redemption. No CDSC will be imposed on increases in net asset value
above the initial purchase price, nor will a CDSC be assessed on redemptions of
shares acquired through reinvestment of dividends or capital gains
distributions. See Waiver of Contingent Deferred Sales Charge - Class B Shares
and Class C Shares under Redemption and Exchange in the Prospectus for a list of
the instances in which the CDSC is waived. During the seventh year after
purchase and, thereafter, until converted automatically into Class A Shares,
Class B Shares will still be subject to the annual 12b-1 Plan expenses of up to
1% of average daily net assets of those shares. At the end of approximately
eight years after purchase, the investor's Class B Shares will be automatically
converted into Class A Shares of the Fund. See Automatic Conversion of Class B
Shares under Classes of Shares in the Prospectus. Such conversion will
constitute a tax-free exchange for federal income tax purposes. See Taxes in the
Prospectus.
Plans Under Rule 12b-1
Pursuant to Rule 12b-1 under the 1940 Act, Mutual Funds, Inc. has
adopted a separate plan for each of the Class A Shares, Class B Shares and Class
C Shares of the Fund (the "Plans"). Each Plan permits the Fund to pay for
certain distribution, promotional and related expenses involved in the marketing
of only the class of shares to which the Plan applies. Such shares are not
included in calculating the Plans' fees.
The Plans permit the Fund, pursuant to its Distribution Agreement, to
pay out of the assets of Class A Shares, Class B Shares and Class C Shares
monthly fees to the Distributor for its services and expenses in distributing
and promoting sales of shares of such classes. These expenses include, among
other things, preparing and distributing advertisements, sales literature and
prospectuses and reports used for sales purposes, compensating sales and
marketing personnel, and paying distribution and maintenance fees to securities
brokers and dealers who enter into agreements with the Distributor. The Plan
expenses relating to Class B Shares and Class C Shares are also used to pay the
Distributor for advancing the commission costs to dealers with respect to the
initial sale of such shares.
In addition, the Fund may make payments out of the assets of Class A
Shares, Class B Shares and Class C Shares directly to other unaffiliated
parties, such as banks, who either aid in the distribution of shares of, or
provide services to, such classes.
The maximum aggregate fee payable by the Fund under its Plans, and the
Fund's Distribution Agreement, is on an annual basis, up to 0.25% of average
daily net assets of Class A Shares, and up to 1% (0.25% of which are service
fees to be paid to the Distributor, dealers and others for providing personal
service and/or maintaining shareholder accounts) of each of the Class B Shares'
and Class C Shares' average daily net assets for the year.
Mutual Funds, Inc.'s Board of Directors may reduce these amounts at any time.
All of the distribution expenses incurred by the Distributor and
others, such as broker/dealers, in excess of the amount paid on behalf of Class
A Shares, Class B Shares and Class C Shares would be borne by such persons
without any payment from the Classes. Subject to seeking best price and
execution, the Fund may, from time to time, buy or sell portfolio securities
from or to firms which receive payments under the Plans. From time to time, the
Distributor may pay additional amounts from its own resources to dealers for aid
in distribution or for aid in providing administrative services to shareholders.
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The Plans and the Distribution Agreement, as amended, have all been
approved by the Board of Directors of Mutual Funds, Inc., including a majority
of the directors who are not "interested persons" (as defined in the 1940 Act)
of Mutual Funds, Inc. and who have no direct or indirect financial interest in
the Plans, by vote cast in person at a meeting duly called for the purpose of
voting on the Plans and such Agreements. Continuation of the Plans and the
Distribution Agreements, as amended, must be approved annually by the Board of
Directors in the same manner as specified above.
Each year, the directors must determine whether continuation of the
Plans is in the best interest of shareholders of, respectively, Class A Shares,
Class B Shares and Class C Shares of the Fund and that there is a reasonable
likelihood of the Plan relating to a Class providing a benefit to that Class.
The Plans and the Distribution Agreement, as amended, may be terminated with
respect to a Class at any time without penalty by a majority of those directors
who are not "interested persons" or by a majority vote of the relevant Class'
outstanding voting securities. Any amendment materially increasing the
percentage payable under the Plans must likewise be approved by a majority vote
of the relevant Class' outstanding voting securities, as well as by a majority
vote of those directors who are not "interested persons." With respect to the
Class A Shares' Plan, any material increase in the maximum percentage payable
thereunder must also be approved by a majority of the outstanding voting
securities of the Fund's B Class. Also, any other material amendment to the
Plans must be approved by a majority vote of the directors including a majority
of the noninterested directors of Mutual Funds, Inc. having no interest in the
Plans. In addition, in order for the Plans to remain effective, the selection
and nomination of directors who are not "interested persons" of Mutual Funds,
Inc. must be effected by the directors who themselves are not "interested
persons" and who have no direct or indirect financial interest in the Plans.
Persons authorized to make payments under the Plans must provide written reports
at least quarterly to the Board of Directors for their review.
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For the fiscal year ended December 31, 1997, payments from Class A
Shares, Class B Shares and Class C Shares of the Fund amounted to $135,032,
$13,244 and $3,239, respectively. For the period May 1, 1997 through December
31, 1997, such amounts were used for the following purposes:
<TABLE>
<CAPTION>
A Class B Class C Class
<S> <C> <C> <C>
Advertising -- -- --
Annual/Semi-Annual Reports $1,160 -- --
Broker Trails $97,453 $2,686 $ 323
Broker Sales Charges -- $4,512 $1,639
Dealer Service Expenses -- $70 $ 44
Interest on Broker Sales Charges -- $3,914 $ 887
Commissions to Wholesalers -- $712 $ 74
Promotional-Broker Meetings -- $53 $ 12
Promotional-Other $607 -- --
Prospectus Printing -- -- --
Telephone -- $11 $ 3
Wholesaler Expenses -- $80 $ 79
Other -- -- --
</TABLE>
Other Payments to Dealers -- Class A Shares, Class B Shares and Class C Shares
From time to time, at the discretion of the Distributor, all
registered broker/dealers whose aggregate sales of Fund Classes exceed certain
limits as set by the Distributor, may receive from the Distributor an additional
payment of up to 0.25% of the dollar amount of such sales. The Distributor may
also provide additional promotional incentives or payments to dealers that sell
shares of fund share in the Delaware Investments family. In some instances,
these incentives or payments may be offered only to certain dealers who
maintain, have sold or may sell certain amounts of shares. The Distributor may
also pay a portion of the expense of preapproved dealer advertisements promoting
the sale fund shares in the Delaware Investments family.
Special Purchase Features--Class A Shares
Buying Class A Shares at Net Asset Value
Class A Shares may be purchased without a front-end sales charge under
the Dividend Reinvestment Plan and, under certain circumstances, the Exchange
Privilege and the 12-Month Reinvestment Privilege.
Current and former officers, directors and employees of Mutual Funds,
Inc., any other fund in the Delaware Investments family, the Manager or any of
the Manager's affiliates and those that may in the future be created, legal
counsel to the funds, and registered representatives and employees of
broker/dealers who have entered into Dealer's Agreements with the Distributor
may purchase Class A Shares of the Fund and any such class of shares of any of
the other funds available from the Delaware Investments family, including any
fund that may be created, at the net asset value per share. Family members
(regardless of age) of such persons at their direction, and any employee benefit
plan established by any of the foregoing funds, corporations, counsel or
broker/dealers may also purchase Class A Shares at net asset value. Class A
Shares may also be purchased at net asset value by current and former officers,
directors and employees (and members of their families) of the Dougherty
Financial Group LLC. Purchases of Class A Shares may also be made by clients of
registered representatives of an authorized investment dealer at net asset value
within 12 months after 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
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concerning sales of shares of funds in the Delaware Investments family.
Officers, directors and key employees of institutional clients of the Manager or
any of its affiliates may purchase Class A Shares at net asset value. Moreover,
purchases may be effected at net asset value for the benefit of the clients of
brokers, dealers and registered investment advisers affiliated with a broker or
dealer, if such broker, dealer or investment adviser has entered into an
agreement with the Distributor providing specifically for the purchase of Class
A Shares in connection with special investment products, such as wrap accounts
or similar fee based programs.
Investors in Delaware Investments Unit Investment Trusts may reinvest
monthly dividend checks and/or repayment of invested capital into Class A Shares
of any of the funds available from the Delaware Investments family at net asset
value.
Mutual Funds, Inc. must be notified in advance that an investment
qualifies for purchase at net asset value.
Letter of Intention
The reduced front-end sales charges described above with respect to
Class A Shares are also applicable to the aggregate amount of purchases made
within a 13-month period pursuant to a written Letter of Intention provided by
the Distributor and signed by the purchaser, and not legally binding on the
signer or Mutual Funds, Inc., which provides for the holding in escrow by the
Transfer Agent of 5% of the total amount of Class A Shares intended to be
purchased until such purchase is completed within the 13-month period. A Letter
of Intention may be dated to include shares purchased up to 90 days prior to the
date the Letter is signed. The 13-month period begins on the date of the
earliest purchase. If the intended investment is not completed, except as noted
below, the purchaser will be asked to pay an amount equal to the difference
between the front-end sales charge on Class A Shares purchased at the reduced
rate and the front-end sales charge otherwise applicable to the total shares
purchased. If such payment is not made within 20 days following the expiration
of the 13-month period, the Transfer Agent will surrender an appropriate number
of the escrowed shares for redemption in order to realize the difference. Such
purchasers may include the value (at offering price at the level designated in
their Letter of Intention) of all their shares of the Fund and of any class of
any of the other mutual funds available from the Delaware Investments family
(except shares of any fund in the Delaware Investments family which do not carry
a front-end sales charge, CDSC or Limited CDSC, other than shares of Premium
Fund, Inc. beneficially owned in connection with the ownership of variable
insurance products, unless they were acquired through an exchange from a fund in
the Delaware Investments family which carried a front-end sales charge, CDSC or
Limited CDSC) previously purchased and still held as of the date of their Letter
of Intention toward the completion of such Letter.
Combined Purchases Privilege
In determining the availability of the reduced front-end sales charge
previously set forth with respect to Class A Shares, purchasers may combine the
total amount of any combination of Class A Shares, Class B Shares and/or Class C
Shares of the Fund, as well as shares of any other class of any of the other
funds in the Delaware Investments family (except shares of any fund in the
Delaware Investments family which do not carry a front-end sales charge, CDSC or
Limited CDSC, other than shares of Delaware Group Premium Fund, Inc.
beneficially owned in connection with the ownership of variable insurance
products, unless they were acquired through an exchange from a fund in the
Delaware Investments family which carried a front-end sales charge, CDSC or
Limited CDSC). In addition, assets held by investment advisory clients of the
Manager or its affiliates in any stable value account may be combined with other
fund holdings in the Delaware Investments family.
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).
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Right of Accumulation
In determining the availability of the reduced front-end sales charge
with respect to Class A Shares, purchasers may also combine any subsequent
purchases of Class A Shares, Class B Shares and Class C Shares of a Fund, as
well as shares of any other class of any of the other funds in the Delaware
Investments family which offer such classes (except shares of any fund in the
Delaware Investments family which do not carry a front-end sales charge, CDSC or
Limited CDSC, other than shares of Delaware Group Premium Fund, Inc.
beneficially owned in connection with the ownership of variable insurance
products, unless they were acquired through an exchange from a fund in the
Delaware Investments family which carried a front-end sales charge, CDSC or
Limited CDSC). If, for example, any such purchaser has previously purchased and
still holds Class A Shares and/or shares of any other of the classes described
in the previous sentence with a value of $40,000 and subsequently purchases
$60,000 at offering price of additional shares of Class A Shares, the charge
applicable to the $60,000 purchase would currently be 3.00%. For the purpose of
this calculation, the shares presently held shall be valued at the public
offering price that would have been in effect were the shares purchased
simultaneously with the current purchase. Investors should refer to the table of
sales charges for Class A Shares in the Prospectus to determine the
applicability of the Right of Accumulation to their particular circumstances.
12-Month Reinvestment Privilege
Holders of Class A Shares of the Fund who redeem such shares have one
year from the date of redemption to reinvest all or part of their redemption
proceeds in Class A Shares of the Fund or in Class A Shares of any of the other
funds available from the Delaware Investments family, subject to applicable
eligibility and minimum purchase requirements, in states where shares of such
other funds may be sold, at net asset value without the payment of a front-end
sales charge. This privilege does not extend to Class A Shares where the
redemption of the shares triggered the payment of a Limited CDSC. Persons
investing redemption proceeds from direct investments in mutual funds available
from the Delaware Investments family offered without a front-end sales charge
will be required to pay the applicable sales charge when purchasing Class A
Shares. The reinvestment privilege does not extend to a redemption of either
Class B Shares or Class C Shares.
Any such reinvestment cannot exceed the redemption proceeds (plus any
amount necessary to purchase a full share). The reinvestment will be made at the
net asset value next determined after receipt of remittance. A redemption and
reinvestment could have income tax consequences. It is recommended that a tax
adviser be consulted with respect to such transactions. Any reinvestment
directed to a fund in which the investor does not then have an account will be
treated like all other initial purchases of a fund's shares. Consequently, an
investor should obtain and read carefully the prospectus for the fund in which
the investment is intended to be made before investing or sending money. The
prospectus contains more complete information about the fund, including charges
and expenses.
Investors should consult their financial advisers or the Transfer
Agent, which also serves as the Fund's shareholder servicing agent, about the
applicability of the Limited CDSC (see Contingent Deferred Sales Charge for
Certain Redemptions of Class A Shares Purchased at Net Asset Value under
Redemption and Exchange in the Prospectus) in connection with the features
described above.
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
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the respective Classes in which an investor has an account (based on the net
asset value of the Fund in effect on the reinvestment date) and will be credited
to the shareholder's account on that date. Confirmations of each dividend
payment from net investment income will be mailed to shareholders quarterly. A
confirmation of each distribution from realized securities profits, if any, will
be mailed to shareholders in the first quarter of the fiscal year.
Under the Reinvestment Plan/Open Account, shareholders may purchase
and add full and fractional shares to their plan accounts at any time either
through their investment dealers or by sending a check or money order to the
Fund Class. Such purchases, which must meet the minimum subsequent purchase
requirements set forth in the Prospectus and this Part B, are made for Class A
Shares at the public offering price and for Class B Shares and Class C Shares at
the net asset value, at the end of the day of receipt. A reinvestment plan may
be terminated at any time. This plan does not assure a profit nor protect
against depreciation in a declining market.
Reinvestment of Dividends in Other Funds in the Delaware Investments Family
Subject to applicable eligibility and minimum initial purchase
requirements and the limitations set forth below, holders of Class A Shares,
Class B Shares and Class C Shares may automatically reinvest dividends and/or
distributions in any of the mutual funds available from the Delaware Investments
family, including the Fund, in states where their shares may be sold. Such
investments will be at net asset value at the close of business on the
reinvestment date without any front-end sales charge or service fee. The
shareholder must notify the Transfer Agent in writing and must have established
an account in the fund into which the dividends and/or distributions are to be
invested. Any reinvestment directed to a fund in which the investor does not
then have an account will be treated like all other initial purchases of a
fund's shares. Consequently, an investor should obtain and read carefully the
prospectus for the fund in which the investment is intended to be made before
investing or sending money. The prospectus contains more complete information
about the fund, including charges and expenses. See also Additional Methods of
Adding to Your Investment - Dividend Reinvestment Plan under How to Buy Shares
in the Prospectus.
Subject to the following limitations, dividends and/or distributions
from other funds available from the Delaware Investments family may be invested
in shares of the Fund, provided an account has been established. Dividends from
Class A Shares may not be directed to Class B Shares or Class C Shares.
Dividends from Class B Shares may only be directed to other Class B Shares and
dividends from Class C Shares may only be directed to other Class C Shares.
Investing by Electronic Fund Transfer
Direct Deposit Purchase Plan -- Investors may arrange for the Fund to
accept for investment in Class A Shares, Class B Shares or Class C Shares,
through an agent bank, preauthorized government or private recurring payments.
This method of investment assures the timely credit to the shareholder's account
of payments such as social security, veterans' pension or compensation benefits,
federal salaries, Railroad Retirement benefits, private payroll checks,
dividends, and disability or pension fund benefits. It also eliminates lost,
stolen and delayed checks.
Automatic Investing Plan -- Shareholders of Class A Shares, Class B
Shares and Class C Shares may make automatic investments by authorizing, in
advance, monthly payments directly from their checking account for deposit into
their Fund account. This type of investment will be handled in either of the
following ways. (1) If the shareholder's bank is a member of the National
Automated Clearing House Association ("NACHA"), the amount of the investment
will be electronically deducted from his or her account by Electronic Fund
Transfer ("EFT"). The shareholder's checking account will reflect a debit each
month at a specified date although no check is required to initiate the
transaction. (2) If the shareholder's bank is not a member of NACHA, deductions
will be made by
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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 the Fund from the federal government or its agencies on
behalf of a shareholder may be credited to the shareholder's account after such
payments should have been terminated by reason of death or otherwise. Any such
payments are subject to reclamation by the federal government or its agencies.
Similarly, under certain circumstances, investments from private sources may be
subject to reclamation by the transmitting bank. In the event of a reclamation,
the Fund may liquidate sufficient shares from a shareholder's account to
reimburse the government or the private source. In the event there are
insufficient shares in the shareholder's account, the shareholder is expected to
reimburse the Fund.
Direct Deposit Purchases by Mail
Shareholders may authorize a third party, such as a bank or employer,
to make investments directly to their Fund accounts. The Fund will accept these
investments, such as bank-by-phone, annuity payments and payroll allotments, by
mail directly from the third party. Investors should contact their employers or
financial institutions who in turn should contact Mutual Funds, Inc. for proper
instructions.
Wealth Builder Option
Shareholders can use the Wealth Builder Option to invest in the
Classes through regular liquidations of shares in their accounts in other mutual
funds available from the Delaware Investments family. Shareholders of the
Classes may elect to invest in one or more of the other mutual funds available
from the Delaware Investments family through the Wealth Builder Option. See
Wealth Builder Option and Redemption and Exchange in the Prospectus.
Under this automatic exchange program, shareholders can authorize
regular monthly investments (minimum of $100 per fund) to be liquidated from
their account and invested automatically into other mutual funds available from
the Delaware Investments family, subject to the conditions and limitations set
forth in the Prospectus. The investment will be made on the 20th day of each
month (or, if the fund selected is not open that day, the next business day) at
the public offering price or net asset value, as applicable, of the fund
selected on the date of investment. No investment will be made for any month if
the value of the shareholder's account is less than the amount specified for
investment.
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.
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Asset Planner
To invest in funds in the Delaware Investments family using the Asset
Planner asset allocation service, you should complete an Asset Planner Account
Registration Form, which is available only from a financial adviser or
investment dealer. Effective September 1, 1997, the Asset Planner Service is
only available to financial advisers or investment dealers who have previously
used this service. The Asset Planner service offers a choice of four predesigned
asset allocation strategies (each with a different risk/reward profile) in
predetermined percentages in funds in the Delaware Investments family. With the
help of a financial adviser, you may also design a customized asset allocation
strategy.
The sales charge on an investment through the Asset Planner service is
determined by the individual sales charges of the underlying funds and their
percentage allocation in the selected Strategy. Exchanges from existing accounts
in the Delaware Investments family into the Asset Planner service may be made at
net asset value under the circumstances described under Investing by Exchange in
the Prospectus. Also see Buying Class A Shares at Net Asset Value under Classes
of Shares. The minimum initial investment per Strategy is $2,000; subsequent
investments must be at least $100. Individual fund minimums do not apply to
investments made using the Asset Planner service. Class A Shares, Class B Shares
and Class C Shares are available through the Asset Planner service. Generally,
only shares within the same class may be used within the same Strategy. However,
Class A Shares of the Fund and of other funds available from the Delaware
Investments family may be used in the same Strategy with consultant class shares
that are offered by certain other funds in the Delaware Investments family.
An annual maintenance fee, currently $35 per Strategy, is due at the
time of initial investment and by September 30 of each subsequent year. The fee,
payable to Delaware Service Company, Inc. to defray extra costs associated with
administering the Asset Planner service, will be deducted automatically from one
of the funds within your Asset Planner account if not paid by September 30.
However, effective November 1, 1996, the annual maintenance fee is waived until
further notice. Investors who utilize the Asset Planner for an IRA will continue
to pay an annual IRA fee of $15 per Social Security number. Investors will
receive a customized quarterly Strategy Report summarizing all Asset Planner
investment performance and account activity during the prior period.
Confirmation statements will be sent following all transactions other than those
involving a reinvestment of distributions.
Certain shareholder services are not available to investors using the
Asset Planner service, due to its special design. These include Delaphone,
Checkwriting, Wealth Builder Option and Letter of Intention. Systematic
Withdrawal Plans are available after the account has been open for two years.
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DETERMINING OFFERING PRICE AND NET ASSET VALUE
Orders for purchases of Class A Shares are effected at the offering
price next calculated by the Fund in which shares are being purchased after
receipt of the order by the Fund, its agent or certain other authorized persons.
Orders for purchases of Class B Shares and Class C Shares are effected at the
net asset value per share next calculated by the Fund in which shares are being
purchased after receipt of the order by the Fund, its agent or certain other
authorized persons. Selling dealers are responsible for transmitting orders
promptly.
The offering price for Class A Shares consists of the net asset value
per share plus any applicable front-end sales charges. Offering price and net
asset value are computed as of the close of regular trading on the New York
Stock Exchange (ordinarily, 4 p.m., Eastern time) on days when the Exchange is
open. The New York Stock Exchange is scheduled to be open Monday through Friday
throughout the year except for New Year's Day, Martin Luther King, Jr.'s
Birthday, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving and Christmas. When the New York Stock Exchange is closed, the
Fund will generally be closed, pricing calculations will not be made and
purchase and redemption orders will not be processed.
An example showing how to calculate the net asset value per share and,
in the case of Class A Shares, the offering price per share, is included in the
Fund's financial statements which are incorporated by reference into this Part
B.
The Fund's net asset value per share is computed by adding the value
of all the Fund's securities and other assets, deducting any liabilities of the
Fund, and dividing by the number of Fund shares outstanding. Expenses and fees
are accrued daily. Portfolio securities, except for bonds, which are primarily
traded on a national or foreign securities exchange are valued at the last sale
price on that exchange. Options are valued at the last reported sales price or,
if no sales are reported, at the mean between bid and asked prices. Securities
not traded on a particular day, over-the-counter securities and government and
agency securities are valued at the mean value between bid and asked prices.
Money market instruments having a maturity of less than 60 days are valued at
amortized cost. Debt securities (other than short-term obligations) are valued
on the basis of valuations provided by a pricing service when such prices are
believed to reflect the fair value of such securities. Use of a pricing service
has been approved by the Board of Directors. Subject to the foregoing,
securities for which market quotations are not readily available and other
assets are valued at fair value as determined in good faith and in a method
approved by the Board of Directors.
Each Class of the Fund will bear, pro-rata, all of the common expenses
of the Fund. The net asset values of all outstanding shares of each Class of the
Fund will be computed on a pro-rata basis for each outstanding share based on
the proportionate participation in the Fund represented by the value of shares
of that Class. All income earned and expenses incurred by the Fund will be borne
on a pro-rata basis by each outstanding share of a Class, based on each Class'
percentage in the Fund represented by the value of shares of such Classes. Due
to the specific distribution expenses and other costs that may be allocable to
each Class, the dividends paid to each Class may vary.
However, the net asset value per share of each Class is expected to be
equivalent.
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REDEMPTION AND REPURCHASE
Any shareholder may require the Fund to redeem shares by sending a
written request, signed by the record owner or owners exactly as the shares are
registered, to the Fund at 1818 Market Street, Philadelphia, PA 19103. In
addition, certain expedited redemption methods described below are available
when stock certificates have not been issued. Certificates are issued for Class
A Shares only if a shareholder specifically requests them. Certificates are not
issued for Class B Shares or Class C Shares. If stock certificates have been
issued for shares being redeemed, they must accompany the written request. For
redemptions of $50,000 or less paid to the shareholder at the address of record,
the request must be signed by all owners of the shares or the investment dealer
of record, but a signature guarantee is not required. When the redemption is for
more than $50,000, or if payment is made to someone else or to another address,
signatures of all record owners are required and a signature guarantee may be
required. Each signature guarantee must be supplied by an eligible guarantor
institution. The Fund reserves the right to reject a signature guarantee
supplied by an eligible institution based on its creditworthiness. The Fund may
request further documentation from corporations, retirement plans, executors,
administrators, trustees or guardians.
In addition to redemption of Fund shares, the Distributor, acting as
agent of the Fund, offers to repurchase Fund shares from broker/dealers acting
on behalf of shareholders. The redemption or repurchase price, which may be more
or less than the shareholder's cost, is the net asset value per share next
determined after receipt of the request in good order by the Fund, or certain
other authorized persons, subject to any applicable CDSC or Limited CDSC. See
Distribution and Service under Investment Management Agreement. This is computed
and effective at the time the offering price and net asset value are determined.
See Determining Offering Price and Net Asset Value. The Fund and the Distributor
end their business days at 5 p.m., Eastern time. This offer is discretionary and
may be completely withdrawn without further notice by the Distributor.
Orders for the repurchase of Fund shares which are submitted to the
Distributor prior to the close of its business day will be executed at the net
asset value per share computed that day (subject to the applicable CDSC or
Limited CDSC), if the repurchase order was received by the broker/dealer from
the shareholder prior to the time the offering price and net asset value are
determined on such day. The selling dealer has the responsibility of
transmitting orders to the Distributor promptly. Such repurchase is then settled
as an ordinary transaction with the broker/dealer (who may make a charge to the
shareholder for this service) delivering the shares repurchased.
Certain redemptions of Class A Shares purchased at net asset value may
result in the imposition of a Limited CDSC. See Contingent Deferred Sales Charge
for Certain Redemptions of Class A Shares Purchased at Net Asset Value under
Redemption and Exchange in the Prospectus. Class B Shares are subject to a CDSC
of: (i) 4% if shares are redeemed within two years of purchase; (ii) 3% if
shares are redeemed during the third or fourth year following purchase; (iii) 2%
if shares are redeemed during the fifth year following purchase; (iv) 1% if
shares are redeemed during the sixth year following purchase; and (v) 0%
thereafter. Class C Shares are subject to a CDSC of 1% if shares are redeemed
within 12 months following purchase. See Contingent Deferred Sales Charge -
Class B Shares and Class C Shares under Classes of Shares in the Prospectus.
Except for the applicable CDSC or Limited CDSC and, with respect to the
expedited payment by wire described below for which, in the case of the Classes,
there is currently a $7.50 bank wiring cost, neither the Fund nor the Fund's
Distributor charges a fee for redemptions or repurchases, but such fees could be
charged at any time in the future.
Payment for shares redeemed will ordinarily be mailed the next
business day, but in no case later than seven days, after receipt of a
redemption request in good order; provided, however, that each commitment to
mail or wire redemption proceeds by a certain time, as described below, is
modified by the qualifications described in the next paragraph.
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The Fund will process written or telephone redemption requests to the
extent that the purchase orders for the shares being redeemed have already
settled. The Fund will honor redemption requests as to shares for which a check
was tendered as payment, but the Fund will not mail or wire the proceeds until
it is reasonably satisfied that the check has cleared. This potential delay can
be avoided by making investments by wiring Federal Funds.
If a shareholder has been credited with a purchase by a check which is
subsequently returned unpaid for insufficient funds or for any other reason, the
Fund will automatically redeem from the shareholder's account the shares
purchased by the check plus any dividends earned thereon. Shareholders may be
responsible for any losses to the Fund or to the Distributor.
In case of a suspension of the determination of the net asset value
because the New York Stock Exchange is closed for other than weekends or
holidays, or trading thereon is restricted or an emergency exists as a result of
which disposal by the Fund of securities owned by it is not reasonably
practical, or it is not reasonably practical for the Fund fairly to value its
assets, or in the event that the SEC has provided for such suspension for the
protection of shareholders, the Fund may postpone payment or suspend the right
of redemption or repurchase. In such case, the shareholder may withdraw the
request for redemption or leave it standing as a request for redemption at the
net asset value next determined after the suspension has been terminated.
Payment for shares redeemed or repurchased may be made either in cash
or kind, or partly in cash and partly in kind. Any portfolio securities paid or
distributed in kind would be valued as described in Determining Offering Price
and Net Asset Value. Subsequent sale by an investor receiving a distribution in
kind could result in the payment of brokerage commissions. However, Mutual
Funds, Inc. has elected to be governed by Rule 18f-1 under the 1940 Act pursuant
to which the Fund is obligated to redeem shares solely in cash up to the lesser
of $250,000 or 1% of the net asset value of the Fund during any 90-day period
for any one shareholder.
The value of the Fund's investments is subject to changing market
prices. Thus, a shareholder reselling shares to the Fund may sustain either a
gain or loss, depending upon the price paid and the price received for such
shares.
Small Accounts
Before the Fund involuntarily redeems shares from an account that,
under the circumstances noted in the Prospectus, has remained below the minimum
amounts required by the Prospectus and sends the proceeds to the shareholder,
the shareholder will be notified in writing that the value of the shares in the
account is less than the minimum required and will be allowed 60 days from the
date of notice to make an additional investment to meet the required minimum.
See The Conditions of Your Purchase under How to Buy Shares in the Prospectus.
Any redemption in an inactive account established with a minimum investment may
trigger mandatory redemption. No CDSC or Limited CDSC will apply to the
redemptions described in this paragraph.
* * *
The Fund has made available certain redemption privileges, as
described below. The Fund reserves the right to suspend or terminate these
expedited payment procedures upon 60 days' written notice to shareholders.
Expedited Telephone Redemptions
Shareholders of the Classes or their investment dealers of record
wishing to redeem any amount of shares of $50,000 or less for which certificates
have not been issued may call the Shareholder Service Center at 800-523- 1918
prior to the time the offering price and net asset value are determined, as
noted above, and have the proceeds mailed to them at the address of record.
Checks payable to the shareholder(s) of record will normally be
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mailed the next business day, but no later than seven days, after the receipt of
the redemption request. This option is only available to individual, joint and
individual fiduciary-type accounts.
In addition, redemption proceeds of $1,000 or more can be transferred
to your predesignated bank account by wire or by check by calling the phone
numbers listed above. An authorization form must have been completed by the
shareholder and filed with the Fund before the request is received. Payment will
be made by wire or check to the bank account designated on the authorization
form as follows:
1. Payment by Wire: Request that Federal Funds be wired to the bank
account designated on the authorization form. Redemption proceeds will normally
be wired on the next business day following receipt of the redemption request.
There is a $7.50 wiring fee (subject to change) charged by CoreStates Bank, N.A.
which will be deducted from the withdrawal proceeds each time the shareholder
requests a redemption. If the proceeds are wired to the shareholder's account at
a bank which is not a member of the Federal Reserve System, there could be a
delay in the crediting of the funds to the shareholder's bank account.
2. Payment by Check: Request a check be mailed to the bank account
designated on the authorization form. Redemption proceeds will normally be
mailed the next business day, but no later than seven days, from the date of the
telephone request. This procedure will take longer than the Payment by Wire
option (1 above) because of the extra time necessary for the mailing and
clearing of the check after the bank receives it.
Redemption Requirements: In order to change the name of the bank and
the account number it will be necessary to send a written request to the Fund
and a signature guarantee may be required. Each signature guarantee must be
supplied by an eligible guarantor institution. The Fund reserves the right to
reject a signature guarantee supplied by an eligible institution based on its
creditworthiness.
To reduce the shareholder's risk of attempted fraudulent use of the
telephone redemption procedure, payment will be made only to the bank account
designated on the authorization form.
If expedited payment under these procedures could adversely affect the
Fund, the Fund may take up to seven days to pay the shareholder.
Neither the Fund nor the Fund's Transfer Agent is responsible for any
shareholder loss incurred in acting upon written or telephone instructions for
redemption or exchange of Fund shares which are reasonably believed to be
genuine. With respect to such telephone transactions, the Fund will follow
reasonable procedures to confirm that instructions communicated by telephone are
genuine (including verification of a form of personal identification) as, if it
does not, the Fund or the Transfer Agent may be liable for any losses due to
unauthorized or fraudulent transactions. Telephone instructions received by
shareholders of the Fund Classes are generally tape recorded. A written
confirmation will be provided for all purchase, exchange and redemption
transactions initiated by telephone.
Systematic Withdrawal Plans
Shareholders of Class A Shares, Class B Shares and Class C Shares who
own or purchase $5,000 or more of shares at the offering price, or net asset
value, as applicable, for which certificates have not been issued may establish
a Systematic Withdrawal Plan for monthly withdrawals of $25 or more, or
quarterly withdrawals of $75 or more, although the Fund does not recommend any
specific amount of withdrawal. Shares purchased with the initial investment and
through reinvestment of cash dividends and realized securities profits
distributions will be credited to the shareholder's account and sufficient full
and fractional shares will be redeemed at the net asset value calculated on the
third business day preceding the mailing date.
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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 purchases of
additional shares may be disadvantageous to the shareholder. Purchases of Class
A Shares through a periodic investment program in a fund managed by the Manager
must be terminated before a Systematic Withdrawal Plan with respect to such
shares can take effect, except if the shareholder is investing in funds in the
Delaware Investments family which do not carry a sales charge. Redemptions of
Class A Shares pursuant to a Systematic Withdrawal Plan may be subject to a
Limited CDSC if the purchase was made at net asset value and a dealer's
commission has been paid on that purchase. Redemptions of Class B Shares or
Class C Shares pursuant to a Systematic Withdrawal Plan may be subject to a
CDSC, unless the annual amount selected to be withdrawn is less than 12% of the
account balance on the date that the Systematic Withdrawal Plan was established.
See Waiver of Contingent Deferred Sales Charge Class B Shares and Class C Shares
and Waiver of Limited Contingent Deferred Sales Charge - Class A Shares under
Redemption and Exchange in the Prospectus. Shareholders should consult their
financial advisers to determine whether a Systematic Withdrawal Plan would be
suitable for them.
An investor wishing to start a Systematic Withdrawal Plan must
complete an authorization form. If the recipient of Systematic Withdrawal Plan
payments is other than the registered shareholder, the shareholder's signature
on this authorization must be guaranteed. Each signature guarantee must be
supplied by an eligible guarantor institution. The Fund reserves the right to
reject a signature guarantee supplied by an eligible institution based on its
creditworthiness. This plan may be terminated by the shareholder or the Transfer
Agent at any time by giving written notice.
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DISTRIBUTIONS AND TAXES
The Fund declares a dividend to shareholders of each Class from net
investment income on a daily basis. Dividends are declared each day the Fund is
open and paid monthly. Net investment income earned on days when the Fund is not
open will be declared as a dividend on the next business day. Purchases of
shares of the Fund by wire begin earning dividends when converted into Federal
Funds and are available for investment, normally the next business day after
receipt. However, if the Fund is given prior notice of Federal Funds wire and an
acceptable written guarantee of timely receipt from an investor satisfying the
Fund's credit policies, the purchase will start earning dividends on the date
the wire is received. Investors desiring to guarantee wire payments must have an
acceptable financial condition and credit history in the sole discretion of the
Fund. Mutual Funds, Inc. reserves the right to terminate this option at any
time. Purchases by check earn dividends upon conversion to Federal Funds,
normally one business day after receipt.
Each Class of shares of the Fund will share proportionately in the
investment income and expenses of the Fund, except that Class A Shares, Class B
Shares and Class C Shares alone will incur distribution fees under their
respective 12b-1 Plans.
Dividends are automatically reinvested in additional shares of the
same Class of the respective Fund at net asset value, unless an election to
receive dividends in cash has been made. Payment by check of cash dividends will
ordinarily be mailed within three business days after the payable date. Dividend
payments of $1.00 or less will be automatically reinvested, notwithstanding a
shareholder's election to receive dividends in cash. If such a shareholder's
dividends increase to greater than $1.00, the shareholder would have to file a
new election in order to begin receiving dividends in cash again. If a
shareholder redeems an entire account, all dividends accrued to the time of the
withdrawal will be paid by separate check at the end of that particular monthly
dividend period, consistent with the payment and mailing schedule described
above. Any check in payment of dividends or other distributions which cannot be
delivered by the United States Post Office or which remains uncashed for a
period of more than one year may be reinvested in the shareholder's account at
the then-current net asset value and the dividend option may be changed from
cash to reinvest. The Fund may deduct from a shareholder's account the costs of
the Fund's effort to locate a shareholder if a shareholder's mail is returned by
the United States Post Office or the Fund is otherwise unable to locate the
shareholder or verify the shareholder's mailing address. These costs may include
a percentage of the account when a search company charges a percentage fee in
exchange for their location services.
Any distributions from net realized securities profits will be made
annually. Payments would be made during the first quarter of the next fiscal
year. Such distributions will be reinvested in shares, unless the shareholders
elect to receive them in cash. The Fund will mail a quarterly statement showing
the dividends paid and all the transactions made during the period.
Under the Taxpayer Relief Act of 1997 (the "1997 Act"), the Fund is
required to track its sales of portfolio securities and to report its capital
gain distributions to you according to the following categories of holding
periods:
"Pre-Act long-term capital gains" or "28 percent rate gain":
securities sold by the Fund before May 7, 1997, that were held for
more than 12 months. These gains will be taxable to individual
investors at a maximum rate of 28%.
"Mid-term capital gains" or "28 percent rate gain": securities sold by
the Fund after July 28, 1997 that were held more than one year but not
more than 18 months. These gains will be taxable to individual
investors at a maximum rate of 28%.
-44-
<PAGE>
"1997 Act long-term capital gains" or "20 percent rate gain":
securities sold by the Fund between May 7, 1997 and July 28, 1997 that
were held for more than 12 months, and securities sold by the Fund
after July 28, 1997 that were held for more than 18 months. 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 as though purchased after December 31, 2000. These gains will
be taxable to individual investors at a maximum rate of 18% for
investors in the 28% or higher federal income tax brackets, and at a
maximum rate of 8% for investors in the 15% federal income tax bracket
when sold after the 5 year holding period.
See also Accounting and Tax Issues.
-45-
<PAGE>
INVESTMENT MANAGEMENT AGREEMENT
The Manager, located at One Commerce Square, Philadelphia, PA 19103,
furnishes investment management services to the Fund, subject to the supervision
and direction of Mutual Funds, Inc.'s Board of Directors.
The Manager and its predecessors have been managing the funds in the
Delaware Investments family since 1938. On December 31, 1997, the Manager and
its affiliates within the Delaware Investments family, including Delaware
International Advisers Ltd., were managing in the aggregate more than $40
billion in assets in the various institutional or separately managed
(approximately $24,040,760,000) and investment company (approximately
$16,482,523,000) accounts.
Prior to May 1, 1997, Voyageur Fund Managers, Inc. ("Voyageur") had
been retained under an investment advisory contract to act as the Fund's
investment adviser, subject to the authority of the Board of Directors. Voyageur
was an indirect, wholly-owned subsidiary of Dougherty Financial Group, Inc.
("DFG"). After the close of business on April 30, 1997, Voyageur became an
indirect, wholly owned subsidiary of Lincoln National Corporation ("Lincoln
National") as a result of Lincoln National's acquisition of DFG. LNC,
headquartered in Fort Wayne, Indiana, owns and operates insurance and investment
management businesses, including Delaware Management Holding, Inc. ("DMH").
Affiliates of DMH serve as adviser, distributor and transfer agent for the
Delaware Investments family.
Because Lincoln National's acquisition of DFG resulted in a change of
control of Voyageur, the Fund's previous investment advisory agreement with
Voyageur was "assigned", as that term is defined by the 1940 Act, and the
previous agreements therefore terminated upon the completion of the acquisition.
The Board of Directors of Mutual Funds, Inc. unanimously approved new advisory
agreements at a meeting held in person on February 14, 1997, and called for a
shareholders meeting to approve the new agreement. At a meeting held on April
11, 1997, the shareholders of the Fund approved its Investment Management
Agreement with the Manager, an indirect wholly-owned subsidiary of LNC, to
become effective after the close of business on April 30, 1997, the date the
acquisition was completed. On May 30, 1997, Voyageur was merged into the Manager
and the Manager became the investment manager for the Fund.
The Investment Management Agreement into which the 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 by vote of a majority of the
outstanding voting securities of the Fund, and only if the terms and the renewal
thereof have been approved by the vote of a majority of the directors of Mutual
Funds, Inc. who are not parties thereto or interested persons of any such party,
cast in person at a meeting called for the purpose of voting on such approval.
The Agreement is terminable without penalty on 60 days' notice by the directors
of Mutual Funds, Inc. or by the Manager. The Agreement will terminate
automatically in the event of its assignment.
Under its Investment Management Agreement, the Fund pays the Manager
an annual fee equal to 0.65% of its average daily net assets.
Beginning June 9, 1997, the Manager has elected voluntarily to waive
that portion, if any, of the annual management fees payable by the Fund and to
pay certain expenses of the Fund to the extent necessary to ensure that the
Total Operating Expenses of Class A Shares, Class B Shares and Class C Shares of
the Fund (exclusive of taxes, interest, brokerage commissions, extraordinary
expenses but including 12b-1 fees) do not exceed, on an annual basis, 0.84%,
1.59% and 1.59%, respectively, through April 30, 1999.
-46-
<PAGE>
The Fund is responsible for all of its own expenses other than those
borne by the Manager under the Investment Management Agreement and those borne
by the Distributor under the Distribution Agreement. In connection with the
merger transaction described above, the Manager has agreed for a period of two
years ending on April 30, 1999, to pay the operating expenses (excluding
interest expense, taxes, brokerage fees, commissions and Rule 12b-1 fees) of the
Fund which exceed 1% of the Fund's average daily net assets on an annual basis
up to certain limits as set forth in this Part B. This agreement replaces a
similar provision in the Fund's investment advisory contracts with the Fund's
predecessor investment adviser.
On December 31, 1997, the total net assets of Mutual Funds, Inc. were
$242,960,530.
Investment management fees incurred by the Fund for the last 3 fiscal
years follow:
Period Incurred Paid Waived
Year Ended
December 31, 1997 $362,050 $208,295 $153,755
Period Ended
December 31, 1996 $140,548 $ 87,525 $ 53,023
Year Ended
July 31, 1996 $322,677 $249,467 $ 73,210
Year Ended
July 31, 1995 $342,193 $269,200 $ 72,993
Under the general supervision of the Board of Directors, the Manager
makes and executes all investment decisions for the Fund. The Manager pays the
salaries of all directors, officers and employees of Mutual Funds, Inc.
who are affiliated with the Manager. The Fund pays all of its other expenses.
Distribution and Service
The Distributor, Delaware Distributors, L.P., located at 1818 Market
Street, Philadelphia, PA 19103, serves as the national distributor of the Fund's
shares under a Distribution Agreement 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 the Fund on behalf of Class A, Class B and
Class C Shares under their respective 12b-1 Plans. The Distributor is an
indirect, wholly owned subsidiaries 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
the Fund's shareholder servicing, dividend disbursing and transfer agent
pursuant to an Amended and Restated Shareholders Services Agreement dated as of
April 30, 1997. The Transfer Agent also provides accounting services to the Fund
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 Fund has authorized one or more brokers to accept on its behalf
purchase and redemption orders in addition to the Transfer Agent. Such brokers
are authorized to designate other intermediaries to
-47-
<PAGE>
accept purchase and redemption orders on the behalf of the Fund. For purposes of
pricing, the Fund will be deemed to have received a purchase or redemption order
when an authorized broker or, if applicable, a broker's authorized designee,
accepts the order. Investors may be charged a fee when effecting transactions
through a broker or agent.
-48-
<PAGE>
OFFICERS AND DIRECTORS
The business and affairs of Mutual Funds, Inc. are managed under the
direction of its Board of Directors.
Certain officers and directors of Mutual Funds, Inc. hold identical
positions in each of the other funds in the Delaware Investments family. On
February 28, 1998, Mutual Funds, Inc.'s officers and directors owned less than
1% of the outstanding shares of each Class of the Fund.
As of February 28, 1998, management believes the following
shareholders held 5% or more of the outstanding shares of a Class:
<TABLE>
<CAPTION>
Class Name and Address of Account Share Amount Percentage
- ------ ----------------------------- ------------- -----------
<S> <C> <C> <C>
National High Yield Everen Clearing Corp. 401,788 7.25%
Municipal Bond Fund Juanita M. Daly
Class A Shares 111 East Kilbourn Avenue
Milwaukee, WI 53202
National High Yield Merrill Lynch, Pierce, Fenner & Smith 82,760 16.03%
Municipal Bond Fund For the Sole Benefit of its Customers
Class B Shares Attn: Fund Administration
4800 Deer Lake Drive East, Third Floor
Jacksonville, FL 32246
National High Yield PaineWebber for the benefit of 9,533 5.65%
Municipal Bond Fund Donald L. Barnett and Carrie J.
Class C Shares Barnett TEN COM
P.O. Box 25233
Houston, TX 77265
Merrill Lynch, Pierce, Fenner & Smith 89,972 53.28%
Attn: Fund Administration
4800 Deer Lake Drive East, Third Floor
Jacksonville, FL 32246
Wallace W. Blackburn TTEE 18,582 11.01%
FBO Wallace W. Blackburn
REV LIV TRUST
2574 Redwood Way
Clearwater, FL 33761
Dain Rauscher, Inc. 9,263 5.49%
FBO Mary V. Clark
1710 East Kincaid
Mount Vernon, WA 98274
</TABLE>
-49-
<PAGE>
DMH Corp., Delvoy, Inc., Delaware Management Company, Inc., 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 Corporation ("Lincoln National") was completed. DMH and the
Manager are now indirect, wholly owned subsidiaries, and subject to the ultimate
control, of Lincoln National. Lincoln National, with headquarters in Fort Wayne,
Indiana, is a diversified organization with operations in many aspects of the
financial services industry, including insurance and investment management.
As noted under Investment Management Agreement, after the close of
business on April 30, 1997, Voyageur became an indirect wholly-owned subsidiary
of Lincoln National as a result of Lincoln National's acquisition of DGF.
Certain officers and directors of Mutual Funds, Inc. hold identical
positions in each of the other funds available from the Delaware Investments
family. Directors and principal officers of Mutual Funds, Inc. are noted below
along with their ages and their business experience for the past five years.
Unless otherwise noted, the address of each officer and director is One Commerce
Square, Philadelphia, PA 19103.
-50-
<PAGE>
*Wayne A. Stork (60)
Chairman and Director of Mutual Funds, Inc., 33 other investment
companies in the Delaware Investments family and Delaware
Capital Management, Inc.
Chairman, President, Chief Executive Officer and Director of DMH Corp.,
Delaware Distributors, Inc. and Founders Holdings, Inc.
Chairman,President, Chief Executive Officer, Chief Investment Officer
and Director/Trustee of Delaware Management Company, Inc.
and Delaware Management Business Trust
Chairman, President, Chief Executive Officer and Chief Investment
Officer of Delaware Management Company (a series of Delaware
Management Business Trust) Chairman, Chief Executive Officer
and Chief Investment Officer of Delaware Investment Advisers
(a series of Delaware Management Business Trust)
Chairman, Chief Executive Officer and Director of Delaware
International Advisers Ltd., Delaware International Holdings
Ltd. and Delaware Management Holdings, Inc.
President and Chief Executive Officer of Delvoy, Inc.
Chairman of Delaware Distributors, L.P.
Director of Delaware Service Company, Inc. and Delaware Investment &
Retirement 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 of Mutual Funds, Inc.
and 33 other investment companies in the Delaware Investments
family
President and Director of Delaware Management Holdings, Inc.
President, Chief Executive Officer and Director of Lincoln National
Investment Companies, Inc.
President of Lincoln Funds Corporation
From 1992 to 1996, Mr. Nick was Managing Director of Lincoln National
UK plc and from 1989 to 1992, he was Senior Vice President
responsible for corporate planning and development for Lincoln
National Corporation.
Richard G. Unruh, Jr. (58)
Executive Vice President of Mutual Funds, Inc. and 33 other investment
companies in the Delaware Investments family, Delaware
Management Holdings, Inc., Delaware Management Company (a
series of Delaware Management Business Trust) and Delaware
Capital Management, Inc.
President of Delaware Investment Advisers (a series of Delaware
Management Business Trust)
Executive Vice President and Director/Trustee of Delaware Management
Company, Inc. and Delaware Management Business Trust
Director of Delaware International Advisers Ltd.
During the past five years, Mr. Unruh has served in various executive
capacities at different times within the Delaware
organization.
- ----------
* Director affiliated with the Fund's investment manager and considered an
"interested person" as defined in the 1940 Act.
-51-
<PAGE>
Paul E. Suckow (50)
Executive Vice President/Chief Investment Officer, Fixed Income of
Mutual Funds, Inc., 33 other investment companies in the
Delaware Investments family, Delaware Management Company,
Inc., Delaware Management Company (a series of Delaware
Management Business Trust), Delaware Investment Advisers (a
series of Delaware Management Business Trust) and Delaware
Management Holdings, Inc.
Executive Vice President and Director of Founders Holdings, Inc.
Executive Vice President of Delaware Capital Management, Inc.
and Delaware Management Business Trust
Director of Founders CBO Corporation
Director of HYPPCO Finance Company Ltd.
Before returning to Delaware Investments in 1993, Mr. Suckow was
Executive Vice President and Director of Fixed Income for
Oppenheimer Management Corporation, New York, NY from 1985 to
1992. Prior to that, Mr. Suckow was a fixed-income portfolio
manager for Delaware Investments.
David K. Downes (58)
Executive Vice President, Chief Operating Officer, Chief Financial
Officer of Mutual Funds, Inc., 33 other investment companies
in the Delaware Investments family, Delaware Management
Holdings, Inc, Founders CBO Corporation, Delaware Capital
Management, Inc., Delaware Management Company (a series of
Delaware Management Business Trust), Delaware Investment
Advisers (a series of Delaware Management Business Trust) and
Delaware Distributors, L.P.
Executive Vice President, Chief Financial Officer, Chief Administrative
Officer and Trustee of Delaware Management Business Trust
Executive Vice President, Chief Operating Officer, Chief Financial
Officer and Director of Delaware Management Company, Inc., DMH
Corp., Delaware Distributors, Inc., Founders Holdings, Inc.
and Delvoy, Inc.
President, Chief Executive Officer, Chief Financial Officer and
Director of Delaware Service Company, Inc.
President, Chief Operating Officer, Chief Financial Officer and
Director of Delaware International Holdings Ltd.
Chairman,Chief Executive Officer and Director of Delaware Management
Trust Company and Delaware Investment & Retirement 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 (70)
Director of Mutual Funds, Inc. and 33 other investment companies in the
Delaware Investments family
460 North Gulph Road, King of Prussia, PA 19406
Board Chairman, Citadel Constructors, Inc.
From 1986 to 1988, Mr. Babich was a partner of Irwin & Leighton and
from 1988 to 1991, he was a partner of I&L Investors.
-52-
<PAGE>
Anthony D. Knerr (59)
Director of Mutual Funds, Inc. and 33 other investment companies in the
Delaware Investments family
500 Fifth Avenue, New York, NY 10110
Founder and Managing Director, Anthony Knerr & Associates
From 1982 to 1988, Mr. Knerr was Executive Vice President/Finance and
Treasurer of Columbia University, New York. From 1987 to 1989,
he was also a lecturer in English at the University. In
addition, Mr. Knerr was Chairman of The Publishing Group,
Inc., New York, from 1988 to 1990. Mr. Knerr founded The
Publishing Group, Inc. in 1988.
Ann R. Leven (57)
Director of Mutual Funds, Inc. and 33 other investment companies in the
Delaware Investments family
785 Park Avenue, New York, NY 10021
Treasurer, National Gallery of Art
From 1984 to 1990, Ms. Leven was Treasurer and Chief Fiscal Officer of
the Smithsonian Institution, Washington, DC, and from 1975 to
1992, she was Adjunct Professor of Columbia Business School.
W. Thacher Longstreth (77)
Director of Mutual Funds, Inc. and 33 other investment companies in the
Delaware Investments family
City Hall, Philadelphia, PA 19107
Philadelphia City Councilman.
Thomas F. Madison (62)
Director of Mutual Funds, Inc. and 33 other investment companies in the
Delaware Investments family
200 South Fifth Street, Suite 2100, Minneapolis, Minnesota 55402
President and Chief Executive Officer, MLM Partners, Inc.
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 of Mutual Funds, Inc. and 33 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.
-53-
<PAGE>
George M. Chamberlain, Jr. (51)
Senior Vice President, Secretary and General Counsel of Mutual Funds,
Inc., 33 other investment companies in the Delaware
Investments family, 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, General Counsel and Director/Trustee
of DMH Corp., Delaware Management Company, Inc., Delaware
Distributors, Inc., Delaware Service Company, Inc., Founders
Holdings, Inc., Delaware Investment & Retirement Services,
Inc., Delaware Capital Management, Inc., Delvoy, Inc.
and Delaware Management Business Trust
Executive Vice President, Secretary, General Counsel 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 Mutual Funds, Inc., 33
other investment companies in the Delaware Investments family
and Founders Holdings, Inc.
Senior Vice President/Corporate Controller and Treasurer of Delaware
Management Holdings, Inc., DMH Corp., Delaware Management
Company, Inc., Delaware Management Company (a series of
Delaware Management Business Trust), Delaware Distributors,
L.P., Delaware Distributors, Inc., Delaware Service Company,
Inc., Delaware Capital Management, Inc., Delaware
International Holdings Ltd., Delvoy, Inc. and Delaware
Management Business Trust
Chief Financial Officer/Treasurer of Delaware Investment & Retirement
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.
-54-
<PAGE>
Michael P. Bishof (35)
Senior Vice President/Treasurer of Mutual Funds, Inc., 33 other
investment companies in the Delaware Investments family and
Founders Holdings, Inc.
Senior Vice President/Investment Accounting of Delaware Management
Company, Inc., Delaware Management Company (a series of
Delaware Management Business Trust) and Delaware Service
Company, Inc.
Senior Vice President and Treasurer/Manager of Investment Accounting of
Delaware Distributors, L.P. and Delaware Investment Advisers
(a series of Delaware Management Business Trust) Senior Vice
President and Manager of Investment Accounting of Delaware
International Holdings Ltd. 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.
John B. Fields (52)
Vice President/Senior Portfolio Manager of ten investment companies
in the Delaware Investments family, Delaware Capital
Management, Inc., Delaware Management Company, Inc, Delaware
Management Company (a series of Delaware Management Business
Trust) and Delaware Investment Advisers (a series of Delaware
Management Business Trust)
Trustee of Delaware Management Business Trust
Before joining Delaware Investments in 1992, Mr. Fields served as a
director of domestic equity risk management for DuPont,
Wilmington, DE.
Patrick P. Coyne (34)
Vice President/Senior Portfolio Manager of Mutual Funds, Inc., 19 other
investment companies in the Delaware Investments family and
Delaware Capital Management, Inc.
During the past five years, Mr. Coyne has served in various capacities
at different times within the Delaware organization.
Mitchell L. Conery (38)
Vice President/Senior Portfolio Manager of Mutual Funds, Inc., 19 other
investment companies in the Delaware Investments family and
Delaware Capital Management
Before joining Delaware Investments in 1997, Mr. Conery was an
investment officer with Travelers Insurance from 1995 through
1996 and a research analyst with CS First Boston from 1992 to
1995.
-55-
<PAGE>
The following is a compensation table listing for each director
entitled to receive compensation, the aggregate compensation received from
Mutual Funds, Inc., the total compensation received from all funds in the
Delaware Investments family for the fiscal year ended December 31, 1997, and an
estimate of annual benefits to be received upon retirement under the Delaware
Investments Retirement Plan for Directors/Trustees as of December 31, 1997.
<TABLE>
<CAPTION>
Pension or
Retirement Total
Benefits Estimated Compensation from
Aggregate Accrued Annual all 34 Investment
Compensation as Part of Benefits Companies in
from Mutual Mutual Funds, Upon Delaware
Name Funds, Inc.(1) Inc. Expenses Retirement* Investments(2)
<S> <C> <C> <C> <C>
W. Thacher Longstreth $879 None $38,500 $59,827
Ann R. Leven $924 None $38,500 $65,160
Walter P. Babich $916 None $38,500 $64,160
Anthony D. Knerr $916 None $38,500 $64,160
Charles E. Peck $784 None $38,500 $56,682
Thomas F. Madison $879 None $38,500 $43,537
</TABLE>
* Under the terms of the Delaware Investments Retirement Plan for Directors/
Trustees, each disinterested director who, at the time of his or her
retirement from the Board, has attained the age of 70 and served on the
Board for at least five continuous years, is entitled to receive payments
from each fund available from the Delaware Investments family for a period
equal to the lesser of the number of years that such person served as a
director or the remainder of such person's life. The amount of such payments
will be equal, on an annual basis, to the amount of the annual retainer that
is paid to directors of each fund at the time of such person's retirement.
If an eligible director retired as of December 31, 1997, he or she would be
entitled to annual payments totaling $38,500, in the aggregate, from all of
the funds available from the Delaware Investments family, based on the
number of funds available from the Delaware Investments family as of that
date.
(1) The current Board of Directors was elected by shareholders of Mutual Funds,
Inc. on April 11, 1997 and began serving on May 1, 1997. With the exception
of Thomas F. Madison, none of the current directors had served on the prior
Board. Compensation figures are estimates of payments for Mutual Funds,
Inc.'s current fiscal year.
(2) Each independent director currently receives a total annual retainer fee of
$38,500 for serving as a director or trustee for all funds in Delaware
Investments, plus $3,145 for each Board Meeting attended. Ann R. Leven,
Walter P. Babich, and Anthony D. Knerr serve on the Fund's audit committee;
Ms. Leven is the chairperson. Members of the audit committee currently
receive additional annual compensation of $5,000 from all funds, with the
exception of the chairperson, who receives $6,000.
-56-
<PAGE>
EXCHANGE PRIVILEGE
The exchange privileges available for shareholders of the Classes and
for shareholders of classes of other funds available from the Delaware
Investments family are set forth in the relevant prospectuses for such classes.
The following supplements that information. The 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 available from 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 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 available from the Delaware Investments family. Telephone exchanges may be
subject to limitations as to amounts or frequency. The Transfer Agent and the
Fund reserve the right to record exchange instructions received by telephone and
to reject exchange requests at any time in the future.
-57-
<PAGE>
As described in the Fund's Prospectus, neither the Fund nor the
Transfer Agent is responsible for any shareholder loss incurred in acting upon
written or telephone instructions for redemption or exchange of Fund shares
which are reasonably believed to be genuine.
Right to Refuse Timing Accounts
With regard to accounts that are administered by market timing services
("Timing Firms") to purchase or redeem shares based on changing economic and
market conditions ("Timing Accounts"), the Fund will refuse any new timing
arrangements, as well as any new purchases (as opposed to exchanges) in funds in
the Delaware Investments family from Timing Firms. The Fund reserves the right
to temporarily or permanently terminate the exchange privilege or reject any
specific purchase order for any person whose transactions seem to follow a
timing pattern who: (i) makes an exchange request out of the Fund within two
weeks of an earlier exchange request out of the Fund, or (ii) makes more than
two exchanges out of the Fund per calendar quarter, or (iii) exchanges shares
equal in value to at least $5 million, or more than 1/4 of 1% of the Fund's net
assets. Accounts under common ownership or control, including accounts
administered so as to redeem or purchase shares based upon certain predetermined
market indicators, will be aggregated for purposes of the exchange limits.
Restrictions on Timed Exchanges
Timing Accounts operating under existing timing agreements may only
execute exchanges between the following eight funds in the Delaware Investments
family: (1) Decatur Income Fund, (2) Decatur Total Return Fund, (3) Delaware
Fund, (4) Limited-Term Government Fund, (5) USA Fund, (6) Delaware Cash Reserve,
(7) Delchester Fund and (8) Tax-Free Pennsylvania Fund. No other funds in the
Delaware Investments family are available for timed exchanges. Assets redeemed
or exchanged out of Timing Accounts in funds in the Delaware Investments family
not listed above may not be reinvested back into that Timing Account. The 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).
The Fund also reserves the right to refuse the purchase side of an
exchange request by any Timing Account, person, or group if, in the Manager's
judgment, the Fund would be unable to invest effectively in accordance with its
investment objectives and policies, or would otherwise potentially be adversely
affected. A shareholder's purchase exchanges may be restricted or refused if the
Fund receives or anticipates simultaneous orders affecting significant portions
of the Fund's assets. In particular, a pattern of exchanges that coincide with a
"market timing" strategy may be disruptive to the 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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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.
U.S. Government Fund seeks high current income by investing primarily
in long-term debt obligations issued or guaranteed by the U.S. government, its
agencies or instrumentalities.
Limited-Term Government Fund seeks high, stable income by investing
primarily in a portfolio of short-and intermediate-term securities issued or
guaranteed by the U.S. government, its agencies or instrumentalities and
instruments secured by such securities. U.S. Government Money Fund seeks maximum
current income with preservation of principal and maintenance of liquidity by
investing only in short-term securities issued or guaranteed as to principal and
interest by the U.S. government, its agencies or instrumentalities, and
repurchase agreements collateralized by such securities, while maintaining a
stable net asset value.
Delaware Cash Reserve seeks the highest level of income consistent with
the preservation of capital and liquidity through investments in short-term
money market instruments, while maintaining a stable net asset value.
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 securities but with an emphasis on
municipal bonds protected by insurance guaranteeing principal and interest are
paid when due.
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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.
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.
International Equity Fund seeks to achieve long-term growth without
undue risk to principal by investing primarily in international securities that
provide the potential for capital appreciation and income. Global Bond Fund
seeks to achieve current income consistent with the preservation of principal by
investing primarily in global fixed-income securities that may also provide the
potential for capital appreciation. Global Assets Fund seeks to achieve
long-term total return by investing in global securities which will provide
higher current income than a portfolio comprised exclusively of equity
securities, along with the potential for capital growth. Emerging Markets Fund
seeks long-term capital appreciation by investing primarily in equity securities
of issuers located or operating in emerging countries.
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 15 funds available exclusively
as funding vehicles for certain insurance company separate accounts. Decatur
Total Return Series seeks the highest possible total rate of return by selecting
issues that exhibit the potential for capital appreciation while providing
higher than average dividend income. Delchester Series seeks as high a current
income as possible by investing in rated and unrated corporate bonds, U.S.
government securities and commercial paper. Capital Reserves Series seeks a high
stable level of current income while minimizing fluctuations in principal by
investing in a diversified portfolio of short-and intermediate-term securities.
Cash Reserve Series seeks the highest level of income consistent with
preservation of capital and liquidity through investments in short-term money
market instruments. DelCap Series seeks long-term capital appreciation by
investing its assets in a diversified portfolio of securities exhibiting the
potential for significant growth. Delaware Series seeks a balance of capital
appreciation, income and preservation of capital. It uses a dividend-oriented
valuation strategy to select securities issued by established companies that are
believed to demonstrate potential for income and capital growth. International
Equity Series seeks long-term growth without undue risk to principal by
investing primarily in equity securities of foreign issuers that provide the
potential for capital appreciation and income. Value Series seeks capital
appreciation by investing in small- to mid- cap common stocks whose market
values appear low relative to their underlying value or future earnings and
growth potential. Emphasis will also be placed on securities of companies that
may be temporarily out of favor or whose value is not yet recognized by the
market. 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
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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. Quantum 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.
Delaware-Voyageur US Government Securities Fund seeks to provide a high
level of current income consistent with the prudent investment risk by investing
in U.S. Treasury bills, notes, bonds, and other obligations issued or
unconditionally guaranteed by the full faith and credit of the U.S. Treasury,
and repurchase agreements fully secured by such obligations.
Delaware-Voyageur Tax-Free Arizona Insured Fund seeks to provide a high
level of current income exempt from federal income tax and the Arizona personal
income tax, consistent with the preservation of capital. Delaware-Voyageur
Minnesota Insured Fund seeks to provide a high level of current income exempt
from federal income tax and the Minnesota personal income tax, consistent with
the preservation of capital.
Delaware-Voyageur Tax-Free Minnesota Intermediate Fund seeks to provide
a high level of current income exempt from federal income tax and the Minnesota
personal income tax, consistent with preservation of capital. The Fund seeks to
reduce market risk by maintaining an average weighted maturity from five to ten
years.
Delaware-Voyageur Tax-Free California Insured Fund seeks to provide a
high level of current income exempt from federal income tax and the California
personal income tax, consistent with the preservation of capital.
Delaware-Voyageur Tax-Free Florida Insured Fund seeks to provide a high level of
current income exempt from federal income tax, consistent with the preservation
of capital. The Fund will seek to select investments that will enable its shares
to be exempt from the Florida intangible personal property tax.
Delaware-Voyageur Tax- Free Florida Fund seeks to provide a high level of
current income exempt from federal income tax, consistent with the preservation
of capital. The Fund will seek to select investments that will enable its shares
to be exempt from the Florida intangible personal property tax.
Delaware-Voyageur Tax-Free Kansas Fund seeks to provide a high level of current
income exempt from federal income tax, the Kansas personal income tax and the
Kansas Intangible personal property tax, consistent with the preservation of
capital. Delaware-Voyageur Tax-Free Missouri Insured Fund seeks to provide a
high level of current income exempt from federal income tax and the Missouri
personal income tax, consistent with the preservation of capital.
Delaware-Voyageur Tax-Free New Mexico Fund seeks to provide a high level of
current income exempt from federal income tax and the New Mexico personal income
tax, consistent with the preservation of capital. Delaware-Voyageur Tax-Free
Oregon Insured Fund seeks to provide a high level of current income exempt from
federal income tax and the Oregon personal income tax, consistent with the
preservation of capital. Delaware-Voyageur Tax-Free Utah Fund seeks to provide a
high level of current income exempt from federal income tax, consistent with the
preservation of capital.
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Delaware-Voyageur Tax-Free Washington Insured Fund seeks to provide a high
level of current income exempt from federal income tax, consistent with the
preservation of capital.
Delaware-Voyageur Tax-Free Florida Intermediate Fund seeks to provide a
high level of current income exempt from federal income tax, consistent with the
preservation of capital. The Fund will seek to select investments that will
enable its shares to be exempt from the Florida intangible personal property
tax. The Fund seeks to reduce market risk by maintaining an average weighted
maturity from five to ten years.
Delaware-Voyageur Tax-Free Arizona Fund seeks to provide a high level
of current income exempt from federal income tax and the Arizona personal income
tax, consistent with the preservation of capital. Delaware-Voyageur Tax-Free
California Fund seeks to provide a high level of current income exempt from
federal income tax and the California personal income tax, consistent with the
preservation of capital. Delaware-Voyageur Tax-Free Iowa Fund seeks to provide
a high level of current income exempt from federal income tax and the Iowa
personal income tax, consistent with the preservation of capital.
Delaware-Voyageur Tax-Free Idaho Fund seeks to provide a high level of current
income exempt from federal income tax and the Idaho personal income tax,
consistent with the preservation of capital. Delaware-Voyageur Minnesota High
Yield Municipal Bond Fund seeks to provide a high level of current income exempt
from federal income tax and the Minnesota personal income tax primarily through
investment in medium and lower grade municipal obligations. Delaware-Voyageur
Tax-Free New York Fund seeks to provide a high level of current income exempt
from federal income tax and the personal income tax of the state of New York and
the city of New York, consistent with the preservation of capital.
Delaware-Voyageur Tax-Free Wisconsin Fund seeks to provide a high level of
current income exempt from federal income tax and the Wisconsin personal income
tax, consistent with the preservation of capital.
Delaware-Voyageur Tax-Free Colorado Fund seeks to provide a high level
of current income exempt from federal income tax and the Colorado personal
income tax, consistent with the preservation of capital.
Aggressive Growth Fund seeks long-term capital appreciation, which the
Fund attempts to achieve by investing primarily in equity securities believed to
have the potential for high earnings growth. Although the Fund, in seeking its
objective, may receive current income from dividends and interest, income is
only an incidental consideration in the selection of the Fund's investments.
Growth Stock Fund has an objective of long-term capital appreciation. The Fund
seeks to achieve its objective from equity securities diversified among
individual companies and industries. Tax-Efficient Equity Fund seeks to obtain
for taxable investors a high total return on an after-tax basis. The Fund will
attempt to achieve this objective by seeking to provide a high long-term
after-tax total return through managing its portfolio in a manner that will
defer the realization of accrued capital gains and minimize dividend income.
Delaware-Voyageur Tax-Free Minnesota Fund seeks to provide a high level
of current income exempt from federal income tax and the Minnesota personal
income tax, consistent with the preservation of capital. Delaware-Voyageur
Tax-Free North Dakota Fund seeks to provide a high level of current income
exempt from federal income tax and the North Dakota personal income tax,
consistent with the preservation of capital.
For more complete information about any of the funds in the Delaware
Investments family, including charges and expenses, you can obtain a prospectus
from the Distributor. Read it carefully before you invest or forward funds.
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Each of the summaries above is qualified in its entirety by the
information contained in each fund's prospectus(es).
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GENERAL INFORMATION
The Manager is the investment manager of the Fund. The Manager also
provides investment management services to certain of the other funds available
from the Delaware Investments family. The Manager, through a separate division,
also manages private investment accounts. While investment decisions of the 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 the Fund.
The Manager, or its affiliate Delaware International Advisers Ltd.,
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 15 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 as available outside the annuity. See
Delaware Group Premium Fund, Inc., above.
Access persons and advisory persons of the Delaware Investments family,
as those terms are defined in SEC Rule 17j-1 under the 1940 Act, who provide
services to the Manager, Delaware International Advisers Ltd. or their
affiliates, are permitted to engage in personal securities transactions subject
to the exceptions set forth in Rule 17j-1 and the following general restrictions
and procedures: (1) certain blackout periods apply to personal securities
transactions of those persons; (2) transactions must receive advance clearance
and must be completed on the same day as the clearance is received; (3) certain
persons are prohibited from investing in initial public offerings of securities
and other restrictions apply to investments in private placements of securities;
(4) opening positions may only be closed-out at a profit after a 60-day holding
period has elapsed; and (5) the Compliance Officer must be informed periodically
of all securities transactions and duplicate copies of brokerage confirmations
and account statements must be supplied to the Compliance Officer.
The Distributor acts as national distributor for the Fund and for the
other mutual funds available from the Delaware Investments family. Prior to May
31, 1997, Voyageur Fund Distributors, Inc. served as the national distributor
for the Fund. The Distributor received net commissions from each Fund on behalf
of Class A Shares, after reallowances to dealers, as follows:
Class A Shares
Total
Fiscal Amount of Amounts Net
Period Underwriting Reallowed Commission
Ended Commissions to Dealers to Distributor
12/31/97 (1) $110,688 $16,009 $94,679
7/31/96 $120,396 $73,210 $47,186
7/31/95 $126,890 $78,426 $48,464
(1) The Fund changed its fiscal year to December 31.
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The Distributor received in the aggregate CDSC payments with
respect to each Class of the Fund as follows:
CDSC Payments
Fiscal
Period
Ended A Class B Class C Class
12/31/97 $-0- $1,611 $-0-
12/31/96 (1) -0- -0- N/A
7/31/96 -0- N/A N/A
7/31/95 -0- N/A N/A
(1) The Fund changed its fiscal year to December 31.
The Transfer Agent, an affiliate of the Manager, acts as
shareholder servicing, dividend disbursing and transfer agent for each Fund and
for the other mutual funds available from the Delaware Investments family. The
Transfer Agent is paid a fee by the Fund for providing these services consisting
of an annual per account charge of $11.00 plus transaction charges for
particular services according to a schedule. Compensation is fixed each year and
approved by the Board of Directors, including a majority of the unaffiliated
directors. The Transfer Agent also provides accounting services to the Fund.
Those services include performing all functions related to calculating the
Fund's net asset value and providing all financial reporting services,
regulatory compliance testing and other related accounting services. For its
services, the Transfer Agent is paid a fee based on total assets of all funds
available from the Delaware Investments family for which it provides such
accounting services. Such fee is equal to 0.25% multiplied by the total amount
of assets in the complex for which the Transfer Agent furnishes accounting
services, where such aggregate complex assets are $10 billion or less, and 0.20%
of assets if such aggregate complex assets exceed $10 billion. The fees are
charged to each fund, including the Fund, on an aggregate pro-rata basis. The
asset-based fee payable to the Transfer Agent is subject to a minimum fee
calculated by determining the total number of investment portfolios and
associated classes.
The Manager and its affiliates own the name "Delaware Group."
Norwest Bank Minnesota, N.A. ("Norwest"), Sixth Street &
Marquette Avenue, Minneapolis, Minnesota 55402 is custodian of the Fund's
securities and cash. As custodian for the Fund, Norwest maintains a separate
account or accounts for the Fund; receives, holds and releases portfolio
securities on account of the Fund; receives and disburses money on behalf of the
Fund; and collects and receives income and other payments and distributions on
account of the Fund's portfolio securities.
Capitalization
Mutual Funds, Inc. has a present authorized capitalization of
10 trillion shares of capital stock with a $0.01 par value per share.
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The Board of Directors has allocated the following number of
shares to the Fund and its respective classes:
National High Yield Municipal Bond Fund 100 billion
Class A Shares 10 billion
Class B Shares 10 billion
Class C Shares 10 billion
All shares have no preemptive rights, are fully transferable and, when
issued, are fully paid and nonassessable and, except as described above, have
equal voting rights.
Shares of each Class of the Fund represent a proportionate interest in
the assets of the Fund, and have the same voting and other rights and
preferences as the other classes of the Fund. Shareholders of Class A Shares,
Class B Shares and Class C Shares of a Fund may vote only on matters affecting
the 12b-1 Plan that relates to the Class of shares that they hold. However,
Class B Shares may vote on any proposal to increase materially the fees to be
paid by the Fund under the 12b-1 Plan relating to its Class A Shares. General
expenses of the Fund will be allocated on a pro-rata basis to the classes
according to asset size, except that expenses of the 12b-1 Plans of the Fund's
Class A Shares, Class B Shares and Class C Shares will be allocated solely to
those classes.
Effective June 9, 1997, the name of Voyageur National High Yield
Municipal Bond Fund changed to National High Yield Municipal Bond Fund.
Noncumulative Voting
Mutual Funds, Inc.'s shares have noncumulative voting rights which
means that the holders of more than 50% of the shares of Mutual Funds, Inc.
voting for the election of directors can elect all the directors if they choose
to do so, and, in such event, the holders of the remaining shares will not be
able to elect any directors.
This Part B does not include all of the information contained in the
Registration Statement which is on file with the SEC.
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APPENDIX A--GENERAL CHARACTERISTICS AND RISKS OF OPTIONS AND FUTURES
General Characteristics and Risks of Options and Futures
General. As described in Options and Futures under Investment
Objectives and Policies in the Prospectus under the Fund may purchase and sell
options on the securities in which it may invest and the Fund may purchase and
sell options on futures contracts (as defined below) and may purchase and sell
futures contracts. The Fund intend to engage in such transactions if it appears
advantageous to Voyageur to do so in order to pursue the Fund's investment
objectives, to seek to hedge against the effects of market conditions and to
seek to stabilize the value of its assets. The Fund will engage in hedging and
risk management transactions from time to time in Voyageur's discretion, and may
not necessarily be engaging in such transactions when movements in interest
rates that could affect the value of the assets of the Fund occur.
Conditions in the securities, futures and options markets will
determine whether and in what circumstances the Fund will employ any of the
techniques or strategies described below. The Fund's ability to pursue certain
of these strategies may be limited by applicable regulations of the Commodity
Futures Trading Commission (the "CFTC") and the federal tax requirements
applicable to regulated investment companies. Transactions in options and
futures contracts may give rise to income that is subject to regular federal
income tax and, accordingly, in normal circumstances the Fund does not intend to
engage in such practices to a significant extent.
The use of futures and options, and the possible benefits and
attendant risks, are discussed below.
Futures Contracts and Related Options. The Fund may enter into
contracts for the purchase or sale for future delivery (a "futures contract") of
fixed-income securities or contracts based on financial indices including any
index of securities in which the Fund may invest. A "sale" of a futures contract
means the undertaking of a contractual obligation to deliver the securities, or
the cash value of an index, called for by the contract at a specified price
during a specified delivery period. A "purchase" of a futures contract means the
undertaking of a contractual obligation to acquire the securities, or cash value
of an index, at a specified price during a specified delivery period. The Fund
may also purchase and sell (write) call and put options on financial futures
contracts. An option on a futures contract gives the purchaser the right, in
return for the premium paid, to assume a position in a futures contract at a
specified exercise price at any time during, or at the termination of, the
period specified in the terms of the option. Upon exercise, the writer of the
option delivers the futures contract to the holder at the exercise price. The
Fund would be required to deposit with its custodian initial margin and
maintenance margin with respect to put and call options on futures contracts
written by it.
Although some financial futures contracts by their terms call for the
actual delivery or acquisition of securities, in most cases the contractual
commitment is closed out before delivery without having to make or take delivery
of the security. The offsetting of a contractual obligation is accomplished by
purchasing (or selling, as the case may be) on a commodities exchange an
identical futures contract calling for delivery in the same period. The Fund's
ability to establish and close out positions in futures contracts and options on
futures contracts will be subject to the liquidity of the market. Although the
Fund generally will purchase or sell only those futures contracts and options
thereon for which there appears to be a liquid market, there is no assurance
that a liquid market on an exchange will exist for any particular futures
contract or option thereon at any particular time. Where it is not possible to
effect a closing transaction in a contract or to do so at a satisfactory price,
the Fund would have to make or take delivery under the futures contract, or, in
the case of a purchased option, exercise the option. The Fund would be required
to maintain initial margin deposits with respect to the futures contract and to
make variation margin payments until the contract is closed. The Fund will incur
brokerage fees when they purchase or sell futures contracts.
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At the time a futures contract is purchased or sold, the Fund must
deposit in a custodial account cash or securities as a good faith deposit
payment (known as "initial margin"). It is expected that the initial margin on
futures contracts the Fund may purchase or sell may range from approximately
1.5% to approximately 5% of the value of the securities (or the securities
index) underlying the contract. In certain circumstances, however, such as
during periods of high volatility, the Fund may be required by an exchange to
increase the level of its initial margin payment. Initial margin requirements
may be increased generally in the future by regulatory action. An outstanding
futures contract is valued daily in a process known as "marking to market." If
the market value of the futures contract has changed, the Fund will be required
to make or will be entitled to receive a payment in cash or specified high
quality debt securities in an amount equal to any decline or increase in the
value of the futures contract. These additional deposits or credits are
calculated and required on a daily basis and are known as "variation margin."
There may be an imperfect correlation between movements in prices of
the futures contract the Fund purchases or sells and the portfolio securities
being hedged. In addition, the ordinary market price relationships between
securities and related futures contracts may be subject to periodic distortions.
Specifically, temporary price distortions could result if, among other things,
participants in the futures market elect to close out their contracts through
offsetting transactions rather than meet variation margin requirements,
investors in futures contracts decide to make or take delivery of underlying
securities rather than engage in closing transactions or if, because of the
comparatively lower margin requirements in the futures market than in the
securities market, speculators increase their participation in the futures
market. Because price distortions may occur in the futures market and because
movements in the prices of securities may not correlate precisely with movements
in the prices of futures contracts purchased or sold by the Fund in a hedging
transaction, even if Voyageur correctly forecasts market trends the Fund's
hedging strategy may not be successful. If this should occur, the Fund could
lose money on the futures contracts and also on the value of its portfolio
securities.
Although the Fund believes that the use of futures contracts and
options thereon will benefit it, if Voyageur's judgment about the general
direction of securities prices or interest rates is incorrect, the Fund's
overall performance may be poorer than if it had not entered into futures
contracts or purchased or sold options thereon. For example, if the Fund seeks
to hedge against the possibility of an increase in interest rates, which
generally would adversely affect the price of fixed-income securities held in
its portfolio, and interest rates decrease instead, the Fund will lose part or
all of the benefit of the increased value of its assets which it has hedged due
to the decrease in interest rates because it will have offsetting losses in its
futures positions. In addition, particularly in such situations, the Fund may
have to sell assets from its portfolio to meet daily margin requirements at a
time when it may be disadvantageous to do so.
Options on Securities. The Fund may purchase and sell (write) options
on securities, which options may be either exchange-listed or over-the-counter
options. The Fund may write call options only if the call option is "covered." A
call option written by the Fund is covered if the Fund owns the securities
underlying the option or has a contractual right to acquire them or owns
securities which are acceptable for escrow purposes. The Fund may write put
options only if the put option is "secured." A put option written by the Fund is
secured if the Fund, which is obligated as a writer of a put option, invests an
amount, not less than the exercise price of a put option, in eligible
securities.
The writer of an option may have no control over when the underlying
securities must be sold, in the case of a call option, or purchased, in the case
of a put option; the writer may be assigned an exercise notice at any time prior
to the termination of the obligation. Whether or not an option expires
unexercised, the writer retains the amount of the premium. This amount, of
course, may, in the case of a covered call option, be offset by a decline in the
market value of the underlying security during the option period. If a call
option is exercised, the writer experiences a profit or loss from the sale of
the underlying security. If a put option is exercised, the writer must
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fulfill the obligation to purchase the underlying security at the exercise price
which will usually exceed the then market value of the underlying security.
The writer of an option that wishes to terminate its obligation may
effect a "closing purchase transaction." This is accomplished by buying an
option of the same series as the option previously written. The effect of the
purchase is that the writer's position will be canceled by the clearing
corporation. However, a writer may not effect a closing purchase transaction
after being notified of the exercise of an option. Likewise, an investor who is
the holder of an option may liquidate its position by effecting a "closing sale
transaction." This is accomplished by selling an option of the same series as
the option previously purchased. There is no guarantee that either a closing
purchase or a closing sale transaction can be effected.
Effecting a closing transaction in the case of a written call option
will permit the Fund to write another call option on the underlying security
with either a different exercise price or expiration date or both, or in the
case of a written put option will permit the Fund to write another put option to
the extent that the exercise price thereof is secured by deposited cash or
short-term securities. Also, effecting a closing transaction will permit the
cash or proceeds from the concurrent sale of any securities subject to the
option to be used for other Fund investments. If the Fund desires to sell a
particular security from its portfolio on which it has written a call option, it
will effect a closing transaction prior to or concurrent with the sale of the
security.
The Fund will realize a profit from a closing transaction if the price
of the transaction is less than the premium received from writing the option or
is more than the premium paid to purchase the option; the Fund will realize a
loss from a closing transaction if the price of the transaction is more than the
premium received from writing the option or is less than the premium paid to
purchase the option. Because increases in the market price of a call option will
generally reflect increases in the market price of the underlying security, any
loss resulting from the repurchase of a call option is likely to be offset in
whole or in part by appreciation of the underlying security owned by the Fund.
An option position may be closed out only where there exists a
secondary market for an option of the same series. If a secondary market does
not exist, it might not be possible to effect closing transactions in particular
options with the result that the Fund would have to exercise the options in
order to realize any profit. If the Fund is unable to effect a closing purchase
transaction in a secondary market, it will not be able to sell the underlying
security until the option expires or it delivers the underlying security upon
exercise. Reasons for the absence of a liquid secondary market include the
following: (i) there may be insufficient trading interest in certain options,
(ii) restrictions may be imposed by a national securities exchange ("Exchange")
on opening transactions or closing transactions or both, (iii) trading halts,
suspensions or other restrictions may be imposed with respect to particular
classes or series of options or underlying securities, (iv) unusual or
unforeseen circumstances may interrupt normal operations on an Exchange, (v) the
facilities of an Exchange or the Options Clearing Corporation may not at all
times be adequate to handle current trading volume, or (vi) one or more
Exchanges could, for economic or other reasons, decide or be compelled at some
future date to discontinue the trading of options (or a particular class or
series of options), in which event the secondary market on that Exchange (or in
that class or series of options) would cease to exist, although outstanding
options on that Exchange that had been issued by the Options Clearing
Corporation as a result of trades on that Exchange would continue to be
exercisable in accordance with their terms.
The Fund may purchase put options to hedge against a decline in the
value of its portfolio. By using put options in this way, the Fund will reduce
any profit it might otherwise have realized in the underlying security by the
amount of the premium paid for the put option and by transaction costs.
-69-
<PAGE>
The Fund may purchase call options to hedge against an increase in the
price of securities that the Fund anticipates purchasing in the future. The
premium paid for the call option plus any transaction costs will reduce the
benefit, if any, realized by the Fund upon exercise of the option, and, unless
the price of the underlying security rises sufficiently, the option may expire
worthless to the Fund.
The Fund may purchase and sell options that are exchange-traded or
that are traded over-the counter ("OTC options"). Exchange-traded options in the
United States are issued by a clearing organization affiliated with the exchange
on which the option is listed which, in effect, guarantees every exchange-traded
option transaction. In contrast, OTC options are contracts between the Fund and
its counterparty with no clearing organization guarantee. Thus, when the Fund
purchases OTC options, it must rely on the dealer from which it purchased the
OTC option to make or take delivery of the securities underlying the option.
Failure by the dealer to do so would result in the loss of the premium paid by
the Fund as well as the loss of the expected benefit of the transaction.
Although the Fund will enter into OTC options only with dealers that
agree to enter into, and which are expected to be capable of entering into,
closing transactions with the Fund, there can be no assurance that the Fund will
be able to liquidate an OTC option at a favorable price at any time prior to
expiration. Until the Fund is able to effect a closing purchase transaction in a
covered OTC call option the Fund has written, it will not be able to liquidate
securities used as cover until the option expires or is exercised or different
cover is substituted. This may impair the Fund's ability to sell a portfolio
security at a time when such a sale might be advantageous. In the event of
insolvency of the counterparty, the Fund may be unable to liquidate an OTC
option. In the case of options written by the Fund, the inability to enter into
a closing purchase transaction may result in material losses to the Fund.
Regulatory Restrictions. To the extent required to comply with
applicable SEC releases and staff positions, when entering into futures
contracts or certain option transactions, such as writing a put option, the Fund
will maintain, in a segregated account, cash or liquid high-grade securities
equal to the value of such contracts. Compliance with such segregation
requirements may restrict the Fund's ability to invest in intermediate- and
long-term Tax Exempt Obligations.
The Fund intend to comply with CFTC regulations and avoid "commodity
pool operator" status. These regulations require that futures and options
positions be used (a) for "bona fide hedging purposes" (as defined in the
regulations) or (b) for other purposes so long as aggregate initial margins and
premiums required in connection with non-hedging positions do not exceed 5% of
the liquidation value of the Fund's portfolio. The Fund currently does not
intend to engage in transactions in futures contracts or options thereon for
speculation.
Accounting Considerations. When the Fund writes an option, an amount
equal to the premium received by it is included in the Fund's Statement of
Assets and Liabilities as a liability. The amount of the liability subsequently
is marked to market to reflect the current market value of the option written.
When the Fund purchases an option, the premium paid by the Fund is recorded as
an asset and subsequently is adjusted to the current market value of the option.
In the case of a regulated futures contract purchased or sold by the
Fund, an amount equal to the initial margin deposit is recorded as an asset. The
amount of the asset subsequently is adjusted to reflected changes in the amount
of the deposit as well as changes in the value of the contract.
-70-
<PAGE>
FINANCIAL STATEMENTS
KPMG Peat Marwick LLP served as the independent auditors for the Fund
through December 31, 1996 and, in its capacity as such, audited the annual
financial statements of the Fund. Beginning May 1, 1997, Ernst & Young LLP began
serving in such capacity. The Fund's Statements of Net Assets, Statements of
Operations, Statements of Changes in Net Assets, Financial Highlights and Notes
to Financial Statements, as well as the report of Ernst & Young LLP, independent
auditors, for the fiscal year ended December 31, 1997 are included in its Annual
Report to shareholders. The financial statements, financial highlights the notes
relating thereto and the report of Ernst & Young LLP, listed above are
incorporated by reference from the Annual Report into this Part B.
-71-
<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 Fund Classes should
contact their financial adviser or call Delaware Investments at 800-523-4640.
INVESTMENT MANAGER
Delaware Management Company
One Commerce Square
Philadelphia, PA 19103
NATIONAL DISTRIBUTOR
Delaware Distributors, L.P.
1818 Market Street
Philadelphia, PA 19103
SHAREHOLDER SERVICING,
DIVIDEND DISBURSING,
ACCOUNTING SERVICES
AND TRANSFER AGENT
Delaware Service Company, Inc.
1818 Market Street
Philadelphia, PA 19103
LEGAL COUNSEL
Stradley, Ronon, Stevens & Young, LLP
One Commerce Square
Philadelphia, PA 19103
INDEPENDENT AUDITORS
Ernst & Young LLP
Two Commerce Square
Philadelphia, PA 19103
CUSTODIANS
Norwest Bank Minnesota, N.A.
Sixth Street & Marquette Avenue
Minneapolis, MN 55402
___________________________________________
NATIONAL HIGH YIELD MUNICIPAL BOND
FUND
___________________________________________
A CLASS
- -------------------------------------------
B CLASS
- -------------------------------------------
C CLASS
- -------------------------------------------
CLASSES OF VOYAGEUR MUTUAL
FUNDS, INC.
- -------------------------------------------
PART B
STATEMENT OF
ADDITIONAL INFORMATION
____________________________________________
APRIL 30, 1998
<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
Statement of Changes in Net Assets
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 December 31, 1997.
(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 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 Minnesota
High Yield Municipal Bond Fund, Tax-Free Iowa Fund, Tax-Free
Wisconsin Fund, Tax-Free Idaho Fund, Tax-Free Arizona Fund and
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) Executed Amendment No. 7 (October 14, 1997) to Schedule A to
Delaware Group of Funds Fund Accounting Agreement attached
as Exhibit.
(ii) Executed Amendment No. 8 (December 18, 1997) to Schedule A
to Delaware Group of Funds Fund Accounting Agreement
attached as Exhibit.
(10) Opinion of Counsel. Attached as Exhibit.
(11) Consents 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.
(b) Schedules of Computation of Fund Performance for Tax-Free New
York Fund for periods not previously filed attached as Exhibit.
(17) Financial Data Schedules. Attached as Exhibits.
(18) Plan under Rule 18f-3.
(a) Plan under Rule 18f-3 (June 19, 1997) attached as Exhibit.
(19) Other: Directors' Power of Attorney. Attached as Exhibit.
Item 25. Persons Controlled by or under Common Control with Registrant. None.
<PAGE>
PART C - Other Information
(Continued)
Item 26. Number of Holders of Securities.
(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 1,570 Accounts
$.01 Per Share as of February 28, 1998
Tax-Free Iowa Fund Class B Shares:
Common Stock Par Value 75 Accounts
$.01 Per Share as of February 28, 1998
Tax-Free Iowa Fund Class C Shares:
Common Stock Par Value 36 Accounts
$.01 Per Share as of February 28, 1998
Voyageur Mutual Funds, Inc.
Tax-Free Wisconsin Fund's:
Tax-Free Wisconsin Fund Class A Shares:
Common Stock Par Value 799 Accounts
$.01 Per Share as of February 28, 1998
Tax-Free Wisconsin Fund Class B Shares:
Common Stock Par Value 68 Accounts
$.01 Per Share as of February 28, 1998
Tax-Free Wisconsin Fund Class C Shares:
Common Stock Par Value 25 Accounts
$.01 Per Share as of February 28, 1998
Voyageur Mutual Funds, Inc.
Tax-Free Idaho Fund's:
Tax-Free Idaho Fund Class A Shares:
Common Stock Par Value 605 Accounts
$.01 Per Share as of February 28, 1998
Tax-Free Idaho Fund Class B Shares:
Common Stock Par Value 154 Accounts
$.01 Per Share as of February 28, 1998
<PAGE>
PART C - Other Information
(Continued)
(1) (2)
Number of
Title of Class Record Holders
- -------------------------------------- -----------------------
Tax-Free Idaho Fund Class C Shares:
Common Stock Par Value 55 Accounts
$.01 Per Share as of February 28, 1998
Voyageur Mutual Funds, Inc.
Tax-Free Arizona Fund's:
Tax-Free Arizona Fund Class A Shares:
Common Stock Par Value 164 Accounts
$.01 Per Share as of February 28, 1998
Tax-Free Arizona Fund Class B Shares:
Common Stock Par Value 72 Accounts
$.01 Per Share as of February 28, 1998
Tax-Free Arizona Fund Class C Shares:
Common Stock Par Value 7 Accounts
$.01 Per Share as of February 28, 1998
Voyageur Mutual Funds, Inc.
Tax-Free California Fund's:
Tax-Free California Fund Class A Shares:
Common Stock Par Value 76 Accounts
$.01 Per Share as of February 28, 1998
Tax-Free California Fund Class B Shares:
Common Stock Par Value 127 Accounts
$.01 Per Share as of February 28, 1998
Tax-Free California Fund Class C Shares:
Common Stock Par Value 9 Accounts
$.01 Per Share as of February 28, 1998
Voyageur Mutual Funds, Inc.
Tax-Free New York Fund's:
Tax-Free New York Fund Class A Shares:
Common Stock Par Value 452 Accounts
$.01 Per Share as of February 28, 1998
Tax-Free New York Fund Class B Shares:
Common Stock Par Value 17 Accounts
$.01 Per Share as of February 28, 1998
<PAGE>
PART C - Other Information
(Continued)
(1) (2)
Number of
Title of Class Record Holders
- -------------------------------------- -----------------------
Tax-Free New York Fund Class C Shares:
Common Stock Par Value 4 Accounts
$.01 Per Share as of February 28, 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 450 Accounts
$.01 Per Share as of February 28, 1998
Minnesota High Yield Municipal Bond
Fund Class B Shares:
Common Stock Par Value 208 Accounts
$.01 Per Share as of February 28, 1998
Minnesota High Yield Municipal Bond
Fund Class C Shares:
Common Stock Par Value 98 Accounts
$.01 Per Share as of February 28, 1998
Voyageur Mutual Funds, Inc.
National High Yield Municipal Bond Fund's:
National High Yield Municipal Bond
Fund Class A Shares:
Common Stock Par Value 1,093 Accounts
$.01 Per Share as of February 28, 1998
National High Yield Municipal Bond
Fund Class B Shares:
Common Stock Par Value 98 Accounts
$.01 Per Share as of February 28, 1998
National High Yield Municipal Bond
Fund Class C Shares:
Common Stock Par Value 23 Accounts
$.01 Per Share as of February 28, 1998
<PAGE>
PART C - Other Information
(Continued)
Item 27. Indemnification. Incorporated into this filing by reference to
Post-Effective Amendment No. 10 filed May 31, 1996.
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.
<PAGE>
PART C - Other Information
(Continued)
The following persons serving as officers of the Manager have held the
following positions during the past two years:
<TABLE>
<CAPTION>
<S> <C>
Name and Principal Positions and Offices with the Manager and its
Business Address * Affiliates and Other Positions and Offices Held
- --------------------- ------------------------------------------------
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 Dealware 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 of Delaware
Service Company, Inc. and Delaware Investment & Retirement Services, Inc.
Richard G. Unruh, Jr. 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; 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); 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>
<S> <C>
Name and Principal Positions and Offices with the Manager and its
Business Address * Affiliates and Other Positions and Offices Held
- --------------------- ------------------------------------------------
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 Delaware Investment &
Retirement Services, Inc.; Chairman and Director of Delaware Management Trust
Company; Director of Delaware International Advisers Ltd.; and Vice President of
Lincoln Funds Corporation
Chief Executive Officer and Director of Forewarn, Inc. since 1993, 8 Clayton Place,
Newtown Square, PA
George M. Chamberlain, Jr. Senior Vice President, General Counsel, Secretary and Director/Trustee of
Delaware Management Company, Inc., DMH Corp., Delaware Distributors, Inc.,
Delaware Service Company, Inc., Founders Holdings, Inc., Delaware Capital
Management, Inc., Delaware Investment & Retirement Services, Inc., Delvoy,
Inc. and Delaware Management Business Trust; Senior Vice President, Secretary and General
Counsel of the Registrant, each of the other funds in the Delaware Investments family,
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, General Counsel and Director of Delaware Management Trust Company;
Director of Delaware International Advisers Ltd.; Secretary of Lincoln Funds Corporation
</TABLE>
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
PART C - Other Information
(Continued)
<TABLE>
<CAPTION>
<S> <C>
Name and Principal Positions and Offices with the Manager and its
Business Address * Affiliates and Other Positions and Offices Held
- --------------------- ------------------------------------------------
Richard J. Flannery Senior Vice President/Corporate and International Affairs of the Registrant, each of
the other funds in the Delaware Investments family, 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) and Delaware
Investment & Retirement Services, Inc.; Executive Vice President/Corporate &
International Affairs and Director of Delaware International Holdings Ltd.; Senior
Vice President/ Corporate and International Affairs and Director of Founders
Holdings, Inc. and Delvoy, Inc.; Senior Vice President of Founders CBO
Corporation; and 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
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); 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 Delaware
Investment & Retirement Services, Inc.; Senior Vice President/Assistant Treasurer of
Founders CBO Corporation; and Treasurer of Lincoln Funds Corporation.
</TABLE>
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
PART C - Other Information
(Continued)
<TABLE>
<CAPTION>
<S> <C>
Name and Principal Positions and Offices with the Manager and its
Business Address * Affiliates and Other Positions and Offices Held
- --------------------- ------------------------------------------------
Michael T. Taggart Senior 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), Delaware
Investment and Retirement 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 Delaware Investment & Retirement
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 Delaware Investment & Retirement 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., Delaware Investment & Retirement
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>
<S> <C>
Name and Principal Positions and Offices with the Manager and its
Business Address * Affiliates and Other Positions and Offices Held
- --------------------- ------------------------------------------------
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 Delaware Investment & Retirement Services, Inc.; Vice
President/Director of Internal Audit of Delvoy, Inc.
Christopher Adams Vice President/Strategic Planning 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(2) 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
Delaware Investment & Retirement 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 the
Registrant
</TABLE>
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
PART C - Other Information
(Continued)
<TABLE>
<CAPTION>
<S> <C>
Name and Principal Positions and Offices with the Manager and its
Business Address * Affiliates and Other Positions and Offices Held
- --------------------- ------------------------------------------------
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, 22 other 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), 21 other 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), 19 other 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, 19 other 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, 19 other investment companies in the Delaware
Investments family
Mitchell L. Conery(3) 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, 19 other 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 10 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>
<S> <C>
Name and Principal Positions and Offices with the Manager and its
Business Address * Affiliates and Other Positions and Offices Held
- --------------------- ------------------------------------------------
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),
ten investment companies in the Delaware Investments family, Delaware Capital
Management, Inc. and Trustee of Delaware Management Business Trust
Gerald S. Frey(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)
and 10 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 10 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 seven other 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 eight other 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 13 investment companies in the Delaware Investments family
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 21 other investment companies in the Delaware Investments
family
Marshall T. Bassett 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 each of the other funds in the Delaware Investments family
John Heffern Vice President/Portfolio Manager of Delaware Management
Company, Inc., Delaware Management Company (a series of Delaware
Management Business Trust) and each of the other funds in the
Delaware Investments family
</TABLE>
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
PART C - Other Information
(Continued)
(1) SENIOR MANAGER, Ernst & Young LLP prior to December 1996.
(2) CORPORATE CONTROLLER, IIS prior to July 1997.
(3) INVESTMENT OFFICER, Travelers Insurance prior to January 1997.
(4) SENIOR DIRECTOR, Morgan Grenfell Capital Management prior to June 1996.
(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.
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 VicePresident, Chief
Chief Operating Officer Operating Officer and Chief
and Chief Financial Officer Financial Officer
George M. Chamberlain, Jr. Senior Vice President/Secretary/ Senior Vice President/
General Counsel Secretary/General Counsel
Richard J. Flannery Senior Vice President/Corporate Senior Vice President/
and International Affairs Corporate and International Affairs
Joseph H. Hastings Senior Vice President/Corporate Senior Vice President/
Controller & Treasurer Corporate Controller
</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>
Terrence P. Cunningham Senior Vice President/Financial None
Institutions
Thomas E. Sawyer Senior Vice President/ None
National Sales Director
Holly W. Reimel Vice President/Manager, National
Accounts None
Mac McAuliffe Senior Vice President/Sales None
Manager, Western Division
William F. Hostler Senior Vice President/ None
Marketing Services
J. Chris Meyer Senior Vice President/ None
Director Product Management
Stephen H. Slack Senior Vice President/Wholesaler None
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
</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>
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
Julia R. Vander Els Vice President/Participant Services None
Jerome J. Alrutz Vice President/Retail Sales None
Joanne A. Mettenheimer Vice President/New Business None
Development
Scott Metzger Vice President/Business Development Vice President/Business
Development
Stephen C. Hall Vice President/Institutional Sales None
Gregory J. McMillan Vice President/ National Accounts None
Christopher H. Price Vice President/Manager, None
Insurance
Stephen J. DeAngelis Vice President/Product None
Development
Andrew W. Whitaker Vice President/Financial Institutions None
Jesse Emery Vice President/ Marketing None
Communications
</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>
Darryl S. Grayson Vice President, Broker/Dealer None
Internal Sales
Lori M. Burgess Vice President/Client Service None
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
Lee D. Beck Vice President/Wholesaler None
Gabriella Bercze 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
Thomas C. Gallagher Vice President/Wholesaler None
Douglas R. Glennon Vice President/Wholesaler None
Ronald A. Haimowitz Vice President/Wholesaler None
Christopher L. Johnston 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>
Michael P. Jordan Vice President/Wholesaler None
Jeffrey A. Keinert Vice President/Wholesaler None
Thomas P. Kennett 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
Patrick L. Murphy 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
</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>
John A. Wells Vice President/Marketing Technology None
Scott Whitehouse Vice President/Wholesaler None
</TABLE>
- ---------------
* Business address of each is 1818 Market St., 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.
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 certifies that it meets all of the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in this City of Philadelphia, Commonwealth of Pennsylvania on this
21st day of March, 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 March 21, 1998
- -----------------------------------------
Wayne A. Stork
Executive Vice President/Chief Operating
Officer/Chief Financial Officer
(Principal Financial Officer and
/s/ David K. Downes Principal Accounting Officer) March 21, 1998
- -----------------------------------------
David K. Downes
/s/ Walter P. Babich * Director March 21, 1998
- -----------------------------------------
Walter P. Babich
/s/ Anthony D. Knerr * Director March 21, 1998
- -----------------------------------------
Anthony D. Knerr
/s/ Ann R. Leven * Director March 21, 1998
- -----------------------------------------
Ann R. Leven
/s/ W. Thacher Longstreth * Director March 21, 1998
- -----------------------------------------
W. Thacher Longstreth
/s/ Thomas F. Madison * Director March 21, 1998
- -----------------------------------------
Thomas F. Madison
/s/ Jeffrey J. Nick * Director March 21, 1998
- -----------------------------------------
Jeffrey J. Nick
/s/ Charles E. Peck * Director March 21, 1998
- -----------------------------------------
Charles E. Peck
</TABLE>
*By /s/ Wayne A. Stork
---------------------
Wayne A. Stork
as Attorney-in-Fact for
each of the persons indicated
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Exhibits
to
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Exhibit
- ----------- -------
EX-99.B9BI Executed Amendment No. 7 (October 14,1997) to
Schedule A to Delaware Group of Funds Fund Accounting
Agreement
EX-99.B9BII Executed Amendment No. 8 (December 18, 1997) to
Schedule A to Delaware Group of Funds Fund Accounting
Agreement
EX-99.B10 Opinion of Counsel
EX-99.B11 Consent of Auditors
EX-99.B16B Schedules of Computation
EX-27 Financial Data Schedules
EX-99.B18A Plan under Rule 18f-3 (June 19, 1997)
EX-99.B19 Directors' Power of Attorney
<PAGE>
EX-99.B9BI
Exhibit 24 (b)(9)(b)(i)
AMENDMENT NO.7
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
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
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)
Value Fund
Retirement Income Fund (New)
Delaware Group Government Fund, Inc.
Government Income Series (U.S. Government Fund)
- ------------------
*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 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 Defensive Equity Portfolio
The Defensive Equity Small/Mid-Cap Portfolio (New)
The Defensive Equity Utility Portfolio (deregistered January 14, 1997)
The Emerging Markets Portfolio (New)
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)
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
Quantum Series (New)
Strategic Income Series (New)
Trend Series
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 U.S. 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 October 14, 1997
DELAWARE SERVICE COMPANY, INC.
/s/ David K. Downes
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 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.
/s/Wayne A. Stork
By:_______________________________________________________________________
Wayne A. Stork
Chairman
5
<PAGE>
EX-99.B9BII
Exhibit 24(b)(9)(b)(ii)
AMENDMENT NO. 8
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
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.
1
<PAGE>
Delaware Group Foundation Funds (New)
Balanced Portfolio (New)
Growth Portfolio (New)
Income 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)
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
Quantum Series (New)
Strategic Income Series (New)
Trend Series
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 U.S. 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 December 18, 1997
DELAWARE SERVICE COMPANY, INC.
By: /s/David K. Downes
----------------------------------------------------
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: /s/ Wayne A. Stork
----------------------------------------------------
Wayne A. Stork
Chairman
5
<PAGE>
EX-99.B10
Exhibit 24(b)(10)
Law Offices
Stradley, Ronon, Stevens & Young, LLP
2600 One Commerce Square
Philadelphia, Pennsylvania 19103-7098
(215) 564-8000
Direct Dial: (215) 564-8024
March 25, 1998
Voyageur Mutual Funds, Inc.
1818 Market Street
Philadelphia, Pennsylvania 19103
Re: Legal Opinion-Securities Act of 1933
--------------------------------------
Ladies and Gentlemen:
We have examined the Amended and Restated Articles of Incorporation (the
"Articles") of Voyageur Mutual Funds, Inc. (the "Fund"), a series corporation
organized under Minnesota law, the By-Laws of the Fund, the resolutions adopted
by the Fund's Board of Directors organizing the business of the Fund, and its
proposed form of Share Certificates (if any), all as amended to date, and the
various pertinent corporate proceedings we deem material. We have also examined
the Notification of Registration and the Registration Statements filed under the
Investment Company Act of 1940 (the "Investment Company Act") and the Securities
Act of 1933 (the "Securities Act"), all as amended to date, as well as other
items we deem material to this opinion.
The Fund is authorized by the Articles to issue ten trillion
(10,000,000,000,000) shares of common stock at a par value of $.01. The Fund
issues shares of the Delaware-Voyageur Tax-Free Arizona Fund, Delaware-Voyageur
Tax-Free California Fund, Delaware-Voyageur Tax-Free Iowa Fund,
Delaware-Voyageur Tax-Free Idaho Fund, Delaware-Voyageur Tax-Free New York Fund,
Delaware-Voyageur Tax-Free Wisconsin Fund, Delaware-Voyageur Minnesota High
Yield Municipal Bond Fund and National High Yield Municipal Bond Fund. The
Articles also empower the Board to designate any additional series or classes
and allocate shares to such series or classes.
The Fund has filed with the U.S. Securities and Exchange Commission, a
registration statement under the Securities Act, which registration statement is
deemed to register an indefinite number of shares of the Fund pursuant to the
provisions of Rule 24f-2 under the Investment Company Act.
<PAGE>
You have further advised us that the Fund has filed, and each year hereafter
will timely file, a Notice pursuant to Rule 24f-2 perfecting the registration of
the shares sold by the Fund during each fiscal year during which such
registration of an indefinite number of shares remains in effect.
You have also informed us that the shares of the Fund have been, and will
continue to be, sold in accordance with the Fund's usual method of distributing
its registered shares, under which prospectuses are made available for delivery
to offerees and purchasers of such shares in accordance with Section 5(b) of the
Securities Act.
Based upon the foregoing information and examination, so long as the Fund
remains a valid and subsisting entity under the laws of its state of
organization, and the registration of an indefinite number of shares of the Fund
remains effective, the authorized shares of the Fund when issued for the
consideration set by the Board of Directors pursuant to the Articles, and
subject to compliance with Rule 24f-2, will be legally outstanding, fully-paid,
and non-assessable shares, and the holders of such shares will have all the
rights provided for with respect to such holding by the Articles and the laws of
the State of Minnesota.
We hereby consent to the use of this opinion, in lieu of any other, as an
exhibit to the Registration Statement of the Fund, along with any amendments
thereto, covering the registration of the shares of the Fund under the
Securities Act and the applications, registration statements or notice filings,
and amendments thereto, filed in accordance with the securities laws of the
several states in which shares of the Fund are offered, and we further consent
to reference in the registration statement of the Fund to the fact that this
opinion concerning the legality of the issue has been rendered by us.
Very truly yours,
STRADLEY, RONON, STEVENS & YOUNG, LLP
BY: Mark H. Plafker
---------------------------
Mark H. Plafker
<PAGE>
EX-99.B11
Exhibit 24(b)(11)
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 Investment Trust II
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
April 27, 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 Investment Trust II
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 Florida Intermediate Fund (a portfolio within
Voyageur Investment Trust II); 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
<PAGE>
Consent of Ernst & Young LLP, Independent Auditors
We consent to the references to our firm under the captions "Financial
Highlights" in the Prospectuses and "Financial Statements" in the Statements of
Additional Information and to the incorporation by reference in this
Post-Effective Amendment No. 19 to the Registration Statement (Form N-1A)
(No. 33-63238) of Voyageur Mutual Funds, Inc. (comprised 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
National High Yield Municipal Bond Fund, Delaware-Voyageur Tax-Free New York
Fund, and Delaware-Voyageur Tax-Free Wisconsin Fund) of our reports dated
February 16, 1998, included in the 1997 Annual Reports to shareholders.
/s/ Ernst & Young LLP
---------------------
Ernst & Young LLP
Philadelphia, Pennsylvania
April 24, 1998
<PAGE>
Report of Independent Auditors
To the Shareholders and Board of Directors
Voyageur Mutual Funds, Inc. - Delaware-Voyageur National High Yield Municipal
Bond Fund
We have audited the accompanying statement of net assets of National High Yield
Municipal Bond Fund (the "Fund") as of December 31, 1997, and the related
statement of operations, the statement of changes in net assets and the
financial highlights for the year or period then ended. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audit. The statement 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 dated February 14, 1997 expressed an unqualified opinion
on such statement and financial highlights.
We conducted our audit 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 December 31, 1997, 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 audit provides a reasonable basis
for our opinion.
In our opinion, the 1997 financial statements and financial highlights present
fairly, in all material respects, the financial position of the Fund at December
31, 1997, and the results of its operations, the changes in its net assets and
the financial highlights for the year or period then ended, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
---------------------
Ernst & Young LLP
Philadelphia, Pennsylvania
February 16, 1998
<PAGE>
Report of Independent Auditors
To the Shareholders and Board of Directors
Voyageur Mutual Funds II, Inc. - Delaware-Voyageur Tax-Free Colorado Fund
Voyageur Mutual Funds, Inc. - Delaware-Voyageur Tax-Free Arizona Fund
Voyageur Insured Funds, Inc. - Delaware-Voyageur Tax-Free Arizona Insured 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 Colorado
Fund, Tax-Free Arizona Fund, Tax-Free Arizona Insured Fund, Tax-Free New Mexico
Fund, and Tax-Free Utah Fund (the "Funds") as of December 31, 1997, and the
related statements of operations, the statements of changes in net assets and
the financial highlights for the year then ended. 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 December 31, 1997, 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 1997 financial statements and financial highlights present
fairly, in all material respects, the financial position of each of the
respective Funds at December 31, 1997, and the results of their operations, the
changes in their net assets and their financial highlights for the year then
ended, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
---------------------
Ernst & Young LLP
Philadelphia, Pennsylvania
February 16, 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 Investment Trust II - Delaware-Voyageur Tax-Free Florida
Intermediate 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, Tax-Free Florida Intermediate Fund, and Tax
Free New York Fund (the "Funds") as of December 31, 1997, and the related
statements of operations, the statements of changes in net assets and the
financial highlights for the year then ended. 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 December 31, 1997, 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 1997 financial statements and financial highlights present
fairly, in all material respects, the financial position of each of the
respective Funds at December 31, 1997, and the results of their operations, the
changes in their net assets and their financial highlights for the year then
ended, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
---------------------
Ernst & Young LLP
Philadelphia, Pennsylvania
February 16, 1998
<PAGE>
Report of Independent Auditors
To the Shareholders and Board of Directors
Voyageur Mutual Funds, Inc. - Delaware-Voyageur Tax-Free Idaho 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
We have audited the accompanying statements of net assets of Tax-Free Idaho
Fund, Tax-Free North Dakota Fund, Tax-Free Oregon Insured Fund, and Tax-Free
Washington Insured Fund (the "Funds") as of December 31, 1997, and the related
statements of operations, the statements of changes in net assets and the
financial highlights for the year then ended. 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 from
the dates of commencement of operations of the respective Funds through December
31, 1996 were audited by other auditors whose report 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 December 31, 1997, 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 present
fairly, in all material respects, the financial position of each of the
respective Funds at December 31, 1997, and the results of their operations, the
changes in their net assets and their financial highlights for the year then
ended, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
---------------------
Ernst & Young LLP
Philadelphia, Pennsylvania
February 16, 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") as of December 31, 1997, and the
related statements of operations, the statements of changes in net assets and
the financial highlights for the year then ended. 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 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 December 31, 1997, 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 1997 financial statements and financial highlights present
fairly, in all material respects, the financial position of each of the
respective Funds at December 31, 1997, and the results of their operations, the
changes in their net assets and their financial highlights for the year then
ended, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
---------------------
Ernst & Young LLP
Philadelphia, Pennsylvania
February 16, 1998
<PAGE>
Report of Independent Auditors
To the Shareholders and Board of Directors
Voyageur Investment Trust - Delaware-Voyageur Tax-Free Missouri Insured Fund
Voyageur Mutual Funds, Inc. - Delaware-Voyageur Tax-Free Iowa Fund
Voyageur Mutual Funds, Inc. - Delaware-Voyageur Tax-Free Wisconsin Fund
Voyageur Investment Trust - Delaware-Voyageur Tax-Free Kansas Fund
We have audited the accompanying statements of net assets of Tax-Free Missouri
Insured Fund, Tax-Free Iowa Fund, Tax-Free Wisconsin Fund, and Tax-Free Kansas
Fund (the "Funds") as of December 31, 1997, and the related statements of
operations, the statements of changes in net assets and the financial highlights
for the year then ended. 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 December 31, 1997, 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 1997 financial statements and financial highlights present
fairly, in all material respects, the financial position of each of the
respective Funds at December 31, 1997, and the results of their operations, the
changes in their net assets and their financial highlights for the year then
ended, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
---------------------
Ernst & Young LLP
Philadelphia, Pennsylvania
February 16, 1998
<PAGE>
Report of Independent Auditors
To the Shareholders and Board of Directors
Voyageur Mutual Funds, Inc. - Delaware-Voyageur Tax-Free California Fund
Voyageur Investment Trust - Delaware-Voyageur Tax-Free California Insured Fund
We have audited the accompanying statements of assets and liabilities and
statements of net assets of Tax-Free California Fund and Tax-Free California
Insured Fund (the "Funds") as of December 31, 1997, and the related statements
of operations, the statements of changes in net assets and the financial
highlights for the year then ended. 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 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 December 31, 1997, 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 1997 financial statements and financial highlights present
fairly, in all material respects, the financial position of each of the
respective Funds at December 31, 1997, and the results of their operations, the
changes in their net assets and their financial highlights for the year then
ended, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
---------------------
Ernst & Young LLP
Philadelphia, Pennsylvania
February 16, 1998
<PAGE>
DELAWARE GROUP VOYAGEUR
TAX-FREE NEW YORK FUND A CLASS
ANNUALIZED RATE OF RETURN
FOR FISCAL YEAR ENDING 1997
- -------------------------------------------------------------------------------
Average Annual Compounded Rate of Return:
n
P(1 + T) = ERV
TEN
YEARS
- -----------------
10
$1000(1 - T) = $1,991.70
T = 7.13%
<PAGE>
DELAWARE GROUP VOYAGEUR
TAX-FREE NEW YORK FUND A CLASS
ANNUALIZED RATE OF RETURN
FOR FISCAL YEAR ENDING 1997
- -------------------------------------------------------------------------------
Average Annual Compounded Rate of Return:
n
P(1 + T) = ERV
TEN
YEARS
- ----------------
10
$1000(1 - T) = $2,069.33
T = 7.54%
<PAGE>
DELAWARE GROUP VOYAGEUR
TAX-FREE NEW YORK FUND B CLASS
ANNUALIZED RATE OF RETURN
FOR FISCAL YEAR ENDING 1997
- ------------------------------------------------------------------------------
Average Annual Compounded Rate of Return:
n
P(1 + T) = ERV
THREE
YEARS
- ----------------
3
$1000(1 - T) = $1,188.5
T = 5.93%
<PAGE>
DELAWARE GROUP VOYAGEUR
TAX-FREE NEW YORK FUND B CLASS
ANNUALIZED RATE OF RETURN
FOR FISCAL YEAR ENDING 1997
- -------------------------------------------------------------------------------
Average Annual Compounded Rate of Return:
n
P(1 + T) = ERV
THREE
YEARS
- ----------------
3
$1000(1 - T) = $1,158.5
T = 5.03%
<PAGE>
DELAWARE GROUP VOYAGEUR
TAX-FREE NEW YORK FUND C CLASS
ANNUALIZED RATE OF RETURN
FOR FISCAL YEAR ENDING 1997
- -------------------------------------------------------------------------------
Average Annual Compounded Rate of Return:
n
P(1 + T) = ERV
ONE
YEAR
- ------------
1
$1000(1 - T) = $1,052.9
T = 5.29%
<PAGE>
DELAWARE GROUP VOYAGEUR
TAX-FREE NEW YORK FUND C CLASS
ANNUALIZED RATE OF RETURN
FOR FISCAL YEAR ENDING 1997
- ------------------------------------------------------------------------------
Average Annual Compounded Rate of Return:
n
P(1 + T) = ERV
ONE
YEAR
- ------------
1
$1000(1 - T) = $1,062.8
T = 6.29%
<PAGE>
DELAWARE GROUP VOYAGEUR
TAX-FREE NEW YORK FUND A CLASS
TOTAL RETURN PERFORMANCE
TEN YEARS
- ------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $10.39
Initial Shares 96.246
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- ------------------------------------------------------------------------------
1988 96.246 $0.732 7.093 103.339
- ------------------------------------------------------------------------------
1989 103.339 $0.735 7.440 110.779
- ------------------------------------------------------------------------------
1990 110.779 $0.649 7.109 117.888
- ------------------------------------------------------------------------------
1991 117.888 $0.808 9.190 127.078
- ------------------------------------------------------------------------------
1992 127.078 $0.826 9.862 136.940
- ------------------------------------------------------------------------------
1993 136.940 $0.792 9.755 146.695
- ------------------------------------------------------------------------------
1994 146.695 $0.640 8.898 155.593
- ------------------------------------------------------------------------------
1995 155.593 $0.622 9.147 164.740
- ------------------------------------------------------------------------------
1996 164.740 $0.588 9.242 173.982
- ------------------------------------------------------------------------------
1997 173.982 $0.781 13.208 187.190
- ------------------------------------------------------------------------------
Ending Shares 187.190
Ending NAV x $10.64
--------
Investment Return $1,991.70
Total Return Performance
- ------------------------
Investment Return $1,991.70
Less Initial Investment $1,000.00
---------
$991.70 / $1,000.00 x 100
Total Return: 99.17%
<PAGE>
DELAWARE GROUP VOYAGEUR
TAX-FREE NEW YORK FUND A CLASS
TOTAL RETURN PERFORMANCE
TEN YEARS
- ------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $10.00
Initial Shares 100.000
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- -------------------------------------------------------------------------------
1988 100.000 $0.732 7.370 107.370
- -------------------------------------------------------------------------------
1989 107.370 $0.735 7.730 115.100
- -------------------------------------------------------------------------------
1990 115.100 $0.649 7.386 122.486
- -------------------------------------------------------------------------------
1991 122.486 $0.808 9.548 132.034
- -------------------------------------------------------------------------------
1992 132.034 $0.826 10.244 142.278
- -------------------------------------------------------------------------------
1993 142.278 $0.792 10.134 152.412
- -------------------------------------------------------------------------------
1994 152.412 $0.640 9.247 161.659
- -------------------------------------------------------------------------------
1995 161.659 $0.622 9.503 171.162
- -------------------------------------------------------------------------------
1996 171.162 $0.588 9.601 180.763
- -------------------------------------------------------------------------------
1997 180.763 $0.781 13.723 194.486
- -------------------------------------------------------------------------------
Ending Shares 194.486
Ending NAV x $10.64
-----------
Investment Return $2,069.33
Total Return Performance
- ------------------------
Investment Return $2,069.33
Less Initial Investment $1,000.00
---------
$1,069.33 / $1,000.00 x 100
Total Return: 106.93%
<PAGE>
DELAWARE GROUP VOYAGEUR
TAX-FREE NEW YORK FUND B CLASS
TOTAL RETURN PERFORMANCE
THREE YEARS (INCLUDING CDSC)
- ------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $10.46
Initial Shares 95.602
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- -------------------------------------------------------------------------------
1995 95.602 $0.514 4.633 100.235
- -------------------------------------------------------------------------------
1996 100.235 $0.490 4.665 104.900
- -------------------------------------------------------------------------------
1997 104.900 $0.700 7.125 112.025
- -------------------------------------------------------------------------------
Ending Shares 112.025
Ending NAV x $10.61
---------
$1,188.59
Less CDSC $30.00
---------
Investment Return $1,158.59
Total Return Performance
- ------------------------
Investment Return $1,158.59
Less Initial Investment $1,000.00
---------
$ 158.59 / $1,000.00 x 100
Total Return: 15.86%
<PAGE>
DELAWARE GROUP VOYAGEUR
TAX-FREE NEW YORK FUND B CLASS
TOTAL RETURN PERFORMANCE
THREE YEARS (EXCLUDING CDSC)
- ------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $10.46
Initial Shares 95.602
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1995 95.602 $0.514 4.633 100.235
- --------------------------------------------------------------------------------
1996 100.235 $0.490 4.665 104.900
- --------------------------------------------------------------------------------
1997 104.900 $0.700 7.125 112.025
- --------------------------------------------------------------------------------
Ending Shares 112.025
Ending NAV x $10.61
---------
Investment Return $1,188.59
Total Return Performance
- ------------------------
Investment Return $1,188.59
Less Initial Investment $1,000.00
---------
$ 188.59 / $1,000.00 x 100
Total Return: 18.86%
<PAGE>
DELAWARE GROUP VOYAGEUR
TAX-FREE NEW YORK FUND C CLASS
TOTAL RETURN PERFORMANCE
ONE YEAR (INCLUDING CDSC)
- ------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $10.66
Initial Shares 93.809
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- -------------------------------------------------------------------------------
1997 93.809 $0.700 6.369 100.178
- -------------------------------------------------------------------------------
Ending Shares 100.178
Ending NAV x $10.61
---------
$1,062.89
Less CDSC $9.95
---------
Investment Return $1,052.94
Total Return Performance
- ------------------------
Investment Return $1,052.94
Less Initial Investment $1,000.00
---------
$52.94 / $1,000.00 x 100
Total Return: 5.29%
<PAGE>
DELAWARE GROUP VOYAGEUR
TAX-FREE NEW YORK FUND C CLASS
TOTAL RETURN PERFORMANCE
ONE YEAR (EXCLUDING CDSC)
- -------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $10.66
Initial Shares 93.809
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1997 93.809 $0.700 6.369 100.178
- --------------------------------------------------------------------------------
Ending Shares 100.178
Ending NAV x $10.61
---------
Investment Return $1,062.89
Total Return Performance
- ------------------------
Investment Return $1,062.89
Less Initial Investment $1,000.00
---------
$62.89 / $1,000.00 x 100
Total Return: 6.29%
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<TABLE> <S> <C>
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<NAME> VOYAGEUR MUTUAL FUNDS, INC.
<SERIES>
<NUMBER> 082
<NAME> NATIONAL HIGH YIELD MUNICIPAL BOND FUND B CLASS
<MULTIPLIER> 1000
<S> <C>
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<TABLE> <S> <C>
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<PAGE>
EX-99.B19
Exhibit 24(b)(19)
POWER OF ATTORNEY
Each of the undersigned, a member of the Boards of Directors/Trustees
of the Delaware Group Funds listed on Exhibit A to this Power of Attorney,
hereby constitutes and appoints on behalf of each of the Funds listed on Exhibit
A, Wayne A. Stork, Jeffrey J. Nick and Walter P. Babich and any one of them
acting singly, his true and lawful attorneys-in-fact, in his name, place, and
stead, to execute and cause to be filed with the Securities and Exchange
Commission and other federal or state government agency or body, such
registration statements, and any and all amendments thereto as either of such
designees may deem to be appropriate under the Securities Act of 1933, as
amended, the Investment Company Act of 1940, as amended, and all other
applicable federal and state securities laws.
IN WITNESS WHEREOF, the undersigned have executed this instrument as of
this 18th day of December, 1997.
/s/Walter P. Babich /s/Thomas F. Madison
- --------------------------------- ----------------------------------
Walter P. Babich Thomas F. Madison
/s/Anthony D. Knerr /s/Jeffrey J. Nick
- --------------------------------- ----------------------------------
Anthony D. Knerr Jeffrey J. Nick
/s/Ann R. Leven /s/Charles E. Peck
- --------------------------------- ----------------------------------
Ann R. Leven Charles E. Peck
/s/W. Thacher Longstreth /s/Wayne A. Stork
- --------------------------------- ----------------------------------
W. Thacher Longstreth Wayne A. Stork
<PAGE>
POWER OF ATTORNEY
EXHIBIT A
DELAWARE GROUP FUNDS
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 INCOME FUNDS, INC.
DELAWARE GROUP GOVERNMENT FUND, INC.
DELAWARE GROUP CASH RESERVE, INC.
DELAWARE GROUP LIMITED-TERM GOVERNMENT FUNDS, INC.
DELAWARE GROUP TAX-FREE FUND, INC.
DELAWARE GROUP TAX-FREE MONEY FUND, INC.
DELAWARE GROUP GLOBAL & INTERNATIONAL FUNDS, INC.
DELAWARE GROUP ADVISER FUNDS, INC.
DELAWARE POOLED TRUST, INC.
DELAWARE GROUP PREMIUM FUND, INC.
DELAWARE GROUP STATE TAX-FREE INCOME TRUST
DELAWARE GROUP DIVIDEND AND INCOME FUND, INC.
DELAWARE GROUP GLOBAL DIVIDEND AND INCOME FUND, INC.
DELAWARE GROUP FOUNDATION FUNDS
VOYAGEUR FUNDS, 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.
VOYAGEUR TAX FREE FUNDS, INC.
VOYAGEUR ARIZONA MUNICIPAL INCOME FUND, INC.
VOYAGEUR COLORADO INSURED MUNICIPAL INCOME FUND, INC.
VOYAGEUR FLORIDA INSURED MUNICIPAL INCOME FUND
VOYAGEUR MINNESOTA MUNICIPAL INCOME FUND, INC.
VOYAGEUR MINNESOTA MUNICIPAL INCOME FUND II, INC.
VOYAGEUR MINNESOTA MUNICIPAL INCOME FUND III, INC.
