-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MlKWzLNJyymiLHo8cNKS1ydOb3wfDw6OCO7GTEY8VdZMWlKEUvmsjjSqhytyRZI/ vI9w7CAPkhpz/ixPH3HQaA== 0000950116-99-001591.txt : 19990818 0000950116-99-001591.hdr.sgml : 19990818 ACCESSION NUMBER: 0000950116-99-001591 CONFORMED SUBMISSION TYPE: 485APOS PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 19990816 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VOYAGEUR MUTUAL FUNDS CENTRAL INDEX KEY: 0000906236 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 411756458 STATE OF INCORPORATION: DE FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 485APOS SEC ACT: SEC FILE NUMBER: 033-63238 FILM NUMBER: 99693485 FILING VALUES: FORM TYPE: 485APOS SEC ACT: SEC FILE NUMBER: 811-07742 FILM NUMBER: 99693486 BUSINESS ADDRESS: STREET 1: 90 SOUTH SEVENTH ST STREET 2: STE 4400 CITY: MINNEAPOLIS STATE: MN ZIP: 55402-4115 BUSINESS PHONE: 6123767129 MAIL ADDRESS: STREET 1: 90 SOUTH SEVENTH ST STREET 2: STE 4400 CITY: MINNEAPOLIS STATE: MN ZIP: 55402-4115 FORMER COMPANY: FORMER CONFORMED NAME: VOYAGEUR MUTUAL FUNDS INC DATE OF NAME CHANGE: 19930714 485APOS 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM N-1A File No. 33-63238 File No. 811-7742 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/ Pre-Effective Amendment No. / / Post-Effective Amendment No. 23 /X/ AND REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/ Amendment No. 24 VOYAGEUR MUTUAL FUNDS - -------------------------------------------------------------------------------- (Exact Name of Registrant as Specified in Charter) 1818 Market Street, Philadelphia, Pennsylvania 19103 - -------------------------------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, including Area Code: (215) 255-1244 -------------- Richard J. Flannery, Esquire, 1818 Market Street, Philadelphia, PA 19103 - -------------------------------------------------------------------------------- (Name and Address of Agent for Service) Approximate Date of Public Offering: November 1, 1999 ---------------- It is proposed that this filing will become effective: immediately upon filing pursuant to paragraph (b) -------- on (date) pursuant to paragraph (b) -------- 60 days after filing pursuant to paragraph (a)(1) -------- on (date) pursuant to paragraph (a)(1) -------- 75 days after filing pursuant to paragraph (a)(2) -------- X on November 1, 1999 pursuant to paragraph (a)(2) of -------- Rule 485 If appropriate: this post-effective amendment designates a new -------- effective date for a previously filed post-effective amendment Pursuant to Rule 414 under the Securities Act of 1933, Voyageur Mutual Funds, as successor issuer of Voyageur Mutual Funds, Inc., is filing this amendment to the registration statement of Voyageur Mutual Funds, Inc. and expressly adopts the registration statement of Voyageur Mutual Funds, Inc. as its own for all purposes of the Securities Act of 1933 and the Investment Company Act of 1940. --- C O N T E N T S --- This Post-Effective Amendment No. 23 to Registration File No. 33-63238 includes the following: 1. Facing Page 2. Contents Page 3. Part A - Prospectus(1) 4. Part B - Statement of Additional Information(1) 5. Part C - Other Information(1) 6. Signatures (1) This Post-Effective Amendment relates to all Series of shares of the Registrant, except that the shares of Delaware National High-Yield Municipal Bond Fund are described in a separate Prospectus and Statement of Additional Information. The Prospectus and Statement of Additional Information of Delaware National High- Yield Municipal Bond Fund are incorporated into this filing by reference to the electronic filing of Post-Effective Amendment No. 25 to the Registration Statement of Delaware Group Tax-Free Funds (File No. 2-86606) filed August 16, 1999. Shares of the other Series are described in a common Prospectus, Statement of Additional Information and Part C included herein. This Registration Statement contains one Prospectus and one Statement of Additional Information for six registrants (each of which offers its shares in one or more series). This Registration Statement contains one Part C for the Registrant. Separate Registration Statements, each of which incorporates by reference the common Prospectus and common Statement of Additional Information and includes its own Part C, also are being filed for each of the five other registrants. DELAWARE INVESTMENTS ----------- Philadelphia * London Single-State Tax-Exempt Funds Class A o Class B o Class C Prospectus November 1, 1999 Tax-Exempt Current Income Funds The Securities and Exchange Commission has not approved or disapproved these securities or passed upon the accuracy of this prospectus, and any representation to the contrary is a criminal offense. Table of contents Fund profiles .........................................................page Arizona Tax-Free Funds California Tax-Free Funds Colorado and New Mexico Tax-Free Funds Florida and New York Tax-Free Funds Minnesota Funds Missouri Insured and Oregon Insured Tax-Free Funds Iowa, Kansas and Wisconsin Tax- Free Funds Idaho, Montana and North Dakota Tax-Free Funds How we manage the Funds ...............................................page Our investment strategies The securities we typically invest in The risks of investing in the Funds Who manages the Funds .................................................page Investment manager Portfolio managers Fund administration (Who's who) About your account ....................................................page Investing in the Funds Choosing a share class How to reduce your sales charge How to buy shares How to redeem shares Account minimums Special services Dividends, distributions and taxes Certain management considerations .....................................page Financial highlights ..................................................page 2 Arizona Tax-Free Funds What are each Fund's goals? Tax-Free Arizona Fund and Tax-Free Arizona Insured Fund seek as high a level of current income exempt from federal income tax and from the Arizona state personal income tax, as is consistent with preservation of capital. Although each Fund will strive to achieve this goal, there is no assurance that it will. What are each Fund's main investment strategies? Each Fund will invest primarily in municipal bonds and notes that are exempt from federal and Arizona state personal income taxes. Municipal securities are debt obligations issued by state and local governments to raise funds for various public purposes such as hospitals, schools and general operating expenses. Each Fund will invest its assets in securities with maturities of various lengths, depending on market conditions. We will attempt to adjust the average maturity of the bonds in the portfolio to provide a high level of tax-exempt income consistent with preservation of capital. Each Fund's income level will vary depending on current interest rates and the specific securities in the portfolio. Tax-Free Arizona Insured Fund will invest primarily in municipal securities whose scheduled payments of interest and principal are fully insured. This insurance does not protect against changes in the value of the bonds in the portfolio or changes in the value of Fund shares. What are the main risks of investing in each Fund? Investing in any mutual fund involves risk, including the risk that you may lose part or all of the money you invest. The price of Fund shares will increase and decrease according to changes in the value of the securities held by the Funds. These Funds will be affected primarily by adverse changes in interest rates. When interest rates rise, the value of bonds in the portfolios will likely decline and this generally hurts securities with longer maturities more than those with shorter maturities. The Funds may also be affected by the ability of individual municipalities to pay interest and repay principal on the bonds they issue. That ability may be impacted by weak economic conditions in Arizona. Each Fund is a non-diversified investment company under the Investment Company Act of 1940 and may be subject to greater risk than if it were diversified. For a more complete discussion of risk, please turn to page x. An investment in a Fund is not a deposit of any bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other government agency. You should keep in mind that an investment in the Funds is not a complete investment program; it should be considered just one part of your total financial plan. Be sure to discuss these Funds with your financial adviser to determine whether it is an appropriate choice for you. Who should invest in the Funds o Investors seeking monthly income, free from federal and Arizona state income taxes. o Investors with long-term financial goals. Who should not invest in the Funds o Investors with very short-term financial goals. o Investors who are unwilling to accept share prices that may fluctuate, especially over the short term. o Investors who are concerned about the special risks associated with concentrating investments in a particular state or region of the country. 3 How have the Funds' performed? This bar chart and table can help you evaluate the potential risks of investing in the Funds. We show calendar year returns for each Fund's Class A shares, as well as the average annual returns of all shares. A Fund's past performance does not necessarily indicate how it will perform in the future. The returns reflect voluntary expense caps. The returns would be lower without the voluntary caps. Year-by-year total return (Class A) [bar chart] - -------------------------------------------------------------------------------- Tax-Free Arizona Fund Tax-Free Arizona Insured Fund - -------------------------------------------------------------------------------- 1992 0.00% - -------------------------------------------------------------------------------- 1993 0.00% - -------------------------------------------------------------------------------- 1994 0.00% - -------------------------------------------------------------------------------- 1995 0.00% - -------------------------------------------------------------------------------- 1996 0.00% 0.00% - -------------------------------------------------------------------------------- 1997 0.00% 0.00% - -------------------------------------------------------------------------------- 1998 0.00% 0.00% - -------------------------------------------------------------------------------- As of September 30, 1999, the Tax-Free Arizona Fund's Class A shares had a year-to-date return of 0.00%. During the periods illustrated in this bar chart, Class A's highest quarterly return was 0.00% for the quarter ended _________ and its lowest quarterly return was 0.00% for the quarter ended ____________. As of September 30, 1999, the Tax-Free Arizona Insured Fund's Class A shares had a year-to-date return of 0.00%. During the periods illustrated in this bar chart, Class A's highest quarterly return was 0.00% for the quarter ended _________ and its lowest quarterly return was 0.00% for the quarter ended ____________. The maximum Class A sales charge of 3.75%, which is normally assessed when you purchase shares, is not reflected in the year-by-year total returns above. If this fee were included, the returns would be less than those shown. The average annual returns shown in the table on page __ do include the sales charge. 4
Average Annual Returns for periods ending 12/31/98 - ------------------------------------------------------------------------------------------------------------------------------------ Class A B C (if redeemed)* (if redeemed)* - ------------------------------------------------------------------------------------------------------------------------------------ (inception 3/2/95) (inception 6/29/95) (inception 5/13/95) - ------------------------------------------------------------------------------------------------------------------------------------ 1 year 5 years Lifetime 1 year 5 years Lifetime 1 year 5 years Lifetime - ------------------------------------------------------------------------------------------------------------------------------------ Tax-Free Arizona Fund - ------------------------------------------------------------------------------------------------------------------------------------ Lehman Brothers Municipal Bond Index - ------------------------------------------------------------------------------------------------------------------------------------ (inception 4/1/91) (inception 3/10/95) (inception 5/26/94) - ------------------------------------------------------------------------------------------------------------------------------------ Tax-Free Arizona Insured Fund - ------------------------------------------------------------------------------------------------------------------------------------ Lehman Brothers Insured Municipal Bond Index - ------------------------------------------------------------------------------------------------------------------------------------
The table above shows average annual returns compared to the performance of the Lehman Brothers Municipal Bond Index and the Lehman Brothers Insured Municipal Bond Index. You should remember that unlike the Funds, the indexes are unmanaged and don't reflect the actual costs of operating a mutual fund, such as the costs of buying, selling, and holding securities. * If redeemed at end of period shown. If shares were not redeemed, the returns for Tax-Free Arizona Fund's Class B would be 0.00% and 0.00% for the one-year and lifetime periods, respectively, and the returns for Tax-Free Arizona Insured Fund's Class B would be 0.00% and 0.00% for the one-year and lifetime periods, respectively. Returns for Tax-Free Arizona Fund's Class C would be 0.00% and 0.00% for the one-year and lifetime periods, respectively, and returns for Tax-Free Arizona Insured Fund's Class C would be 0.00% and 0.00% for the one-year and lifetime periods, respectively. What are the Funds' fees and expenses? Sales charges are fees paid directly from your investments when you buy or sell shares of the Funds.
- ------------------------------------------------------------------------------------------------------------------------------------ CLASS A B C - ------------------------------------------------------------------------------------------------------------------------------------ Maximum sales charge (load) imposed on purchases as a percentage of offering price 3.75% none none - ------------------------------------------------------------------------------------------------------------------------------------ Maximum contingent deferred sales charge (load) As a percentage of original purchase price or redemption none(1) 4%(2) 1%(3) price, whichever is lower - ------------------------------------------------------------------------------------------------------------------------------------ Maximum sales charge (load) imposed on reinvested none none none dividends - ------------------------------------------------------------------------------------------------------------------------------------ Redemption fees none none none - ------------------------------------------------------------------------------------------------------------------------------------
5 Annual fund operating expenses are deducted from a Fund's assets.
- ------------------------------------------------------------------------------------------------------------------------------------ Tax-Free Arizona Fund Tax-Free Arizona Insured Fund - ------------------------------------------------------------------------------------------------------------------------------------ Class A B C Class A B C - ------------------------------------------------------------------------------------------------------------------------------------ Management fees 0.55% 0.55% 0.55% Management fees 0.50% 0.50% 0.50% - ------------------------------------------------------------------------------------------------------------------------------------ Distribution and service 0.25% 1.00% 1.00% Distribution and 0.25% 1.00% 1.00% (12b-1) fees service (12b-1) fees - ------------------------------------------------------------------------------------------------------------------------------------ Other expenses 0.00% 0.00% 0.00% Other expenses 0.00% 0.00% 0.00% - ------------------------------------------------------------------------------------------------------------------------------------ Total annual fund operating 0.00% 0.00% 0.00% Total annual fund 0.00% 0.00% 0.00% expenses operating expenses(5) - ------------------------------------------------------------------------------------------------------------------------------------ Fee waivers and payments(4) (0.00%) (0.00%) (0.00%) - ------------------------------------------------------------------------------------------------------------------------------------ Net expenses 0.75% 1.50% 1.50% - ------------------------------------------------------------------------------------------------------------------------------------
This example is intended to help you compare the cost of investing in the Funds to the cost of investing in other mutual funds with similar investment objectives. We show the cumulative amount of Fund expenses on a hypothetical investment of $10,000 with an annual 5% return over the time shown.6 This is an example only, and does not represent future expenses, which may be greater or less than those shown here.
- ------------------------------------------------------------------------------------------------------------------------------------ Without Expense Limitation - ------------------------------------------------------------------------------------------------------------------------------------ Tax-Free Arizona Fund Tax-Free Arizona Insured Fund - ------------------------------------------------------------------------------------------------------------------------------------ CLASS(7) A B B C C A B B C C - ------------------------------------------------------------------------------------------------------------------------------------ (if (if (if (if redeemed) redeemed) redeemed) redeemed) - ------------------------------------------------------------------------------------------------------------------------------------ 1 year - ------------------------------------------------------------------------------------------------------------------------------------ 3 years - ------------------------------------------------------------------------------------------------------------------------------------ 5 years - ------------------------------------------------------------------------------------------------------------------------------------ 10 years - ------------------------------------------------------------------------------------------------------------------------------------ With Expense Limitation(4) - ------------------------------------------------------------------------ Tax-Free Arizona Fund - ------------------------------------------------------------------------ CLASS(7) A B B C C - ------------------------------------------------------------------------ (if (if redeemed) redeemed) - ------------------------------------------------------------------------ 1 year - ------------------------------------------------------------------------ 3 years - ------------------------------------------------------------------------ 5 years - ------------------------------------------------------------------------ 10 years - ------------------------------------------------------------------------
(1) A purchase of Class A shares of $1 million or more may be made at net asset value. However, if you buy the shares through a financial adviser who is paid a commission, a contingent deferred sales charge will apply to certain redemptions. Additional Class A purchase options that involve a contingent deferred sales charge may be permitted from time to time and will be disclosed in the prospectus if they are available. (2) If you redeem Class B shares during the first two years after you buy them, you will pay a contingent deferred sales charge of 4%, which declines to 3% during the third and fourth years, 2% during the fifth year, 1% during the sixth year, and 0% thereafter. (3) Class C shares redeemed within one year of purchase are subject to a 1% contingent deferred sales charge. 6 (4) The investment manager has contracted to waive fees and pay expenses of Tax-Free Arizona Fund through June 30, 2000 in order to prevent total operating expenses (excluding any 12b-1 expenses, taxes, interest, brokerage fees and extraordinary expenses) from exceeding 0.50% of average daily net assets. (5) The investment manager has agreed to waive fees and pay expenses of Tax-Free Arizona Insured Fund through December 31, 1999 in order to prevent total operating expenses (excluding any taxes, interest, brokerage fees, extraordinary expenses and 12b-1 fees) from exceeding 0.70% of average daily net assets. The fees and expenses shown in the table above do not reflect this voluntary expense cap. The following table shows actual operating expenses which are based on the most recently completed fiscal year and reflect the manager's current fee waivers and payments. - -------------------------------------------------------------------------------- Actual Fund operating expenses including voluntary expense caps - -------------------------------------------------------------------------------- CLASS A B C - -------------------------------------------------------------------------------- Management fees 0.00% 0.00% 0.00% - -------------------------------------------------------------------------------- Distribution and service (12b-1) fees 0.25% 1.00% 1.00% - -------------------------------------------------------------------------------- Other expenses 0.00% 0.00% 0.00% - -------------------------------------------------------------------------------- Total operating expenses 0.95% 1.70% 1.70% - -------------------------------------------------------------------------------- (6) The Fund's actual rate of return may be greater or less than the hypothetical 5% return we use here. Also, this example assumes that the Fund's total operating expenses remain unchanged in each of the periods we show. This example does not reflect the voluntary expense cap for Tax-Free Arizona Insured Fund described in footnote 5. (7) The Class B example reflects the conversion of Class B shares to Class A shares after approximately eight years. Information for the ninth and tenth years reflects expenses of the Class A shares. 7 California Tax-Free Funds What are each Fund's goals? Tax-Free California Fund and Tax-Free California Insured Fund seek as high a level of current income exempt from federal income tax and from the California personal income tax, as is consistent with preservation of capital. Although each Fund will strive to achieve this goal, there is no assurance that it will. What are each Fund's main investment strategies? Each Fund will invest primarily in municipal bonds and notes that are exempt from federal and California personal income taxes. Municipal securities are debt obligations issued by state and local governments to raise funds for various public purposes such as hospitals, schools and general operating expenses. Each Fund will invest its assets in securities with maturities of various lengths, depending on market conditions. We will attempt to adjust the average maturity of the bonds in the portfolio to provide a high level of tax-exempt income consistent with preservation of capital. Each Fund's income level will vary depending on current interest rates and the specific securities in the portfolio. Tax-Free California Insured Fund will invest primarily in municipal securities whose scheduled payments of interest and principal are fully insured. This insurance does not protect against changes in the value of the bonds in the portfolio or changes in the value of Fund shares. What are the main risks of investing in each Fund? Investing in any mutual fund involves risk, including the risk that you may lose part or all of the money you invest. The price of Fund shares will increase and decrease according to changes in the value of the securities held by the Funds. These Funds will be affected primarily by adverse changes in interest rates. When interest rates rise, the value of bonds in the portfolios will likely decline and this generally hurts securities with longer maturities more than those with shorter maturities. The Funds may also be affected by the ability of individual municipalities to pay interest and repay principal on the bonds they issue. That ability may be impacted by weak economic conditions in California. Both Funds are non-diversified investment companies under the Investment Company Act of 1940 and may be subject to greater risk than if they were diversified. For a more complete discussion of risk, please turn to page x. An investment in a Fund is not a deposit of any bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other government agency. You should keep in mind that an investment in the Funds is not a complete investment program; it should be considered just one part of your total financial plan. Be sure to discuss these Funds with your financial adviser to determine whether it is an appropriate choice for you. Who should invest in the Funds o Investors seeking monthly income, free from federal and California personal income taxes. o Investors with long-term financial goals. Who should not invest in the Funds o Investors with very short-term financial goals. o Investors who are unwilling to accept share prices that may fluctuate, especially over the short term. o Investors who are concerned about the special risks associated with concentrating investments in a particular state or region of the country. 8 How have the Funds' performed? This bar chart and table can help you evaluate the potential risks of investing in the Funds. We show calendar year returns for each Fund's Class A shares, as well as the average annual returns of all shares. A Fund's past performance does not necessarily indicate how it will perform in the future. The returns reflect voluntary expense caps. The returns would be lower without the voluntary caps. Year-by-year total return (Class A) [bar chart] - -------------------------------------------------------------------------------- Tax-Free California Fund Tax-Free California Insured Fund - -------------------------------------------------------------------------------- 1993 0.00% - -------------------------------------------------------------------------------- 1994 0.00% - -------------------------------------------------------------------------------- 1995 0.00% - -------------------------------------------------------------------------------- 1996 0.00% 0.00% - -------------------------------------------------------------------------------- 1997 0.00% 0.00% - -------------------------------------------------------------------------------- 1998 0.00% 0.00% - -------------------------------------------------------------------------------- As of September 30, 1999, the Tax-Free California Fund's Class A shares had a year-to-date return of 0.00%. During the periods illustrated in this bar chart, Class A's highest quarterly return was 0.00% for the quarter ended _________ and its lowest quarterly return was 0.00% for the quarter ended ____________. As of September 30, 1999, the Tax-Free California Insured Fund's Class A shares had a year-to-date return of 0.00%. During the periods illustrated in this bar chart, Class A's highest quarterly return was 0.00% for the quarter ended _________ and its lowest quarterly return was 0.00% for the quarter ended ____________. The maximum Class A sales charge of 3.75%, which is normally assessed when you purchase shares, is not reflected in the year-by-year total returns above. If this fee were included, the returns would be less than those shown. The average annual returns shown in the table on page __ do include the sales charge. 9
Average Annual Returns for periods ending 12/31/98 - ------------------------------------------------------------------------------------------------------------------------------------ Class A B C (if redeemed)* (if redeemed)* - ------------------------------------------------------------------------------------------------------------------------------------ (inception 3/2/95) (inception 8/23/95) (inception 4/9/96) - ------------------------------------------------------------------------------------------------------------------------------------ 1 year 5 years Lifetime 1 year 5 years Lifetime 1 year 5 years Lifetime - ------------------------------------------------------------------------------------------------------------------------------------ Tax-Free California Fund - ------------------------------------------------------------------------------------------------------------------------------------ Lehman Brothers Municipal Bond Index - ------------------------------------------------------------------------------------------------------------------------------------ (inception 10/15/92) (inception 3/2/94) (inception 4/12/95) - ------------------------------------------------------------------------------------------------------------------------------------ Tax-Free California Insured Fund - ------------------------------------------------------------------------------------------------------------------------------------ Lehman Brothers Insured Municipal Bond Index - ------------------------------------------------------------------------------------------------------------------------------------
The table above shows average annual returns compared to the performance of the Lehman Brothers Municipal Bond Index and the Lehman Brothers Insured Municipal Bond Index. You should remember that unlike the Funds, the indexes are unmanaged and don't reflect the actual costs of operating a mutual fund, such as the costs of buying, selling, and holding securities. * If redeemed at end of period shown. If shares were not redeemed, the returns for Tax-Free California Fund's Class B would be 0.00% and 0.00% for the one-year and lifetime periods, respectively, and the returns for Tax-Free California Insured Fund's Class B would be 0.00% and 0.00% for the one-year and lifetime periods, respectively. Returns for Tax-Free California Fund's Class C would be 0.00% and 0.00% for the one-year and lifetime periods, respectively, and returns for Tax-Free California Insured Fund's Class C would be 0.00% and 0.00% for the one-year and lifetime periods, respectively. What are the Funds' fees and expenses? Sales charges are fees paid directly from your investments when you buy or sell shares of the Funds.
- ------------------------------------------------------------------------------------------------------------------------------------ CLASS A B C - ------------------------------------------------------------------------------------------------------------------------------------ Maximum sales charge (load) imposed on purchases as a percentage of offering price 3.75% none none - ------------------------------------------------------------------------------------------------------------------------------------ Maximum contingent deferred sales charge (load) As a percentage of original purchase price or redemption none(1) 4%(2) 1%(3) price, whichever is lower - ------------------------------------------------------------------------------------------------------------------------------------ Maximum sales charge (load) imposed on reinvested none none none dividends - ------------------------------------------------------------------------------------------------------------------------------------ Redemption fees none none none - ------------------------------------------------------------------------------------------------------------------------------------
10 Annual fund operating expenses are deducted from a Fund's assets.
- -------------------------------------------------------------------------------------------------------- Tax-Free California Fund Tax-Free California Insured Fund - --------------------------------------------------------------------------------------------------------- Class A B C A B C - --------------------------------------------------------------------------------------------------------- Management fees 0.55% 0.55% 0.55% 0.50% 0.50% 0.50% - --------------------------------------------------------------------------------------------------------- Distribution and service 0.25% 1.00% 1.00% 0.25% 1.00% 1.00% (12b-1) fees - --------------------------------------------------------------------------------------------------------- Other expenses 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% - --------------------------------------------------------------------------------------------------------- Total annual fund operating 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% expenses(4) - ---------------------------------------------------------------------------------------------------------
This example is intended to help you compare the cost of investing in the Funds to the cost of investing in other mutual funds with similar investment objectives. We show the cumulative amount of Fund expenses on a hypothetical investment of $10,000 with an annual 5% return over the time shown.(5) This is an example only, and does not represent future expenses, which may be greater or less than those shown here.
- ------------------------------------------------------------------------------------------------------------------------------------ Tax-Free California Fund Tax-Free California Insured Fund - ------------------------------------------------------------------------------------------------------------------------------------ CLASS(6) A B B C C A B B C C - ------------------------------------------------------------------------------------------------------------------------------------ (if redeemed) (if redeemed) (if redeemed) (if redeemed) - ------------------------------------------------------------------------------------------------------------------------------------ 1 year - ------------------------------------------------------------------------------------------------------------------------------------ 3 years - ------------------------------------------------------------------------------------------------------------------------------------ 5 years - ------------------------------------------------------------------------------------------------------------------------------------ 10 years - ------------------------------------------------------------------------------------------------------------------------------------
(1) A purchase of Class A shares of $1 million or more may be made at net asset value. However, if you buy the shares through a financial adviser who is paid a commission, a contingent deferred sales charge will apply to certain redemptions. Additional Class A purchase options that involve a contingent deferred sales charge may be permitted from time to time and will be disclosed in the prospectus if they are available. (2) If you redeem Class B shares during the first two years after you buy them, you will pay a contingent deferred sales charge of 4%, which declines to 3% during the third and fourth years, 2% during the fifth year, 1% during the sixth year, and 0% thereafter. (3) Class C shares redeemed within one year of purchase are subject to a 1% contingent deferred sales charge. (4) The investment manager has agreed to waive fees and pay expenses of each Fund through December 31, 1999 in order to prevent total operating expenses (excluding any taxes, interest, brokerage fees, extraordinary expenses and 12b-1 fees) from exceeding 0.25% of average daily net assets of Tax-Free California Fund and 0.75% of average daily net assets of Tax-Free California Insured Fund. The fees and expenses shown in the table above do not reflect this voluntary expense cap. The following table shows actual operating expenses which are based on the most recently completed fiscal year and reflect the manager's current fee waivers and payments.
- ------------------------------------------------------------------------------------------------------------------------ Actual Fund operating expenses including voluntary expense caps - ------------------------------------------------------------------------------------------------------------------------ Tax-Free California Fund Tax-Free California Insured Fund - ------------------------------------------------------------------------------------------------------------------------ CLASS A B C A B C - ------------------------------------------------------------------------------------------------------------------------ Management fees 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% - ------------------------------------------------------------------------------------------------------------------------ Distribution and service (12b-1) 0.25% 1.00% 1.00% 0.25% 1.00% 1.00% fees - ------------------------------------------------------------------------------------------------------------------------ Other expenses 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% - ------------------------------------------------------------------------------------------------------------------------ Total operating expenses 0.50% 1.25% 1.25% 1.00% 1.75% 1.75% - ------------------------------------------------------------------------------------------------------------------------
(5) The Fund's actual rate of return may be greater or less than the hypothetical 5% return we use here. Also, this example assumes that the Fund's total operating expenses remain unchanged in each of the periods we show. This example does not reflect the voluntary expense caps described in footnote 4. (6) The Class B example reflects the conversion of Class B shares to Class A shares after approximately eight years. Information for the ninth and tenth years reflects expenses of the Class A shares. 11 Colorado and New Mexico Tax-Free Funds What are each Fund's goals? Tax-Free Colorado Fund and Tax-Free New Mexico Fund seek as high a level of current income exempt from federal income tax and from personal income tax in their respective states, as is consistent with preservation of capital. Although each Fund will strive to achieve this goal, there is no assurance that it will. What are each Fund's main investment strategies? Each Fund will invest primarily in municipal bonds and notes that are exempt from federal income taxes and from personal income taxes of its respective state. Municipal securities are debt obligations issued by state and local governments to raise funds for various public purposes such as hospitals, schools and general operating expenses. Each Fund will invest its assets in securities with maturities of various lengths, depending on market conditions. We will attempt to adjust the average maturity of the bonds in the portfolio to provide a high level of tax-exempt income consistent with preservation of capital. Each Fund's income level will vary depending on current interest rates and the specific securities in the portfolio. What are the main risks of investing in each Fund? Investing in any mutual fund involves risk, including the risk that you may lose part or all of the money you invest. The price of Fund shares will increase and decrease according to changes in the value of the securities held by the Funds. These Funds will be affected primarily by adverse changes in interest rates. When interest rates rise, the value of bonds in the portfolios will likely decline and this generally hurts securities with longer maturities more than those with shorter maturities. The Funds may also be affected by the ability of individual municipalities to pay interest and repay principal on the bonds they issue. That ability may be impacted by weak economic conditions in the individual states represented in each Fund's portfolio. Both Funds are non-diversified investment companies under the Investment Company Act of 1940 and may be subject to greater risk than if they were diversified. For a more complete discussion of risk, please turn to page x. An investment in a Fund is not a deposit of any bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other government agency. You should keep in mind that an investment in the Funds is not a complete investment program; it should be considered just one part of your total financial plan. Be sure to discuss these Funds with your financial adviser to determine whether it is an appropriate choice for you. Who should invest in the Funds o Investors seeking monthly income, free from federal and state income taxes. o Investors with long-term financial goals. Who should not invest in the Funds o Investors with very short-term financial goals. o Investors who are unwilling to accept share prices that may fluctuate, especially over the short term. o Investors who are concerned about the special risks associated with concentrating investments in a particular state or region of the country. 12 How have the Funds' performed? This bar chart and table can help you evaluate the potential risks of investing in the Funds. We show calendar year returns for each Fund's Class A shares, as well as the average annual returns of all shares. A Fund's past performance does not necessarily indicate how it will perform in the future. The returns reflect voluntary expense caps. The returns would be lower without the voluntary caps. Year-by-year total return (Class A) [bar chart] - -------------------------------------------------------------------------------- Tax-Free Colorado Fund Tax-Free New Mexico Fund - -------------------------------------------------------------------------------- 1989 0.00% - -------------------------------------------------------------------------------- 1990 0.00% - -------------------------------------------------------------------------------- 1991 0.00% - -------------------------------------------------------------------------------- 1992 0.00% - -------------------------------------------------------------------------------- 1993 0.00% 0.00% - -------------------------------------------------------------------------------- 1994 0.00% 0.00% - -------------------------------------------------------------------------------- 1995 0.00% 0.00% - -------------------------------------------------------------------------------- 1996 0.00% 0.00% - -------------------------------------------------------------------------------- 1997 0.00% 0.00% - -------------------------------------------------------------------------------- 1998 0.00% 0.00% - -------------------------------------------------------------------------------- As of September 30, 1999, the Tax-Free Colorado Fund's Class A shares had a year-to-date return of 0.00%. During the periods illustrated in this bar chart, Class A's highest quarterly return was 0.00% for the quarter ended _________ and its lowest quarterly return was 0.00% for the quarter ended ____________. As of September 30, 1999, the Tax-Free New Mexico Fund's Class A shares had a year-to-date return of 0.00%. During the periods illustrated in this bar chart, Class A's highest quarterly return was 0.00% for the quarter ended _________ and its lowest quarterly return was 0.00% for the quarter ended ____________. The maximum Class A sales charge of 3.75%, which is normally assessed when you purchase shares, is not reflected in the year-by-year total returns above. If this fee were included, the returns would be less than those shown. The average annual returns shown in the table on page __ do include the sales charge. 13
Average Annual Returns for periods ending 12/31/98 - ------------------------------------------------------------------------------------------------------------------------------------ Class A B C (if redeemed)* (if redeemed)* - ------------------------------------------------------------------------------------------------------------------------------------ (inception 4/23/87) (inception 3/22/95) (inception 5/6/94) - ------------------------------------------------------------------------------------------------------------------------------------ 1 year 5 years 10 years 1 year 5 years Lifetime 1 year 5 years Lifetime - ------------------------------------------------------------------------------------------------------------------------------------ Tax-Free Colorado Fund - ------------------------------------------------------------------------------------------------------------------------------------ Lehman Brothers Municipal Bond Index - ------------------------------------------------------------------------------------------------------------------------------------ (inception 10/5/92) (inception 3/3/94) (inception 5/7/96) - ------------------------------------------------------------------------------------------------------------------------------------ 1 year 5 years Lifetime 1 year 5 years Lifetime 1 year 5 years Lifetime - ------------------------------------------------------------------------------------------------------------------------------------ Tax-Free New Mexico Fund - ------------------------------------------------------------------------------------------------------------------------------------ Lehman Brothers Municipal Bond Index - ------------------------------------------------------------------------------------------------------------------------------------
The table above shows average annual returns compared to the performance of the Lehman Brothers Municipal Bond Index. You should remember that unlike the Funds, the index is unmanaged and doesn't reflect the actual costs of operating a mutual fund, such as the costs of buying, selling, and holding securities. * If redeemed at end of period shown. If shares were not redeemed, the returns for Tax-Free Colorado Fund's Class B would be 0.00% and 0.00% for the one-year and lifetime periods, respectively, and the returns for Tax-Free New Mexico Fund's Class B would be 0.00% and 0.00% for the one-year and lifetime periods, respectively. Returns for Tax-Free Colorado Fund's Class C would be 0.00% and 0.00% for the one-year and lifetime periods, respectively, and returns for Tax-Free New Mexico Fund's Class C would be 0.00% and 0.00% for the one-year and lifetime periods, respectively. What are the Funds' fees and expenses? Sales charges are fees paid directly from your investments when you buy or sell shares of the Funds.
- ---------------------------------------------------------------------------------------------------------------------------- CLASS A B C - ---------------------------------------------------------------------------------------------------------------------------- Maximum sales charge (load) imposed on purchases as a percentage of offering price 3.75% none none - ---------------------------------------------------------------------------------------------------------------------------- Maximum contingent deferred sales charge (load) As a percentage of original purchase price or redemption none(1) 4%(2) 1%(3) price, whichever is lower - ---------------------------------------------------------------------------------------------------------------------------- Maximum sales charge (load) imposed on reinvested dividends none none none - ---------------------------------------------------------------------------------------------------------------------------- Redemption fees none none none - ----------------------------------------------------------------------------------------------------------------------------
14 Annual fund operating expenses are deducted from a Fund's assets.
- --------------------------------------------------------------------------------------------------------- Tax-Free Colorado Fund Tax-Free New Mexico Fund - --------------------------------------------------------------------------------------------------------- Class A B C A B C - --------------------------------------------------------------------------------------------------------- Management fees 0.55% 0.55% 0.55% 0.55% 0.55% 0.55% - --------------------------------------------------------------------------------------------------------- Distribution and service 0.25% 1.00% 1.00% 0.25% 1.00% 1.00% (12b-1) fees - --------------------------------------------------------------------------------------------------------- Other expenses 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% - --------------------------------------------------------------------------------------------------------- Total annual fund operating 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% expenses(4) - ---------------------------------------------------------------------------------------------------------
This example is intended to help you compare the cost of investing in the Funds to the cost of investing in other mutual funds with similar investment objectives. We show the cumulative amount of Fund expenses on a hypothetical investment of $10,000 with an annual 5% return over the time shown.(5) This is an example only, and does not represent future expenses, which may be greater or less than those shown here.
- ------------------------------------------------------------------------------------------------------------------------------------ Tax-Free Colorado Fund Tax-Free New Mexico Fund - ------------------------------------------------------------------------------------------------------------------------------------ CLASS(6) A B B C C A B B C C - ------------------------------------------------------------------------------------------------------ ---------- ------------- (if (if (if (if redeemed) redeemed) redeemed) redeemed) - ------------------------------------------------------------------------------------------------------------------------------------ 1 year - ------------------------------------------------------------------------------------------------------------------------------------ 3 years - ------------------------------------------------------------------------------------------------------------------------------------ 5 years - ------------------------------------------------------------------------------------------------------------------------------------ 10 years - ------------------------------------------------------------------------------------------------------------------------------------
(1) A purchase of Class A shares of $1 million or more may be made at net asset value. However, if you buy the shares through a financial adviser who is paid a commission, a contingent deferred sales charge will apply to certain redemptions. Additional Class A purchase options that involve a contingent deferred sales charge may be permitted from time to time and will be disclosed in the prospectus if they are available. (2) If you redeem Class B shares during the first two years after you buy them, you will pay a contingent deferred sales charge of 4%, which declines to 3% during the third and fourth years, 2% during the fifth year, 1% during the sixth year, and 0% thereafter. (3) Class C shares redeemed within one year of purchase are subject to a 1% contingent deferred sales charge. (4) The investment manager has agreed to waive fees and pay expenses of each Fund through December 31, 1999 in order to prevent total operating expenses (excluding any taxes, interest, brokerage fees, extraordinary expenses and 12b-1 fees) from exceeding 0.75% of average daily net assets. The fees and expenses shown in the table above do not reflect this voluntary expense cap. The following table shows actual operating expenses which are based on the most recently completed fiscal year and reflect the manager's current fee waivers and payments.
- ------------------------------------------------------------------------------------------------------------------------ Actual Fund operating expenses including voluntary expense caps - ------------------------------------------------------------------------------------------------------------------------ Tax-Free Colorado Fund Tax-Free New Mexico Fund - ------------------------------------------------------------------------------------------------------------------------ CLASS A B C A B C - ------------------------------------------------------------------------------------------------------------------------ Management fees 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% - ------------------------------------------------------------------------------------------------------------------------ Distribution and service (12b-1) 0.25% 1.00% 1.00% 0.25% 1.00% 1.00% fees - ------------------------------------------------------------------------------------------------------------------------ Other expenses 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% - ------------------------------------------------------------------------------------------------------------------------ Total operating expenses 1.00% 1.75% 1.75% 1.00% 1.75% 1.75% - ------------------------------------------------------------------------------------------------------------------------
(5) The Fund's actual rate of return may be greater or less than the hypothetical 5% return we use here. Also, this example assumes that the Fund's total operating expenses remain unchanged in each of the periods we show. This example does not reflect the voluntary expense caps described in footnote 4. (6) The Class B example reflects the conversion of Class B shares to Class A shares after approximately eight years. Information for the ninth and tenth years reflects expenses of the Class A shares. 15 Florida and New York Tax-Free Funds What are each Fund's goals? Tax-Free Florida Fund, Tax-Free Florida Insured Fund and Tax-Free New York Fund seek as high a level of current income exempt from federal income tax and from personal income tax in their respective states, as is consistent with preservation of capital. Although each Fund will strive to achieve this goal, there is no assurance that it will. What are each Fund's main investment strategies? Each Fund will invest primarily in municipal bonds and notes that are exempt from federal income taxes and from personal income taxes of its respective state. Municipal securities are debt obligations issued by state and local governments to raise funds for various public purposes such as hospitals, schools and general operating expenses. Each Fund will invest its assets in securities with maturities of various lengths, depending on market conditions. We will attempt to adjust the average maturity of the bonds in the portfolio to provide a high level of tax-exempt income consistent with preservation of capital. Each Fund's income level will vary depending on current interest rates and the specific securities in the portfolio. Both Florida Tax-Free Funds seek to select investments that enable their share to be exempt from the Florida intangible personal property tax. Tax-Free New York Fund seeks to select investments that enable its shares to be exempt from New York City personal income tax. Tax-Free Florida Insured Fund will invest primarily in municipal securities whose scheduled payments of interest and principal are fully insured. This insurance does not protect against changes in the value of the bonds in the portfolio or changes in the value of Fund shares. What are the main risks of investing in each Fund? Investing in any mutual fund involves risk, including the risk that you may lose part or all of the money you invest. The price of Fund shares will increase and decrease according to changes in the value of the securities held by the Funds. These Funds will be affected primarily by adverse changes in interest rates. When interest rates rise, the value of bonds in the portfolios will likely decline and this generally hurts securities with longer maturities more than those with shorter maturities. The Funds may also be affected by the ability of individual municipalities to pay interest and repay principal on the bonds they issue. That ability may be impacted by weak economic conditions in the individual states represented in each Fund's portfolio. All three Funds are non-diversified investment companies under the Investment Company Act of 1940 and may be subject to greater risk than if they were diversified. For a more complete discussion of risk, please turn to page x. An investment in a Fund is not a deposit of any bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other government agency. You should keep in mind that an investment in the Funds is not a complete investment program; it should be considered just one part of your total financial plan. Be sure to discuss these Funds with your financial adviser to determine whether it is an appropriate choice for you. Who should invest in the Funds o Investors seeking monthly income, free from federal and state income taxes. o Investors with long-term financial goals. Who should not invest in the Funds o Investors with very short-term financial goals. o Investors who are unwilling to accept share prices that may fluctuate, especially over the short term. o Investors who are concerned about the special risks associated with concentrating investments in a particular state or region of the country. 16 How have the Funds' performed? This bar chart and table can help you evaluate the potential risks of investing in the Funds. We show calendar year returns for each Fund's Class A shares, as well as the average annual returns of all shares. A Fund's past performance does not necessarily indicate how it will perform in the future. The returns reflect voluntary expense caps. The returns would be lower without the voluntary caps. Year-by-year total return (Class A) [bar chart]
- ------------------------------------------------------------------------------------------------------------------------- Tax-Free Florida Fund Tax-Free Florida Insured Tax-Free New York Fund - ------------------------------------------------------------------------------------------------------------------------- 1989 0.00% - ------------------------------------------------------------------------------------------------------------------------- 1990 0.00% - ------------------------------------------------------------------------------------------------------------------------- 1991 0.00% - ------------------------------------------------------------------------------------------------------------------------- 1992 0.00% 0.00% - ------------------------------------------------------------------------------------------------------------------------- 1993 0.00% 0.00% - ------------------------------------------------------------------------------------------------------------------------- 1994 0.00% 0.00% - ------------------------------------------------------------------------------------------------------------------------- 1995 0.00% 0.00% - ------------------------------------------------------------------------------------------------------------------------- 1996 0.00% 0.00% 0.00% - ------------------------------------------------------------------------------------------------------------------------- 1997 0.00% 0.00% 0.00% - ------------------------------------------------------------------------------------------------------------------------- 1998 0.00% 0.00% 0.00% - -------------------------------------------------------------------------------------------------------------------------
As of September 30, 1999, the Tax-Free Florida Fund's Class A shares had a year-to-date return of 0.00%. During the periods illustrated in this bar chart, Class A's highest quarterly return was 0.00% for the quarter ended _________ and its lowest quarterly return was 0.00% for the quarter ended ____________. As of September 30, 1999, the Tax-Free Florida Insured Fund's Class A shares had a year-to-date return of 0.00%. During the periods illustrated in this bar chart, Class A's highest quarterly return was 0.00% for the quarter ended _________ and its lowest quarterly return was 0.00% for the quarter ended ____________. As of September 30, 1999, the Tax-Free New York Fund's Class A shares had a year-to-date return of 0.00%. During the periods illustrated in this bar chart, Class A's highest quarterly return was 0.00% for the quarter ended _________ and its lowest quarterly return was 0.00% for the quarter ended ____________. The maximum Class A sales charge of 3.75%, which is normally assessed when you purchase shares, is not reflected in the year-by-year total returns above. If this fee were included, the returns would be less than those shown. The average annual returns shown in the table on page __ do include the sales charge. 18
Average Annual Returns for periods ending 12/31/98 - ------------------------------------------------------------------------------------------------------------------------------------ Class A B C (if redeemed)* (if redeemed)* - ------------------------------------------------------------------------------------------------------------------------------------ (inception 3/2/95) (inception 9/15/95) (inception 4/22/95) - ------------------------------------------------------------------------------------------------------------------------------------ 1 year 5 years Lifetime 1 year 5 years Lifetime 1 year 5 years Lifetime - ------------------------------------------------------------------------------------------------------------------------------------ Tax-Free Florida Fund - ------------------------------------------------------------------------------------------------------------------------------------ Lehman Brothers Municipal Bond Index - ------------------------------------------------------------------------------------------------------------------------------------ (inception 1/1/92) (inception 3/11/94) - ------------------------------------------------------------------------------------------------------------------------------------ 1 year 5 years Lifetime 1 year 5 years Lifetime 1 year 5 years Lifetime - ------------------------------------------------------------------------------------------------------------------------------------ Tax-Free Florida Insured N/A N/A N/A Fund - ------------------------------------------------------------------------------------------------------------------------------------ Lehman Brothers Insured N/A N/A N/A Municipal Bond Index - ------------------------------------------------------------------------------------------------------------------------------------ (inception 11/6/87) (inception 11/14/94) (inception 4/26/95) - ------------------------------------------------------------------------------------------------------------------------------------ 1 year 5 years 10 years 1 year 5 years Lifetime 1 year 5 years Lifetime - ------------------------------------------------------------------------------------------------------------------------------------ Tax-Free New York Fund - ------------------------------------------------------------------------------------------------------------------------------------ Lehman Brothers Municipal Bond Index - ------------------------------------------------------------------------------------------------------------------------------------
The table above shows average annual returns compared to the performance of the Lehman Brothers Municipal Bond Index and the Lehman Brothers Insured Municipal Bond Index. You should remember that unlike the Funds, the indexes are unmanaged and don't reflect the actual costs of operating a mutual fund, such as the costs of buying, selling, and holding securities. * If redeemed at end of period shown. If shares were not redeemed, the returns for Tax-Free Florida Fund's Class B would be 0.00% and 0.00% for the one-year and lifetime periods, respectively, the returns for Tax-Free Florida Insured Fund's Class B would be 0.00% and 0.00% for the one-year and lifetime periods, respectively, and the returns for Tax-Free New York Fund's Class B would be 0.00% and 0.00% for the one-year and lifetime periods, respectively. Returns for Tax-Free Florida Fund's Class C would be 0.00% and 0.00% for the one-year and lifetime periods, respectively, and returns for Tax-Free New York Fund's Class C would be 0.00% and 0.00% for the one-year and lifetime periods, respectively. What are the Funds' fees and expenses? Sales charges are fees paid directly from your investments when you buy or sell shares of the Funds.
- ---------------------------------------------------------------------------------------------------------------------------- CLASS A B C - ---------------------------------------------------------------------------------------------------------------------------- Maximum sales charge (load) imposed on purchases as a percentage of offering price 3.75% none none - ---------------------------------------------------------------------------------------------------------------------------- Maximum contingent deferred sales charge (load) As a percentage of original purchase price or redemption none(1) 4%(2) 1%(3) price, whichever is lower - ---------------------------------------------------------------------------------------------------------------------------- Maximum sales charge (load) imposed on reinvested dividends none none none - ---------------------------------------------------------------------------------------------------------------------------- Redemption fees none none none - ----------------------------------------------------------------------------------------------------------------------------
19
Annual fund operating expenses are deducted from a Fund's assets. - ------------------------------------------------------------------------------------------------------------ Tax-Free Florida Fund Tax-Free Florida Insured Tax-Free New York Fund Fund - ------------------------------------------------------------------------------------------------------------ Class A B C A B C A B C - ------------------------------------------------------------------------------------------------------------ Management fees 0.55% 0.55% 0.55% 0.55% 0.55% 0.55% 0.55% 0.55% 0.55% - ------------------------------------------------------------------------------------------------------------ Distribution and service 0.25% 0.25% 1.00% 1.00% 1.00% 1.00% 0.25% 1.00% 1.00% (12b-1) fees - ------------------------------------------------------------------------------------------------------------ Other expenses 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% - ------------------------------------------------------------------------------------------------------------ Total annual fund 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% operating expenses(4) - ------------------------------------------------------------------------------------------------------------
This example is intended to help you compare the cost of investing in the Funds to the cost of investing in other mutual funds with similar investment objectives. We show the cumulative amount of Fund expenses on a hypothetical investment of $10,000 with an annual 5% return over the time shown.(5) This is an example only, and does not represent future expenses, which may be greater or less than those shown here.
- --------------------------------------------------------------------------------------------------------------- Tax-Free Florida Fund Tax-Free Florida Insured Fund - --------------------------------------------------------------------------------------------------------------- CLASS(6) A B B C C A B B C C - --------------------------------------------------------------------------------------------------------------- (if (if (if (if redeemed) redeemed) redeemed) redeemed) - --------------------------------------------------------------------------------------------------------------- 1 year - --------------------------------------------------------------------------------------------------------------- 3 years - --------------------------------------------------------------------------------------------------------------- 5 years - --------------------------------------------------------------------------------------------------------------- 10 years - --------------------------------------------------------------------------------------------------------------- Tax-Free New York Fund - ------------------------------------------------------------ CLASS(6) A B B C C - ---------- ------- ------- ----------- -------- ------------ (if (if redeemed) redeemed) - ------------------------------------------------------- 1 year - ------------------------------------------------------- 3 years - ------------------------------------------------------- 5 years - ------------------------------------------------------- 10 years - -------------------------------------------------------
(1) A purchase of Class A shares of $1 million or more may be made at net asset value. However, if you buy the shares through a financial adviser who is paid a commission, a contingent deferred sales charge will apply to certain redemptions. Additional Class A purchase options that involve a contingent deferred sales charge may be permitted from time to time and will be disclosed in the prospectus if they are available. (2) If you redeem Class B shares during the first two years after you buy them, you will pay a contingent deferred sales charge of 4%, which declines to 3% during the third and fourth years, 2% during the fifth year, 1% during the sixth year, and 0% thereafter. (3) Class C shares redeemed within one year of purchase are subject to a 1% contingent deferred sales charge. (4) The investment manager has agreed to waive fees and pay expenses of each Fund through December 31, 1999 in order to prevent total operating expenses (excluding any taxes, interest, brokerage fees and extraordinary expenses but including 12b-1 fees) from exceeding the amounts corresponding to Total Operating Expenses in the table below. The fees and expenses shown in the table above do not reflect this voluntary expense cap. The following table shows actual operating expenses which are based on the most recently completed fiscal year and reflect the manager's current fee waivers and payments.
- ------------------------------------------------------------------------------------------------------------------------ Actual Fund operating expenses including voluntary expense caps as a percentage of average daily net assets - ------------------------------------------------------------------------------------------------------------------------ Tax-Free Florida Fund Tax-Free Florida Insured Fund Tax-Free New York Fund - ------------------------------------------------------------------------------------------------------------------------ CLASS A B C A B C A B C - ------------------------------------------------------------------------------------------------------------------------ Management fees 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% - ------------------------------------------------------------------------------------------------------------------------ Distribution and service 0.25% 1.00% 1.00% 0.25% 1.00% 1.00% 0.25% 1.00% 1.00% (12b-1) fees - ------------------------------------------------------------------------------------------------------------------------ Other expenses 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% - ------------------------------------------------------------------------------------------------------------------------ Total operating expenses 0.75% 1.50% 1.50% 0.90% 1.65% 1.65% 0.50% 1.25% 1.25% - ------------------------------------------------------------------------------------------------------------------------
(5) The Fund's actual rate of return may be greater or less than the hypothetical 5% return we use here. Also, this example assumes that the Fund's total operating expenses remain unchanged in each of the periods we show. This example does not reflect the voluntary expense cap for the Funds described in footnote 4. (6) The Class B example reflects the conversion of Class B shares to Class A shares after approximately eight years. Information for the ninth and tenth years reflects expenses of the Class A shares. 20 Minnesota Tax-Exempt Funds What are each Fund's goals? Tax-Free Minnesota Fund and Minnesota Insured Fund seek as high a level of current income exempt from federal income tax and from the Minnesota state personal income tax, as is consistent with preservation of capital. Although each Fund will strive to achieve this goal, there is no assurance that it will. Tax-Free Minnesota Intermediate Fund seeks to provide investors with preservation of capital and, secondarily, current income exempt from federal income tax and Minnesota state personal income tax, by maintaining a weighted average portfolio maturity of 10 years or less. What are each Fund's main investment strategies? Each Fund will invest primarily in municipal bonds and notes that are exempt from federal and Minnesota state income taxes. Municipal securities are debt obligations issued by state and local governments to raise funds for various public purposes such as hospitals, schools and general operating expenses. Each Fund will invest its assets in securities with maturities of various lengths, depending on market conditions. We will attempt to adjust the average maturity of the bonds in the portfolio to provide a high level of tax-exempt income consistent with preservation of capital. Each Fund's income level will vary depending on current interest rates and the specific securities in the portfolio. Minnesota Insured Fund will invest primarily in municipal securities whose scheduled payments of interest and principal are fully insured. This insurance does not protect against changes in the value of the bonds in the portfolio or changes in the value of Fund shares. What are the main risks of investing in each Fund? Investing in any mutual fund involves risk, including the risk that you may lose part or all of the money you invest. The price of Fund shares will increase and decrease according to changes in the value of the securities held by the Fund. These Funds will be affected primarily by adverse changes in interest rates. When interest rates rise, the value of bonds in the portfolio will likely decline and this generally hurts securities with longer maturities more than those with shorter maturities. The Funds may also be affected by the ability of individual municipalities to pay interest and repay principal on the bonds they issue. That ability may be impacted by weak economic conditions in Minnesota. Each Fund is a non-diversified investment company under the Investment Company Act of 1940 and may be subject to greater risk than if they were diversified. Minnesota Insured Fund is permitted to invest up to 100% of its assets in securities that are subject to the federal alternative minimum tax. Income from these securities would be taxable to shareholders who are subject to that tax. For a more complete discussion of risk, please turn to page x. An investment in a Fund is not a deposit of any bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other government agency. You should keep in mind that an investment in the Funds is not a complete investment program; it should be considered just one part of your total financial plan. Be sure to discuss these Funds with your financial adviser to determine whether it is an appropriate choice for you. Who should invest in the Funds o Investors seeking monthly income, free from federal and Minnesota personal income taxes. o Investors with long-term financial goals. Who should not invest in the Funds o Investors with very short-term financial goals. o Investors who are unwilling to accept share prices that may flucutate, especially over the short term. o Investors who are concerned about the special risks associated with concentrating investments in a particular state or region of the country. 22 Minnesota Tax-Exempt Funds (continued) What are the Fund's goals? Minnesota High-Yield Municipal Bond Fund seeks as high a level of current income exempt from federal income tax and from Minnesota personal income tax, primarily through investment in medium- and lower-grade municipal obligations. Although the Fund will strive to achieve this goal, there is no assurance that it will. The Fund's investment objective is non-fundamental, that is, the Board of Trustees may change its objective. What are the Fund's main investment strategies? The Fund will invest primarily in municipal bonds and notes that are exempt from federal and Minnesota state personal income taxes. Municipal securities are debt obligations issued by state and local governments to raise funds for various public purposes such as hospitals, schools and general operating expenses. The Fund will invest its assets in securities with maturities of various lengths, depending on market conditions. We will attempt to adjust the average maturity of the bonds in the portfolio to provide a high level of tax-exempt income consistent with preservation of capital. The Fund's income level will vary depending on current interest rates and the specific securities in the portfolio. Minnesota High-Yield Municipal Bond Fund will invest primarily in lower rated municipal securities (junk bonds), which typically offer higher income potential and involve greater risk than higher quality securities. What are the main risks of investing in the Fund? Investing in any mutual fund involves risk, including the risk that you may lose part or all of the money you invest. The price of Fund shares will increase and decrease according to changes in the value of the securities held by the Fund. This Fund will be affected primarily by adverse changes in interest rates. When interest rates rise, the value of bonds in the portfolio will likely decline and this generally hurts securities with longer maturities more than those with shorter maturities. The Fund may also be affected by the ability of individual municipalities to pay interest and repay principal on the bonds they issue. That ability may be impacted by weak economic conditions in Minnesota. This risk is even greater for Minnesota High-Yield Municipal Bond Fund because the Fund will invest a larger portion of its assets in non-investment grade municipalities. Non-investment grade bonds are generally considered to be in a less secure financial situation and may be affected more by adverse economic conditions. The Fund is a non-diversified investment companies under the Investment Company Act of 1940 and may be subject to greater risk than if it were diversified. Minnesota High-Yield Municipal Bond Fund is permitted to invest up to 100% of its assets in securities that are subject to the federal alternative minimum tax. Income from these securities would be taxable to shareholders who are subject to that tax. For a more complete discussion of risk, please turn to page x. An investment in the Fund is not a deposit of any bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other government agency. You should keep in mind that an investment in the Fund is not a complete investment program; it should be considered just one part of your total financial plan. Be sure to discuss this Fund with your financial adviser to determine whether it is an appropriate choice for you. Who should invest in the Fund o Investors seeking monthly income, free from federal and Minnesota personal income taxes. o Investors with long-term financial goals. Who should not invest in the Fund o Investors with very short-term financial goals. o Investors who are unwilling to accept share prices that may flucutate, especially over the short term. o Investors who are concerned about the special risks associated with concentrating investments in a particular state or region of the country. 23 How have the Funds' performed? This bar chart and table can help you evaluate the potential risks of investing in the Funds. We show calendar year returns for the Fund's Class A shares, as well as the average annual returns of all shares. A Fund's past performance does not necessarily indicate how it will perform in the future. The returns reflect voluntary expense caps. The returns would be lower without the voluntary caps. Year-by-year total return (Class A) [bar chart]
- ------------- ---------------- --------------- --------------------- --------------------- Tax-Free Minnesota Tax-Free Minnesota Minnesota Minnesota Fund Insured Fund Intermediate Fund High-Yield Municipal Bond Fund - ------------- ---------------- --------------- --------------------- --------------------- 1989 0.00% 0.00% 0.00% - ------------- ---------------- --------------- --------------------- --------------------- 1990 0.00% 0.00% 0.00% - ------------- ---------------- --------------- --------------------- --------------------- 1991 0.00% 0.00% 0.00% - ------------- ---------------- --------------- --------------------- --------------------- 1992 0.00% 0.00% 0.00% - ------------- ---------------- --------------- --------------------- --------------------- 1993 0.00% 0.00% 0.00% - ------------- ---------------- --------------- --------------------- --------------------- 1994 0.00% 0.00% 0.00% - ------------- ---------------- --------------- --------------------- --------------------- 1995 0.00% 0.00% 0.00% - ------------- ---------------- --------------- --------------------- --------------------- 1996 0.00% 0.00% 0.00% - ------------- ---------------- --------------- --------------------- --------------------- 1997 0.00% 0.00% 0.00% 0.00% - ------------- ---------------- --------------- --------------------- --------------------- 1998 0.00% 0.00% 0.00% 0.00% - ------------- ---------------- --------------- --------------------- ---------------------
As of September 30, 1999, the Tax-Free Minnesota Fund's Class A shares had a year-to-date return of 0.00%. During the periods illustrated in this bar chart, Class A's highest quarterly return was 0.00% for the quarter ended _________ and its lowest quarterly return was 0.00% for the quarter ended ____________. As of September 30, 1999, the Minnesota Insured Fund's Class A shares had a year-to-date return of 0.00%. During the periods illustrated in this bar chart, Class A's highest quarterly return was 0.00% for the quarter ended _________ and its lowest quarterly return was 0.00% for the quarter ended ____________. As of September 30, 1999, the Tax-Free Minnesota Intermediate Fund's Class A shares had a year-to-date return of 0.00%. During the periods illustrated in this bar chart, Class A's highest quarterly return was 0.00% for the quarter ended _________ and its lowest quarterly return was 0.00% for the quarter ended ____________. As of September 30, 1999, the Minnesota High-Yield Municipal Bond Fund's Class A shares had a year-to-date return of 0.00%. During the periods illustrated in this bar chart, Class A's highest quarterly return was 0.00% for the quarter ended _________ and its lowest quarterly return was 0.00% for the quarter ended ____________. The maximum Class A sales charge of 3.75% for Tax-Free Minnesota Fund, Minnesota Insured Fund, and Minnesota High-Yield Municipal Bond Fund, and 2.75% for Tax-Free Minnesota Intermediate Fund, which is normally assessed when you purchase shares, is not reflected in the year-by-year total returns above. If this fee were included, the returns would be less than those shown. The average annual returns shown in the table on page __ do include the sales charge. 24
Average Annual Returns for periods ending 12/31/98 - ---------------------------------- --------------------------------- --------------------------------- ----------------------------- Class A B C (if redeemed)* (if redeemed)** - ---------------------------------- --------------------------------- --------------------------------- ----------------------------- (inception 2/29/84) (inception 3/11/95) (inception 5/4/94) - ---------------------------------- --------------------------------- --------------------------------- ----------------------------- 1 year 5 years 10 years 1 year 5 years Lifetime 1 year 5 years Lifetime - ---------------------------------- ---------- --------- ------------ ---------- ---------- ----------- -------- ---------- --------- Tax-Free Minnesota Fund - ---------------------------------- ---------- --------- ------------ ---------- ---------- ----------- -------- ---------- --------- Lehman Brothers Municipal Bond Index - ---------------------------------- --------------------------------- --------------------------------- ----------------------------- (inception 5/1/87) (inception 3/7/95) (inception 5/4/94) - ---------------------------------- ---------- --------- ------------ ---------- ---------- ----------- -------- ---------- --------- 1 year 5 years 10 years 1 year 5 years Lifetime 1 year 5 years Lifetime - ---------------------------------- ---------- --------- ------------ ---------- ---------- ----------- -------- ---------- --------- Minnesota Insured Fund - ---------------------------------- ---------- --------- ------------ ---------- ---------- ----------- -------- ---------- --------- Lehman Brothers Insured Municipal Bond Index - ---------------------------------- --------------------------------- --------------------------------- ----------------------------- (inception 10/27/85) (inception 8/15/95) (inception 5/4/94) - ---------------------------------- ---------- --------- ------------ ---------- ---------- ----------- -------- ---------- --------- 1 year 5 years 10 years 1 year 5 years Lifetime 1 year 5 years Lifetime - ---------------------------------- ---------- --------- ------------ ---------- ---------- ----------- -------- ---------- --------- Tax-Free Minnesota Intermediate Fund - ---------------------------------- ---------- --------- ------------ ---------- ---------- ----------- -------- ---------- --------- Lehman Brothers Five-Year Municipal Bond Index - ---------------------------------- --------------------------------- --------------------------------- ----------------------------- (inception 6/4/96) (inception 6/12/96) (inception 6/12/96) - ---------------------------------- --------------------------------- --------------------------------- ----------------------------- 1 year 5 years Lifetime 1 year 5 years Lifetime 1 year 5 years Lifetime - ---------------------------------- ---------- --------- ------------ ---------- ---------- ----------- -------- ---------- --------- Minnesota High-Yield Municipal Bond Fund - ---------------------------------- ---------- --------- ------------ ---------- ---------- ----------- -------- ---------- --------- Lehman Brothers Municipal Bond Index - ---------------------------------- ---------- --------- ------------ ---------- ---------- ----------- -------- ---------- ---------
The table above shows average annual returns compared to the performance of certain indexes. You should remember that unlike the Funds, the indexes are unmanaged and don't reflect the actual costs of operating a mutual fund, such as the costs of buying, selling, and holding securities. * If redeemed at end of period shown. If shares were not redeemed, the returns for Tax-Free Minnesota Fund's Class B would be 0.00% and 0.00% for the one-year and lifetime periods, respectively, the returns for Minnesota Insured Fund's Class B would be 0.00% and 0.00% for the one-year and lifetime periods, respectively, the returns for Tax-Free Minnesota Intermediate Fund's Class B would be 0.00% and 0.00% for the one-year and lifetime periods, respectively, and the returns for Minnesota High-Yield Municipal Bond Fund's Class B would be 0.00% and 0.00% for the one-year and lifetime periods, respectively. ** If redeemed at end of period shown. If shares were not redeemed, the returns for Tax-Free Minnesota Fund's Class C would be 0.00% and 0.00% for the one-year and lifetime periods, respectively, the returns for Minnesota Insured Fund's Class C would be 0.00% and 0.00% for the one-year and lifetime periods, respectively, the returns for Tax-Free Minnesota Intermediate Fund's Class C would be 0.00% and 0.00% for the one-year and lifetime periods, respectively, and the returns for Minnesota High-Yield Municipal Bond Fund's Class C would be 0.00% and 0.00% for the one-year and lifetime periods, respectively. 25 What are the Funds' fees and expenses? Sales charges are fees paid directly from your investments when you buy or sell shares of the Funds.
- ------------------------------------------ ------------------------------------------------ ---------------------------------------- Tax-Free Minnesota Fund Minnesota Insured Fund Minnesota High-Yield Municipal Bond Fund Tax-Free Minnesota Intermediate Fund - ------------------------------------------ ---------------- --------------- --------------- --------------- -------------- --------- CLASS A B C A B C - ------------------------------------------ ---------------- --------------- --------------- --------------- -------------- --------- Maximum sales charge (load) imposed on purchases as a percentage of offering 3.75% none none 2.75% none none price - ------------------------------------------ ---------------- --------------- --------------- --------------- -------------- --------- Maximum contingent deferred sales charge (load) none(1) 4%(2) 1%(3) none(1) 2%(4) 1%(3) As a percentage of original purchase price or redemption price, whichever is lower - ------------------------------------------ ---------------- --------------- --------------- --------------- -------------- --------- Maximum sales charge (load) imposed on none none none none none none reinvested dividends - ------------------------------------------ ---------------- --------------- --------------- --------------- -------------- --------- Redemption fees none none none none none none - ------------------------------------------ ---------------- --------------- --------------- --------------- -------------- ---------
Annual fund operating expenses are deducted from a Fund's assets.
- ------------------------------------------------- ---------------------------- -------------------------- -------------------------- Tax-Free Minnesota Fund Minnesota Insured Fund Tax-Free Minnesota Minnesota High-Yield Intermediate Fund Municipal Bond Fund - ------------------------------------------------- ---------------------------- -------------------------- -------------------------- Class A B C A B C A B C A B C - ---------------------- -------- ------- --------- --------- --------- -------- --------- ------- -------- -------- -------- -------- Management fees 0.55% 0.55% 0.55% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.55% 0.55% 0.55% - ---------------------- -------- ------- --------- --------- --------- -------- --------- ------- -------- -------- -------- -------- Distribution and 0.25% 1.00% 1.00% 0.25% 1.00% 1.00% 0.15%(6) 1.00% 1.00% 0.25% 1.00% 1.00% service (12b-1) fees - ---------------------- -------- ------- --------- --------- --------- -------- --------- ------- -------- -------- -------- -------- Other expenses 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% - ---------------------- -------- ------- --------- --------- --------- -------- --------- ------- -------- -------- -------- -------- Total annual fund 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% operating expenses(5) - ---------------------- -------- ------- --------- --------- --------- -------- --------- ------- -------- -------- -------- --------
This example is intended to help you compare the cost of investing in the Funds to the cost of investing in other mutual funds with similar investment objectives. We show the cumulative amount of Fund expenses on a hypothetical investment of $10,000 with an annual 5% return over the time shown.(7) This is an example only, and does not represent future expenses, which may be greater or less than those shown here.
- ------------------------------------------------------------- -------------------------------------------------- Tax-Free Minnesota Fund(8) Minnesota Insured Fund(8) - ------------------------------------------------------------- -------------------------------------------------- CLASS A B B C C A B B C C - ----------- ------- ------- ----------- -------- ------------ -------- ------ ------------ -------- ------------ (if (if (if (if redeemed) redeemed) redeemed) redeemed) - ----------- ------- ------- ----------- -------- ------------ -------- ------ ------------ -------- ------------ 1 year - ----------- ------- ------- ----------- -------- ------------ -------- ------ ------------ -------- ------------ 3 years - ----------- ------- ------- ----------- -------- ------------ -------- ------ ------------ -------- ------------ 5 years - ----------- ------- ------- ----------- -------- ------------ -------- ------ ------------ -------- ------------ 10 years - ------------------------------------------------------------- -------------------------------------------------- Tax-Free Minnesota Intermediate Fund(8) Minnesota High-Yield Municipal Bond Fund(9) - ----------- ------- ------- ----------- -------- ------------ -------- ------ ------------ -------- ------------ CLASS A B B C C A B B C C - ----------- ------- ------- ----------- -------- ------------ -------- ------ ------------ -------- ------------ (if (if (if (if redeemed) redeemed) redeemed) redeemed) - ----------- ------- ------- ----------- -------- ------------ -------- ------ ------------ -------- ------------ 1 year - ----------- ------- ------- ----------- -------- ------------ -------- ------ ------------ -------- ------------ 3 years - ----------- ------- ------- ----------- -------- ------------ -------- ------ ------------ -------- ------------ 5 years - ----------- ------- ------- ----------- -------- ------------ -------- ------ ------------ -------- ------------ 10 years - ----------- ------- ------- ----------- -------- ------------ -------- ------ ------------ -------- ------------
26 (1) A purchase of Class A shares of $1 million or more may be made at net asset value. However, if you buy the shares through a financial adviser who is paid a commission, a contingent deferred sales charge will apply to certain redemptions. Additional Class A purchase options that involve a contingent deferred sales charge may be permitted from time to time and will be disclosed in the prospectus if they are available. (2) If you redeem Class B shares during the first two years after you buy them, you will pay a contingent deferred sales charge of 4%, which declines to 3% during the third and fourth years, 2% during the fifth year, 1% during the sixth year, and 0% thereafter. (3) Class C shares redeemed within one year of purchase are subject to a 1% contingent deferred sales charge. (4) If you redeem Class B shares during the first two years after you buy them, you will pay a contingent deferred sales charge of 2%, which declines to 1% during the third year, and 0% thereafter. (5) The investment manager has agreed to waive fees and pay expenses of each Fund through December 31, 1999 in order to prevent total operating expenses (excluding any taxes, interest, brokerage fees, extraordinary expenses but including 12b-1 fees) from exceeding the amounts corresponding to Total operating expenses in the table below. The fees and expenses shown in the table above do not reflect this voluntary expense cap. The following table shows actual operating expenses which are based on the most recently completed fiscal year and reflect the manager's current fee waivers and payments.
- ------------------------------------------------------------------------------------------------------------------------------------ Actual Fund operating expenses including voluntary expense caps as a percentage of average daily net assets - ------------------------------------------------------------------------------------------------------------------------------------ Tax-Free Minnesota Fund Minnesota Insured Fund Tax-Free Minnesota Minnesota High-Yield Intermediate Fund Municipal Bond Fund - ------------------ --------- --------- --------- --------- --------- --------- -------- --------- ------ --------- --------- ------- CLASS A B C A B C A B C A B C - ------------------ --------- --------- --------- --------- --------- --------- -------- --------- ------ --------- --------- ------- Management fees 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% - ------------------ --------- --------- --------- --------- --------- --------- -------- --------- ------ --------- --------- ------- Distribution and 0.25% 1.00% 1.00% 0.25% 1.00% 1.00% 0.15% 1.00% 1.00% 0.25% 1.00% 1.00% service (12b-1) fees - ------------------ --------- --------- --------- --------- --------- --------- -------- --------- ------ --------- --------- ------- Other expenses 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% - ------------------ --------- --------- --------- --------- --------- --------- -------- --------- ------ --------- --------- ------- Total operating 1.00% 1.75% 1.75% 1.00% 1.75% 1.75% 1.00% 1.75% 1.75% 0.75% 1.50% 1.50% expenses - ------------------ --------- --------- --------- --------- --------- --------- -------- --------- ------ --------- --------- -------
(6) The 12b-1 Plan expenses for Tax-Free Minnesota Fund's Class A shares have been set at 0.15% of average daily net assets. The maximum fees payable under Class A's 12b-1 Plan are 0.25% of average daily net assets. (7) The Fund's actual rate of return may be greater or less than the hypothetical 5% return we use here. Also, this example assumes that the Fund's total operating expenses remain unchanged in each of the periods we show. This example does not reflect the voluntary expense cap for the Funds described in footnote 5. (8) The Class B example reflects the conversion of Class B shares to Class A shares after approximately eight years. Information for the ninth and tenth years reflects expenses of the Class A shares. (9) The Class B example reflects the conversion of Class B shares to Class A shares after approximately five years. Information for years six through ten reflects expenses of the Class A shares. 27 Missouri Insured and Oregon Insured Tax-Free Funds What are each Fund's goals? Tax-Free Missouri Insured Fund and Tax-Free Oregon Insured Fund seek as high a level of current income exempt from federal income tax and from the personal income tax in their respective states, as is consistent with preservation of capital. Although each Fund will strive to achieve this goal, there is no assurance that it will. What are each Fund's main investment strategies? Each Fund will invest primarily in municipal bonds and notes that are exempt from federal income tax and from the state personal income tax in their respective states. Municipal securities are debt obligations issued by state and local governments to raise funds for various public purposes such as hospitals, schools and general operating expenses. Each Fund will invest its assets in securities with maturities of various lengths, depending on market conditions. We will attempt to adjust the average maturity of the bonds in the portfolio to provide a high level of tax-exempt income consistent with preservation of capital. Each Fund's income level will vary depending on current interest rates and the specific securities in the portfolio. Each Fund will invest primarily in municipal securities whose scheduled payments of interest and principal are fully insured. This insurance does not protect against changes in the value of the bonds in the portfolio or changes in the value of Fund shares. What are the main risks of investing in each Fund? Investing in any mutual fund involves risk, including the risk that you may lose part or all of the money you invest. The price of Fund shares will increase and decrease according to changes in the value of the securities held by the Funds. These Funds will be affected primarily by adverse changes in interest rates. When interest rates rise, the value of bonds in the portfolios will likely decline and this generally hurts securities with longer maturities more than those with shorter maturities. The Funds may also be affected by the ability of individual municipalities to pay interest and repay principal on the bonds they issue. That ability may be impacted by weak economic conditions in the individual states represented in each Fund's portfolio. All three Funds are non-diversified investment companies under the Investment Company Act of 1940 and may be subject to greater risk than if they were diversified. For a more complete discussion of risk, please turn to page x. An investment in a Fund is not a deposit of any bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other government agency. You should keep in mind that an investment in the Funds is not a complete investment program; it should be considered just one part of your total financial plan. Be sure to discuss these Funds with your financial adviser to determine whether it is an appropriate choice for you. Who should invest in the Funds o Investors seeking monthly income, free from federal and state income taxes. o Investors with long-term financial goals. Who should not invest in the Funds o Investors with very short-term financial goals. o Investors who are unwilling to accept share prices that may fluctuate, especially over the short term. o Investors who are concerned about the special risks associated with concentrating investments in a particular state or region of the country. 28 How have the Funds' performed? This bar chart and table can help you evaluate the potential risks of investing in the Funds. We show calendar year returns for each Fund's Class A shares, as well as the average annual returns of all shares. A Fund's past performance does not necessarily indicate how it will perform in the future. The returns reflect voluntary expense caps. The returns would be lower without the voluntary caps. Year-by-year total return (Class A) [bar chart] - ------------- ------------------------------- ---------------------------------- Tax-Free Missouri Insured Tax-Free Oregon Insured Fund Fund - ------------- ------------------------------- ---------------------------------- 1993 0.00% - ------------- ------------------------------- ---------------------------------- 1994 0.00% 0.00% - ------------- ------------------------------- ---------------------------------- 1995 0.00% 0.00% - ------------- ------------------------------- ---------------------------------- 1996 0.00% 0.00% - ------------- ------------------------------- ---------------------------------- 1997 0.00% 0.00% - ------------- ------------------------------- ---------------------------------- 1998 0.00% 0.00% - ------------- ------------------------------- ---------------------------------- As of September 30, 1999, the Tax-Free Missouri Insured Fund's Class A shares had a year-to-date return of 0.00%. During the periods illustrated in this bar chart, Class A's highest quarterly return was 0.00% for the quarter ended _________ and its lowest quarterly return was 0.00% for the quarter ended ____________. As of September 30, 1999, the Tax-Free Oregon Insured Fund's Class A shares had a year-to-date return of 0.00%. During the periods illustrated in this bar chart, Class A's highest quarterly return was 0.00% for the quarter ended _________ and its lowest quarterly return was 0.00% for the quarter ended ____________. The maximum Class A sales charge of 3.75%, which is normally assessed when you purchase shares, is not reflected in the year-by-year total returns above. If this fee were included, the returns would be less than those shown. The average annual returns shown in the table on page __ do include the sales charge. 29
Average Annual Returns for periods ending 12/31/98 - ---------------------------------- --------------------------------- --------------------------------- ----------------------------- Class A B C (if redeemed)* (if redeemed)* - ---------------------------------- --------------------------------- --------------------------------- ----------------------------- (inception 11/2/92) (inception 3/12/94) (inception 11/11/95) - ---------------------------------- ---------- --------- ------------ ---------- ---------- ----------- -------- ---------- --------- 1 year 5 years Lifetime 1 year 5 years Lifetime 1 year 5 years Lifetime - ---------------------------------- ---------- --------- ------------ ---------- ---------- ----------- -------- ---------- --------- Tax-Free Missouri Insured Fund - ---------------------------------- ---------- --------- ------------ ---------- ---------- ----------- -------- ---------- --------- Lehman Brothers Insured Municipal Bond Index - ---------------------------------- --------------------------------- --------------------------------- ----------------------------- (inception 8/1/93) (inception 3/12/94) (inception 7/7/95) - ---------------------------------- ---------- --------- ------------ ---------- ---------- ----------- -------- ---------- --------- Tax-Free Oregon Insured Fund - ---------------------------------- ---------- --------- ------------ ---------- ---------- ----------- -------- ---------- --------- Lehman Brothers Insured Municipal Bond Index - ---------------------------------- ---------- --------- ------------ ---------- ---------- ----------- -------- ---------- ---------
The table above shows average annual returns compared to the performance of the Lehman Brothers Insured Municipal Bond Index. You should remember that unlike the Funds, the index is unmanaged and doesn't reflect the actual costs of operating a mutual fund, such as the costs of buying, selling, and holding securities. * If redeemed at end of period shown. If shares were not redeemed, the returns for Tax-Free Missouri Insured Fund's Class B would be 0.00% and 0.00% for the one-year and lifetime periods, respectively, and the returns for Tax-Free Oregon Insured Fund's Class B would be 0.00% and 0.00% for the one-year and lifetime periods, respectively. Returns for Tax-Free Missouri Insured Fund's Class C would be 0.00% and 0.00% for the one-year and lifetime periods, respectively, and returns for Tax-Free Oregon Insured Fund's Class C would be 0.00% and 0.00% for the one-year and lifetime periods, respectively. What are the Funds' fees and expenses? Sales charges are fees paid directly from your investments when you buy or sell shares of the Funds.
- -------------------------------------------------------------- ------------------- ------------------- ------------------------ CLASS A B C - -------------------------------------------------------------- ------------------- ------------------- ------------------------ Maximum sales charge (load) imposed on purchases as a percentage of offering price 3.75% none none - -------------------------------------------------------------- ------------------- ------------------- ------------------------ Maximum contingent deferred sales charge (load) As a percentage of original purchase price or redemption none(1) 4%(2) 1%(3) price, whichever is lower - -------------------------------------------------------------- ------------------- ------------------- ------------------------ Maximum sales charge (load) imposed on reinvested dividends none none none - -------------------------------------------------------------- ------------------- ------------------- ------------------------ Redemption fees none none none - -------------------------------------------------------------- ------------------- ------------------- ------------------------
30
Annual fund operating expenses are deducted from a Fund's assets. ---------------------------------------------------------------------- ---------------------------------- Tax-Free Missouri Insured Fund Tax-Free Oregon Insured Fund ---------------------------------------------------------------------- ---------------------------------- Class A B C A B C --------------------------------- ----------- ------------ ----------- ---------- ---------- ------------ Management fees 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% --------------------------------- ----------- ------------ ----------- ---------- ---------- ------------ Distribution and service 0.25% 1.00% 1.00% 0.25% 1.00% 1.00% (12b-1) fees --------------------------------- ----------- ------------ ----------- ---------- ---------- ------------ Other expenses 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% --------------------------------- ----------- ------------ ----------- ---------- ---------- ------------ Total annual fund operating 0.00% 0.00% 0.00% 0.00%(4) 0.00%(4) 0.00%(4) expenses --------------------------------- ----------- ------------ ----------- ---------- ---------- ------------
This example is intended to help you compare the cost of investing in the Funds to the cost of investing in other mutual funds with similar investment objectives. We show the cumulative amount of Fund expenses on a hypothetical investment of $10,000 with an annual 5% return over the time shown.(5) This is an example only, and does not represent future expenses, which may be greater or less than those shown here.
- ------------------------------------------------------------------------ ----------------------------------------------------------- Tax-Free Missouri Insured Fund Tax-Free Oregon Insured Fund - --------------- -------- -------- ------------ ---------- ------------- ---------- ---------- ------------- ---------- ------------- CLASS(6) A B B C C A B B C C - --------------- -------- -------- ------------ ---------- ------------- ---------- ---------- ------------- ---------- ---------- (if redeemed) (if redeemed) (if redeemed) (if redeemed) - --------------- -------- -------- ------------ ---------- ------------- ---------- ---------- ------------- ---------- ------------- 1 year - --------------- -------- -------- ------------ ---------- ------------- ---------- ---------- ------------- ---------- ------------- 3 years - --------------- -------- -------- ------------ ---------- ------------- ---------- ---------- ------------- ---------- ------------- 5 years - --------------- -------- -------- ------------ ---------- ------------- ---------- ---------- ------------- ---------- ------------- 10 years - --------------- -------- -------- ------------ ---------- ------------- ---------- ---------- ------------- ---------- -------------
(1) A purchase of Class A shares of $1 million or more may be made at net asset value. However, if you buy the shares through a financial adviser who is paid a commission, a contingent deferred sales charge will apply to certain redemptions. Additional Class A purchase options that involve a contingent deferred sales charge may be permitted from time to time and will be disclosed in the prospectus if they are available. (2) If you redeem Class B shares during the first two years after you buy them, you will pay a contingent deferred sales charge of 4%, which declines to 3% during the third and fourth years, 2% during the fifth year, 1% during the sixth year, and 0% thereafter. (3) Class C shares redeemed within one year of purchase are subject to a 1% contingent deferred sales charge. (4) The investment manager has agreed to waive fees and pay expenses of Tax-Free Oregon Insured Fund through December 31, 1999 in order to prevent total operating expenses (excluding any taxes, interest, brokerage fees, extraordinary expenses and 12b-1 fees) from exceeding 0.60% of average daily net assets of the Fund. The fees and expenses shown in the table above do not reflect this voluntary expense cap. The following table shows actual operating expenses which are based on the most recently completed fiscal year and reflect the manager's current fee waivers and payments. - ------------------------------------------------------------------------------- Actual Fund operating expenses including voluntary expense caps - ------------------------------------------------------------------------------- Tax-Free Oregon Insured Fund - ------------------------------------ ------------- -------------- ------------- CLASS A B C - ------------------------------------ ------------- -------------- ------------- Management fees 0.00% 0.00% 0.00% - ------------------------------------ ------------- -------------- ------------- Distribution and service (12b-1) 0.25% 1.00% 1.00% fees - ------------------------------------ ------------- -------------- ------------- Other expenses 0.00% 0.00% 0.00% - ------------------------------------ ------------- -------------- ------------- Total operating expenses 0.85% 1.60% 1.60% - ------------------------------------ ------------- -------------- ------------- (5) The Fund's actual rate of return may be greater or less than the hypothetical 5% return we use here. Also, this example assumes that the Fund's total operating expenses remain unchanged in each of the periods we show. This example does not reflect the voluntary expense cap for Tax-Free Oregon Insured Fund described in footnote 4. (6) The Class B example reflects the conversion of Class B shares to Class A shares after approximately eight years. Information for the ninth and tenth years reflects expenses of the Class A shares. 31 Iowa, Kansas and Wisconsin Tax-Free Funds What are each Fund's goals? Tax-Free Iowa Fund, Tax-Free Kansas Fund and Tax-Free Wisconsin Fund seek as high a level of current income exempt from federal income tax and from personal income tax in their respective states, as is consistent with preservation of capital. Although each Fund will strive to achieve this goal, there is no assurance that it will. What are each Fund's main investment strategies? Each Fund will invest primarily in municipal bonds and notes that are exempt from federal income taxes and from personal income taxes of its respective state. Municipal securities are debt obligations issued by state and local governments to raise funds for various public purposes such as hospitals, schools and general operating expenses. Each Fund will invest its assets in securities with maturities of various lengths, depending on market conditions. We will attempt to adjust the average maturity of the bonds in the portfolio to provide a high level of tax-exempt income consistent with preservation of capital. Each Fund's income level will vary depending on current interest rates and the specific securities in the portfolio. What are the main risks of investing in each Fund? Investing in any mutual fund involves risk, including the risk that you may lose part or all of the money you invest. The price of Fund shares will increase and decrease according to changes in the value of the securities held by the Funds. These Funds will be affected primarily by adverse changes in interest rates. When interest rates rise, the value of bonds in the portfolios will likely decline. The Funds may also be affected by the ability of individual municipalities or projects to pay interest and repay principal on the bonds they issue. That ability may be impacted by weak economic conditions in the individual states represented in each Fund's portfolio. All three Funds are non-diversified investment companies under the Investment Company Act of 1940 and may be subject to greater risk than if they were diversified. For a more complete discussion of risk, please turn to page x. An investment in a Fund is not a deposit of any bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other government agency. You should keep in mind that an investment in the Funds is not a complete investment program; it should be considered just one part of your total financial plan. Be sure to discuss these Funds with your financial adviser to determine whether it is an appropriate choice for you. Who should invest in the Funds o Investors seeking monthly income, free from federal and state income taxes. o Investors with long-term financial goals. Who should not invest in the Funds o Investors with very short-term financial goals. o Investors who are unwilling to accept share prices that may fluctuate, especially over the short term. o Investors who are concerned about the special risks associated with concentrating investments in a particular state or region of the country. 32 How have the Funds' performed? This bar chart and table can help you evaluate the potential risks of investing in the Funds. We show calendar year returns for each Fund's Class A shares, as well as the average annual returns of all shares. A Fund's past performance does not necessarily indicate how it will perform in the future. The returns reflect voluntary expense caps. The returns would be lower without the voluntary caps. Year-by-year total return (Class A) [bar chart]
- ------------- ------------------------------- -------------------------------------- --------------------------------------- Tax-Free Iowa Fund Tax-Free Kansas Fund Tax-Free Wisconsin Fund - ------------- ------------------------------- -------------------------------------- --------------------------------------- 1993 0.00% - ------------- ------------------------------- -------------------------------------- --------------------------------------- 1994 0.00% 0.00% 0.00% - ------------- ------------------------------- -------------------------------------- --------------------------------------- 1995 0.00% 0.00% 0.00% - ------------- ------------------------------- -------------------------------------- --------------------------------------- 1996 0.00% 0.00% 0.00% - ------------- ------------------------------- -------------------------------------- --------------------------------------- 1997 0.00% 0.00% 0.00% - ------------- ------------------------------- -------------------------------------- --------------------------------------- 1998 0.00% 0.00% 0.00% - ------------- ------------------------------- -------------------------------------- ---------------------------------------
As of September 30, 1999, the Tax-Free Iowa Fund's Class A shares had a year-to-date return of 0.00%. During the periods illustrated in this bar chart, Class A's highest quarterly return was 0.00% for the quarter ended _________ and its lowest quarterly return was 0.00% for the quarter ended ____________. As of September 30, 1999, the Tax-Free Kansas Fund's Class A shares had a year-to-date return of 0.00%. During the periods illustrated in this bar chart, Class A's highest quarterly return was 0.00% for the quarter ended _________ and its lowest quarterly return was 0.00% for the quarter ended ____________. As of September 30, 1999, the Tax-Free Wisconsin Fund's Class A shares had a year-to-date return of 0.00%. During the periods illustrated in this bar chart, Class A's highest quarterly return was 0.00% for the quarter ended _________ and its lowest quarterly return was 0.00% for the quarter ended ____________. The maximum Class A sales charge of 3.75%, which is normally assessed when you purchase shares, is not reflected in the year-by-year total returns above. If this fee were included, the returns would be less than those shown. The average annual returns shown in the table on page __ do include the sales charge. 33
Average Annual Returns for periods ending 12/31/98 - ---------------------------------- --------------------------------- --------------------------------- ----------------------------- Class A B C (if redeemed)* (if redeemed)* - ---------------------------------- --------------------------------- --------------------------------- ----------------------------- (inception 9/1/93) (inception 3/24/95) (inception 1/4/95) - ---------------------------------- --------------------------------- --------------------------------- ----------------------------- 1 year 5 years Lifetime 1 year 5 years Lifetime 1 year 5 years Lifetime - ---------------------------------- ---------- --------- ------------ ---------- ---------- ----------- -------- ---------- --------- Tax-Free Iowa Fund - ---------------------------------- ---------- --------- ------------ ---------- ---------- ----------- -------- ---------- --------- Lehman Brothers Municipal Bond Index - ---------------------------------- --------------------------------- --------------------------------- ----------------------------- (inception 11/30/92) (inception 4/8/95) (inception 4/12/95) - ---------------------------------- --------------------------------- --------------------------------- ----------------------------- 1 year 5 years Lifetime 1 year 5 years Lifetime 1 year 5 years Lifetime - ---------------------------------- ---------- --------- ------------ ---------- ---------- ----------- -------- ---------- --------- Tax-Free Kansas Fund - ---------------------------------- ---------- --------- ------------ ---------- ---------- ----------- -------- ---------- --------- Lehman Brothers Municipal Bond Index - ---------------------------------- --------------------------------- --------------------------------- ----------------------------- (inception 9/1/93) (inception 4/22/95) (inception 3/28/95) - ---------------------------------- --------------------------------- --------------------------------- ----------------------------- 1 year 5 years 10 years 1 year 5 years Lifetime 1 year 5 years Lifetime - ---------------------------------- ---------- --------- ------------ ---------- ---------- ----------- -------- ---------- --------- Tax-Free Wisconsin Fund - ---------------------------------- ---------- --------- ------------ ---------- ---------- ----------- -------- ---------- --------- Lehman Brothers Municipal Bond Index - ---------------------------------- ---------- --------- ------------ ---------- ---------- ----------- -------- ---------- ---------
The table above shows average annual returns compared to the performance of the Lehman Brothers Municipal Bond Index. You should remember that unlike the Funds, the index is unmanaged and doesn't reflect the actual costs of operating a mutual fund, such as the costs of buying, selling, and holding securities. * If redeemed at end of period shown. If shares were not redeemed, the returns for Tax-Free Iowa Fund's Class B would be 0.00% and 0.00% for the one-year and lifetime periods, respectively, the returns for Tax-Free Kansas Fund's Class B would be 0.00% and 0.00% for the one-year and lifetime periods, respectively, and the returns for Tax-Free Wisconsin Fund's Class B would be 0.00% and 0.00% for the one-year and lifetime periods, respectively. Returns for Tax-Free Iowa Fund's Class C would be 0.00% and 0.00% for the one-year and lifetime periods, respectively, returns for Tax-Free Kansas Fund's Class C would be 0.00% and 0.00% for the one-year and lifetime periods, respectively, and returns for Tax-Free Wisconsin Fund's Class C would be 0.00% and 0.00% for the one-year and lifetime periods, respectively. What are the Funds' fees and expenses? Sales charges are fees paid directly from your investments when you buy or sell shares of the Funds.
- -------------------------------------------------------------- ------------------- ------------------- ------------------------ CLASS A B C - -------------------------------------------------------------- ------------------- ------------------- ------------------------ Maximum sales charge (load) imposed on purchases as a percentage of offering price 3.75% none none - -------------------------------------------------------------- ------------------- ------------------- ------------------------ Maximum contingent deferred sales charge (load) As a percentage of original purchase price or redemption none(1) 4%(2) 1%(3) price, whichever is lower - -------------------------------------------------------------- ------------------- ------------------- ------------------------ Maximum sales charge (load) imposed on reinvested dividends none none none - -------------------------------------------------------------- ------------------- ------------------- ------------------------ Redemption fees none none none - -------------------------------------------------------------- ------------------- ------------------- ------------------------
34 Annual fund operating expenses are deducted from a Fund's assets.
---------------------------------------------------------- ---------------------------- --------------------------- Tax-Free Iowa Fund Tax-Free Kansas Fund Tax-Free Wisconsin Fund ---------------------------------------------------------- ---------------------------- --------------------------- Class A B C A B C A B C ---------------------------- --------- --------- --------- -------- --------- --------- --------- -------- -------- Management fees 0.55% 0.55% 0.55% 0.55% 0.55% 0.55% 0.55% 0.55% 0.55% ---------------------------- --------- --------- --------- -------- --------- --------- --------- -------- -------- Distribution and service 0.25% 0.25% 1.00% 1.00% 1.00% 1.00% 0.25% 1.00% 1.00% (12b-1) fees ---------------------------- --------- --------- --------- -------- --------- --------- --------- -------- -------- Other expenses 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% ---------------------------- --------- --------- --------- -------- --------- --------- --------- -------- -------- Total annual fund 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% operating expenses(4) ---------------------------- --------- --------- --------- -------- --------- --------- --------- -------- --------
This example is intended to help you compare the cost of investing in the Funds to the cost of investing in other mutual funds with similar investment objectives. We show the cumulative amount of Fund expenses on a hypothetical investment of $10,000 with an annual 5% return over the time shown.(5) This is an example only, and does not represent future expenses, which may be greater or less than those shown here.
------------------------------------------------------------ -------------------------------------------------- Tax-Free Iowa Fund Tax-Free Kansas Fund ------------------------------------------------------------ -------------------------------------------------- CLASS(6) A B B C C A B B C C ---------- ------- ------- ----------- -------- ------------ -------- ------ ------------ -------- ------------ (if (if (if (if redeemed) redeemed) redeemed) redeemed) ---------- ------- ------- ----------- -------- ------------ -------- ------ ------------ -------- ------------ 1 year ---------- ------- ------- ----------- -------- ------------ -------- ------ ------------ -------- ------------ 3 years ---------- ------- ------- ----------- -------- ------------ -------- ------ ------------ -------- ------------ 5 years ---------- ------- ------- ----------- -------- ------------ -------- ------ ------------ -------- ------------ 10 years ---------- ------- ------- ----------- -------- ------------ -------- ------ ------------ -------- ------------ Tax-Free Wisconsin Fund ------------------------------------------------------------ CLASS(6) A B B C C ---------- ------- ------- ----------- -------- ------------ (if (if redeemed) redeemed) ---------- ------- ------- ----------- -------- ------------ 1 year ---------- ------- ------- ----------- -------- ------------ 3 years ---------- ------- ------- ----------- -------- ------------ 5 years ---------- ------- ------- ----------- -------- ------------ 10 years ---------- ------- ------- ----------- -------- ------------
(1) A purchase of Class A shares of $1 million or more may be made at net asset value. However, if you buy the shares through a financial adviser who is paid a commission, a contingent deferred sales charge will apply to certain redemptions. Additional Class A purchase options that involve a contingent deferred sales charge may be permitted from time to time and will be disclosed in the prospectus if they are available. (2) If you redeem Class B shares during the first two years after you buy them, you will pay a contingent deferred sales charge of 4%, which declines to 3% during the third and fourth years, 2% during the fifth year, 1% during the sixth year, and 0% thereafter. (3) Class C shares redeemed within one year of purchase are subject to a 1% contingent deferred sales charge. (4) The investment manager has agreed to waive fees and pay expenses of each Fund through December 31, 1999 in order to prevent total operating expenses (excluding any taxes, interest, brokerage fees, extraordinary expenses and 12b-1 fees) from exceeding 0.75% of average daily net assets. The fees and expenses shown in the table above do not reflect this voluntary expense cap. The following table shows actual operating expenses which are based on the most recently completed fiscal year and reflect the manager's current fee waivers and payments.
- ------------------------------------------------------------------------------------------------------------------------ Actual Fund operating expenses including voluntary expense caps as a percentage of average daily net assets - ------------------------------------------------------------------------------------------------------------------------ Tax-Free Iowa Fund Tax-Free Kansas Fund Tax-Free Wisconsin Fund - -------------------------- -------------------------------- ----------------------------- ------------------------------ CLASS A B C A B C A B C - -------------------------- ----------- --------- ---------- ---------- -------- --------- --------- --------- ---------- Management fees 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% - -------------------------- ----------- --------- ---------- ---------- -------- --------- --------- --------- ---------- Distribution and service 0.25% 1.00% 1.00% 0.25% 1.00% 1.00% 0.25% 1.00% 1.00% (12b-1) fees - -------------------------- ----------- --------- ---------- ---------- -------- --------- --------- --------- ---------- Other expenses 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% - -------------------------- ----------- --------- ---------- ---------- -------- --------- --------- --------- ---------- Total operating expenses 1.00% 1.75% 1.75% 1.00% 1.75% 1.75% 1.00% 1.75% 1.75% - -------------------------- ----------- --------- ---------- ---------- -------- --------- --------- --------- ----------
35 (5) The Fund's actual rate of return may be greater or less than the hypothetical 5% return we use here. Also, this example assumes that the Fund's total operating expenses remain unchanged in each of the periods we show. This example does not reflect the voluntary expense caps for the Funds described in footnote (4). (6) The Class B example reflects the conversion of Class B shares to Class A shares after approximately eight years. Information for the ninth and tenth years reflects expenses of the Class A shares. 36 Idaho, Montana and North Dakota Tax-Free Funds What are each Fund's goals? Tax-Free Idaho Fund, Tax-Free Montana Fund and Tax-Free North Dakota Fund seek as high a level of current income exempt from federal income tax and from personal income tax in their respective states, as is consistent with preservation of capital. Although each Fund will strive to achieve this goal, there is no assurance that it will. What are each Fund's main investment strategies? Each Fund will invest primarily in municipal bonds and notes that are exempt from federal income taxes and from personal income taxes of its respective state. Municipal securities are debt obligations issued by state and local governments to raise funds for various public purposes such as hospitals, schools and general operating expenses. Each Fund will invest its assets in securities with maturities of various lengths, depending on market conditions. We will attempt to adjust the average maturity of the bonds in the portfolio to provide a high level of tax-exempt income consistent with preservation of capital. Each Fund's income level will vary depending on current interest rates and the specific securities in the portfolio. What are the main risks of investing in each Fund? Investing in any mutual fund involves risk, including the risk that you may lose part or all of the money you invest. The price of Fund shares will increase and decrease according to changes in the value of the securities held by the Funds. These Funds will be affected primarily by adverse changes in interest rates. When interest rates rise, the value of bonds in the portfolios will likely decline and this generally hurts securities with longer maturities more than those with shorter maturities. The Funds may also be affected by the ability of individual municipalities to pay interest and repay principal on the bonds they issue. That ability may be impacted by weak economic conditions in the individual states represented in each Fund's portfolio. All three Funds are non-diversified investment companies under the Investment Company Act of 1940 and may be subject to greater risk than if they were diversified. For a more complete discussion of risk, please turn to page x. An investment in the Fund is not a deposit of any bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other government agency. You should keep in mind that an investment in the Fund is not a complete investment program; it should be considered just one part of your total financial plan. Be sure to discuss this Fund with your financial adviser to determine whether it is an appropriate choice for you. Who should invest in the Funds o Investors seeking monthly income, free from federal and state income taxes. o Investors with long-term financial goals. Who should not invest in the Funds o Investors with very short-term financial goals. o Investors who are unwilling to accept share prices that may fluctuate, especially over the short term. o Investors who are concerned about the special risks associated with concentrating investments in a particular state or region of the country. 38 How have the Funds' performed? This bar chart and table can help you evaluate the potential risks of investing in the Funds. We show calendar year returns for each Fund's Class A shares, as well as the average annual returns of all shares. A Fund's past performance does not necessarily indicate how it will perform in the future. The returns reflect voluntary expense caps. The returns would be lower without the voluntary caps. Year-by-year total return (Class A) [bar chart] - -------------------------------------------------------------------------------- Tax-Free Idaho Fund Tax-Free North Dakota Fund - -------------------------------------------------------------------------------- 1992 0.00% - -------------------------------------------------------------------------------- 1993 0.00% - -------------------------------------------------------------------------------- 1994 0.00% - -------------------------------------------------------------------------------- 1995 0.00% - -------------------------------------------------------------------------------- 1996 0.00% 0.00% - -------------------------------------------------------------------------------- 1997 0.00% 0.00% - -------------------------------------------------------------------------------- 1998 0.00% 0.00% - -------------------------------------------------------------------------------- As of September 30, 1999, the Tax-Free Idaho Fund's Class A shares had a year-to-date return of 0.00%. During the periods illustrated in this bar chart, Class A's highest quarterly return was 0.00% for the quarter ended _________ and its lowest quarterly return was 0.00% for the quarter ended ____________. As of September 30, 1999, the Tax-Free North Dakota Fund's Class A shares had a year-to-date return of 0.00%. During the periods illustrated in this bar chart, Class A's highest quarterly return was 0.00% for the quarter ended _________ and its lowest quarterly return was 0.00% for the quarter ended ____________. The maximum Class A sales charge of 3.75%, which is normally assessed when you purchase shares, is not reflected in the year-by-year total returns above. If this fee were included, the returns would be less than those shown. The average annual returns shown in the table on page __ do include the sales charge. 39
Average Annual Returns for periods ending 12/31/98 - ------------------------------------------------------------------------------------------------------------------------------------ Class A B C (if redeemed)* (if redeemed)* - ------------------------------------------------------------------------------------------------------------------------------------ (inception 1/4/95) (inception 3/16/95) (inception 1/11/95) - ------------------------------------------------------------------------------------------------------------------------------------ 1 year 5 years Lifetime 1 year 5 years Lifetime 1 year 5 years Lifetime - ------------------------------------------------------------------------------------------------------------------------------------ Tax-Free Idaho Fund - ------------------------------------------------------------------------------------------------------------------------------------ Lehman Brothers Municipal Bond Index - ------------------------------------------------------------------------------------------------------------------------------------ (inception 4/1/91) (inception 5/10/94) (inception 7/29/95) - ------------------------------------------------------------------------------------------------------------------------------------ 1 year 5 years Lifetime 1 year 5 years Lifetime 1 year 5 years Lifetime - ------------------------------------------------------------------------------------------------------------------------------------ Tax-Free North Dakota Fund - ------------------------------------------------------------------------------------------------------------------------------------ Lehman Brothers Municipal Bond Index - ------------------------------------------------------------------------------------------------------------------------------------
The table above shows average annual returns compared to the performance of the Lehman Brothers Municipal Bond Index. You should remember that unlike the Funds, the index is unmanaged and doesn't reflect the actual costs of operating a mutual fund, such as the costs of buying, selling, and holding securities. * If redeemed at end of period shown. If shares were not redeemed, the returns for Tax-Free Idaho Fund's Class B would be 0.00% and 0.00% for the one-year and lifetime periods, respectively, and the returns for Tax-Free North Dakota Fund's Class B would be 0.00% and 0.00% for the one-year and lifetime periods, respectively. Returns for Tax-Free Idaho Fund's Class C would be 0.00% and 0.00% for the one-year and lifetime periods, respectively, and the returns for Tax-Free North Dakota Fund's Class C would be 0.00% and 0.00% for the one-year and lifetime periods, respectively. What are the Funds' fees and expenses? Sales charges are fees paid directly from your investments when you buy or sell shares of the Funds.
- ------------------------------------------------------------------------------------------------------------------------------- CLASS A B C - ------------------------------------------------------------------------------------------------------------------------------- Maximum sales charge (load) imposed on purchases as a percentage of offering price 3.75% none none - ------------------------------------------------------------------------------------------------------------------------------- Maximum contingent deferred sales charge (load) As a percentage of original purchase price or redemption none(1) 4%(2) 1%(3) price, whichever is lower - ------------------------------------------------------------------------------------------------------------------------------- Maximum sales charge (load) imposed on reinvested dividends none none none - ------------------------------------------------------------------------------------------------------------------------------- Redemption fees none none none - -------------------------------------------------------------------------------------------------------------------------------
40 Annual fund operating expenses are deducted from the Funds' assets.
- --------------------------------------------------------------------------------------------------------------------- Tax-Free Idaho Fund Tax-Free North Dakota Fund Tax-Free Montana Fund - --------------------------------------------------------------------------------------------------------------------- Class A B C A B C A B C - --------------------------------------------------------------------------------------------------------------------- Management fees 0.55% 0.55% 0.55% 0.55% 0.55% 0.55% 0.55% 0.55% 0.55% - --------------------------------------------------------------------------------------------------------------------- Distribution and service 0.25% 0.25% 1.00% 1.00% 1.00% 1.00% 0.25% 1.00% 1.00% (12b-1) fees - --------------------------------------------------------------------------------------------------------------------- Other expenses 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%(5) 0.00%(5) 0.00%(5) - --------------------------------------------------------------------------------------------------------------------- Total annual fund 0.00%(4) 0.00%(4) 0.00%(4) 0.00% 0.00% 0.00% 0.00%(4) 0.00%(4) 0.00%(4) operating expenses - ---------------------------------------------------------------------------------------------------------------------
This example is intended to help you compare the cost of investing in the Funds to the cost of investing in other mutual funds with similar investment objectives. We show the cumulative amount of Fund expenses on a hypothetical investment of $10,000 with an annual 5% return over the time shown.(6) This is an example only, and does not represent future expenses, which may be greater or less than those shown here.
- --------------------------------------------------------------------------------------------------------------- Tax-Free Idaho Fund Tax-Free North Dakota Fund - --------------------------------------------------------------------------------------------------------------- CLASS(7) A B B C C A B B C C - --------------------------------------------------------------------------------------------------------------- (if (if (if (if redeemed) redeemed) redeemed) redeemed) - --------------------------------------------------------------------------------------------------------------- 1 year - --------------------------------------------------------------------------------------------------------------- 3 years - --------------------------------------------------------------------------------------------------------------- 5 years - --------------------------------------------------------------------------------------------------------------- 10 years - --------------------------------------------------------------------------------------------------------------- Tax-Free Montana Fund - ------------------------------------------------------------ CLASS(7) A B B C C - ------------------------------------------------------------ (if (if redeemed) redeemed) - ------------------------------------------------------------ 1 year - ------------------------------------------------------------ 3 years - ------------------------------------------------------------
(1) A purchase of Class A shares of $1 million or more may be made at net asset value. However, if you buy the shares through a financial adviser who is paid a commission, a contingent deferred sales charge will apply to certain redemptions. Additional Class A purchase options that involve a contingent deferred sales charge may be permitted from time to time and will be disclosed in the prospectus if they are available. (2) If you redeem Class B shares during the first two years after you buy them, you will pay a contingent deferred sales charge of 4%, which declines to 3% during the third and fourth years, 2% during the fifth year, 1% during the sixth year, and 0% thereafter. (3) Class C shares redeemed within one year of purchase are subject to a 1% contingent deferred sales charge. (4) The investment manager has agreed to waive fees and pay expenses of Tax-Free Idaho Fund through December 31, 1999 and Tax-Free Montana through June 30, 2000 in order to prevent total operating expenses (excluding any taxes, interest, brokerage fees, extraordinary expenses and 12b-1 fees) from exceeding 0.75% of average daily net assets. The fees and expenses shown in the table above do not reflect this voluntary expense cap. The following table shows actual operating expenses which are based on the most recently completed fiscal year and reflect the manager's current fee waivers and payments.
----------------------------------------------------------------------------------------- Actual Fund operating expenses including voluntary expense caps as a percentage of average daily net assets ----------------------------------------------------------------------------------------- Tax-Free Idaho Fund Tax-Free Montana Fund ----------------------------------------------------------------------------------------- CLASS A B C A B C ----------------------------------------------------------------------------------------- Management fees 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% ----------------------------------------------------------------------------------------- Distribution and 0.25% 1.00% 1.00% 0.25% 1.00% 1.00% service (12b-1) fees ----------------------------------------------------------------------------------------- Other expenses 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% ----------------------------------------------------------------------------------------- Total operating 1.00% 1.75% 1.75% 1.00% 1.75% 1.75% expenses -----------------------------------------------------------------------------------------
41 (5) Other expenses are based on estimated amounts for the current fiscal year. (6) The Fund's actual rate of return may be greater or less than the hypothetical 5% return we use here. Also, this example assumes that the Fund's total operating expenses remain unchanged in each of the periods we show. This example does not reflect the voluntary expense caps for Tax-Free Idaho Fund and Tax-Free Montana Fund described in footnote 4. (7) The Class B example reflects the conversion of Class B shares to Class A shares after approximately eight years. Information for the ninth and tenth years reflects expenses of the Class A shares. 42 How we manage the Funds Our investment strategies We analyze economic and market conditions, seeking to identify the securities or market sectors that we think are the best investments for a particular fund. Following is a list of securities the Funds may invest in and a description of how those securities are used. We take a disciplined approach to investing, combining investment strategies and risk management techniques that can help shareholders meet their goals. The funds will invest primarily in tax-exempt obligations of issuers in their respective states. The funds may also invest in securities of U.S. territories and possessions to the extent that these securities are tax-exempt under each state's tax code. We will generally invest in securities for income rather than seeking capital appreciation through active trading. However, we may sell securities for a variety of reasons such as: to reinvest the proceeds in higher yielding securities, to eliminate investments not consistent with the preservation of capital, to honor redemption requests or if a credit situation weakens. As a result we may realize losses or capital gains which could be taxable to shareholders. Tax-Free Minnesota Intermediate Fund will generally have an average weighted maturity of less than 10 years. This is a more conservative strategy, which should result in the Fund experiencing less price volatility when interest rates rise or fall. The remaining Funds described in this prospectus will generally have an average weighted maturity of approximately 15 to 25 years. During times of adverse market conditions when we believe a more defensive posture is warranted, each Fund may temporarily select investments other than those that are its primary focus and may also invest without regard to its stated maturity strategy. The securities we typically invest in Fixed-income securities offer the potential for greater income payments than stocks, and also may provide capital appreciation. Municipal bond securities typically pay income free of federal income taxes and may be free of state income taxes in the state where they are issued.
- ------------------------------------------------------------------------------------------------------------- Securities How we use them - ------------------------------------------------------------------------------------------------------------- Insured Single- Single-State Tax-Free Minnesota Minnesota State Tax-Exempt Tax-Free Funds Intermediate Fund High-Yield Funds (AZ, CA, CO, FL, Municipal Bond Fund (AZ, CA, FL, MN, ID, IA, KS, MN, MO, OR) MT, NM, NY, ND, WI) - -------------------------------------------------------------------------------------------------------------
43
- ------------------------------------------------------------------------------------------------------------- Tax exempt Under normal market conditions, each Fund will invest Minnesota obligations Commonly substantially all of its assets in tax-exempt obligations High-Yield known as municipal which are exempt from federal income tax and from the Municipal Bond Fund bonds, these are debt personal income tax in its respective state. These bonds may will invest at obligations issued by include general obligation bonds and revenue bonds. least 80% of the or on behalf of a value of its net state or territory, Tax-Free New York Fund will assets in its agencies or invest at least 80% of the tax-exempt instrumentalities, value of its net assets in obligations (not municipalities or tax-exempt obligations under including other political normal market conditions. Any obligations subject sub-divisions. The investments in obligations to AMT), under interest on these subject to the alternative normal market debt obligations can minimum tax would not count conditions. At be excluded from toward the 80% of Tax-Free least 65% will be federal income tax as New York Fund's net assets invested in medium well as personal that must be invested in this and lower-grade income tax in the manner. securities rated state where the bond between BBB and B- is issued. by S&P or another Determination nationally of a bond's recognized tax-exempt status is statistical ratings based on the opinion organization of the bond issuer's (NRSRO) or in legal counsel. securities that the Tax-exempt manager determines obligations may to be of comparable include securities quality. subject to the alternative minimum tax. See Private activity bonds below for more information. - -------------------------------------------------------------------------------------------------------------
44
- ------------------------------------------------------------------------------------------------------------- Securities How we use them - ------------------------------------------------------------------------------------------------------------- Insured Single- Single-State Tax-Free Minnesota Minnesota State Tax-Exempt Tax-Free Funds Intermediate Fund High-Yield Funds (AZ, CA, CO, FL, Municipal Bond Fund (AZ, CA, FL, MN, ID, IA, KS, MN, MO, OR) MT, NM, NY, ND, WI) - ------------------------------------------------------------------------------------------------------------- General obligation Insured Funds may Each Fund may invest without limit in The Fund may invest bonds are municipal invest in general general obligation bonds and will in general bonds on which the obligation bonds; primarily invest in bonds in the top obligations and payment of principal however, after the four quality grades or bonds that are will typically and interest is application of unrated, but which the manager invest in lower secured by the insurance, all determines to be of equal quality. quality bonds rated issuer's pledge of general obligation between BBB and B- its full faith, bonds will be rated by S&P, of credit and taxing AAA by S&P or Aaa by equivalent quality power. Moody's or have an by another NRSRO, equivalent rating or bonds that are from another NRSRO unrated which the at the time of manager determines purchase. to be of equal quality. - ------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------- Revenue bonds are Insured Funds may Each Fund may invest without limit in The Fund may invest municipal bonds on invest in revenue revenue bonds and will primarily invest in revenue bonds which principal and bonds; however, in bonds in the top four quality grades and will typically interest payments are after the or bonds that are unrated, but which invest in lower made from revenues application of the manager determines to be of equal quality bonds rated derived from a insurance, all quality. between BBB and B- particular facility, revenue bonds will by S&P, of from the proceeds of be rated AAA by S&P equivalent quality a special excise tax or have an by another NRSRO, or from revenue equivalent rating or bonds that are generated by an from another NRSRO unrated which the operating project. at the time of manager determines Principal and purchase. to be of equal interest are not quality. secured by the general taxing power. Tax-exempt industrial development bonds, in most cases, are a type of revenue bond that is not backed by the credit of the issuing municipality and may therefore involve more risk. - -------------------------------------------------------------------------------------------------------------
45
- ------------------------------------------------------------------------------------------------------------- Securities How we use them - ------------------------------------------------------------------------------------------------------------- Insured Single- Single-State Tax-Free Minnesota Minnesota State Tax-Exempt Tax-Free Funds Intermediate Fund High-Yield Funds (AZ, CA, CO, FL, Municipal Bond Fund (AZ, CA, FL, MN, ID, IA, KS, MN, MO, OR) MT, NM, NY, ND, WI) - ------------------------------------------------------------------------------------------------------------- Insured municipal Each Fund may invest without limit in insured bonds. It is possible that a bonds: Various substantial portion of a Fund's portfolio may consist of municipal bonds that are municipal issuers may insured by a single insurance company. obtain insurance for their obligations. In Insurance is available on uninsured bonds and each Fund may purchase such insurance the event of a directly. We will generally do so only if we believe that purchasing and insuring a default, the insurer bond provides an investment opportunity at least comparable to owning other is required to make available uninsured securities. payments of interest and principal when The purpose of insurance is to protect against credit risk. It does not insure due to the against market risk or guarantee the value of the securities in the portfolio or bondholders. the value of shares of any of the Funds. However, there is no assurance that the insurance company will meet its obligations. Insured obligations are typically rated in the top quality grades by an NRSRO. - ------------------------------------------------------------------------------------------------------------- The bonds in each These Funds can invest without limit Insured bonds will Insured Fund will in insured bonds. typically not be a consist of bonds significant portion that are fully of the investments insured. All of the Fund. insurers must have AAA-rated claims paying ability by S&P or another NRSRO at the time that the insured bond is purchased. - ------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------- Short-term money Insured Funds may market securities: hold up to 35% in Debt securities that short-term are scheduled to tax-exempt mature in less than x obligations that days. These are are not insured, generally considered but are rated in to be very safe and the highest credit highly liquid. category of an NRSRO. - -------------------------------------------------------------------------------------------------------------
46
- ------------------------------------------------------------------------------------------------------------- Securities How we use them - ------------------------------------------------------------------------------------------------------------- Insured Single- Single-State Tax-Free Minnesota Minnesota State Tax-Exempt Tax-Free Funds Intermediate Fund High-Yield Funds (AZ, CA, CO, FL, Municipal Bond Fund (AZ, CA, FL, MN, ID, IA, KS, MN, MO, OR) MT, NM, NY, ND, WI) - ------------------------------------------------------------------------------------------------------------- Each Fund may invest without limit in short-term tax-exempt obligations on a temporary, defensive basis. Each Fund may also hold its assets in securities of tax-exempt money markets (up to 10% for Insured Funds) or in cash. - ------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------- Private activity or Each Fund (except Tax-Free Minnesota Fund, Minnesota Insured Minnesota High-Yield private placement Fund and Tax-Free Montana Fund) may invest up to 20% of its Municipal Bond Fund bonds are municipal assets in bonds whose income is subject to the federal may invest without bond issues whose alternative minimum tax. This means that a portion of the limit in these bonds. proceeds are used to Fund's distributions could be subject to the federal finance certain alternative minimum tax that applies to certain taxpayers. non-government activities, including Minnesota Insured Fund and Tax-Free Montana Fund may invest some types of without limit in these bonds. industrial revenue bonds such as Tax-Free Minnesota Fund may not invest in these bonds. privately owned sports and convention Tax-Free New York Fund may also invest without limit in facilities. The Tax securities whose income is subject to New York City's Reform Act of 1986 alternative minimum tax without limit. subjects interest income from these bonds to the federal alternative minimum tax and makes the tax-exempt status of certain bonds dependent on the issuer's compliance with specific requirements after the bonds are issued. - -------------------------------------------------------------------------------------------------------------
47
- ------------------------------------------------------------------------------------------------------------- Securities How we use them - ------------------------------------------------------------------------------------------------------------- Insured Single- Single-State Tax-Free Minnesota Minnesota State Tax-Exempt Tax-Free Funds Intermediate Fund High-Yield Funds (AZ, CA, CO, FL, Municipal Bond Fund (AZ, CA, FL, MN, ID, IA, KS, MN, MO, OR) MT, NM, NY, ND, WI) - ------------------------------------------------------------------------------------------------------------- Municipal leases and Each Fund may invest without limit in municipal lease obligations primarily through certificates of certificates of participation. participation (COPs): Certificates of As with its other investments, each Fund expects its investments in municipal lease participation are obligations are exempt from regular federal income taxes. Each Fund will rely on widely used by state the opinion of the bond issuer's counsel for a determination of the bond's and local governments tax-exempt status. to finance the purchase of property A feature that distinguishes COPs from municipal debt is that leases typically and facilities. COPs contain a "nonappropriation" or "abatement" clause. This means the municipality are like installment leasing the property or facility must use its best efforts to make lease payments, purchase agreements. but may terminate the lease without penalty if its legislature or other A governmental appropriating body does not allocate the necessary money. In such a case, the corporation may creator of the COP, or its agent, is typically entitled to repossess the property. create a COP when it In many cases, however, the market value of the property will be less than the issues long-term amount the municipality was paying. bonds to pay for the acquisition of COPs are generally considered illiquid and subject to each Fund's limitations on property or illiquid securities unless we determine they are liquid according to the guidelines facilities. The set by the Board of Directors. property or facilities are then leased to a municipality, which makes lease payments to repay interest and principal to the holders of the bonds. Once the lease payments are completed, the municipality gains ownership of the property for a nominal sum. - -------------------------------------------------------------------------------------------------------------
48
- ------------------------------------------------------------------------------------------------------------- Securities How we use them - ------------------------------------------------------------------------------------------------------------- Insured Single- Single-State Tax-Free Minnesota Minnesota State Tax-Exempt Tax-Free Funds Intermediate Fund High-Yield Funds (AZ, CA, CO, FL, Municipal Bond Fund (AZ, CA, FL, MN, ID, IA, KS, MN, MO, OR) MT, NM, NY, ND, WI) - ------------------------------------------------------------------------------------------------------------- Zero coupon bonds: We may invest in zero coupon bonds. The market prices of these bonds are generally Zero coupon bonds more volatile than the market prices of securities that pay interest periodically are debt obligations and are likely to react to changes in interest rates to a greater degree than which do not entitle interest-paying bonds having similar maturities and credit quality. They may have the holder to any certain tax consequences which, under certain conditions, could be adverse to the periodic payments of Fund. interest prior to maturity or a specified date when the securities begin paying current interest. Therefore, they are issued and traded at a price lower than their face amounts or par value. - ------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------- Inverse floaters are Each Fund may invest in inverse floaters. However, the total value of their a type of derivative investment in derivative tax-exempt obligations combined with their holdings of tax-exempt obligation bonds rated below investment grade and any illiquid securities may not exceed 20%. with floating or variable interest rates that move in the opposite direction of short-term interest rates, usually at an accelerated speed. Consequently, the market values of inverse floaters will generally be more volatile than other tax-exempt investments. - -------------------------------------------------------------------------------------------------------------
49
- ------------------------------------------------------------------------------------------------------------- Securities How we use them - ------------------------------------------------------------------------------------------------------------- Insured Single- Single-State Tax-Free Minnesota Minnesota State Tax-Exempt Tax-Free Funds Intermediate Fund High-Yield Funds (AZ, CA, CO, FL, Municipal Bond Fund (AZ, CA, FL, MN, ID, IA, KS, MN, MO, OR) MT, NM, NY, ND, WI) - ------------------------------------------------------------------------------------------------------------- Variable rate and Each Fund may purchase "floating rate" and "variable rate" obligations. floating rate obligations pay interest at rates that are not fixed, but instead vary with changes in specified market rates or indexes on pre-designated dates. - -------------------------------------------------------------------------------------------------------------
50
- ------------------------------------------------------------------------------------------------------------- Securities How we use them - ------------------------------------------------------------------------------------------------------------- Insured Single- Single-State Tax-Free Minnesota Minnesota State Tax-Exempt Tax-Free Funds Intermediate Fund High-Yield Funds (AZ, CA, CO, FL, Municipal Bond Fund (AZ, CA, FL, MN, ID, IA, KS, MN, MO, OR) MT, NM, NY, ND, WI) - ------------------------------------------------------------------------------------------------------------- Advance refunded Each Fund may invest without limit in advance refunded bonds or escrow-secured bonds (also known bonds. These bonds are generally considered to be of very high quality because of as Escrow bonds) the escrow account which typically holds U.S. Treasuries. In an advance refunding, the issuer will use the proceeds of a new bond issue to purchase high grade interest bearing debt securities. These securities are then deposited into an irrevocable escrow account held by a trustee bank to secure all future payments of principal and interest on pre-existing bonds, which are then considered to be "advance refunded bonds." These bonds often receive the highest rating from S&P and Moody's. Defeased bonds are bonds in which the rights of the bond holder have been terminated. This typically related to an advance refunding. - -------------------------------------------------------------------------------------------------------------
51
- ------------------------------------------------------------------------------------------------------------- Securities How we use them - ------------------------------------------------------------------------------------------------------------- Insured Single- Single-State Tax-Free Minnesota Minnesota State Tax-Exempt Tax-Free Funds Intermediate Fund High-Yield Funds (AZ, CA, CO, FL, Municipal Bond Fund (AZ, CA, FL, MN, ID, IA, KS, MN, MO, OR) MT, NM, NY, ND, WI) - ------------------------------------------------------------------------------------------------------------- High-yield, high Each Fund may invest up to 20% of its net assets in Minnesota Municipal risk municipal high-yield, high risk fixed-income securities. This limit Bond Fund will bonds: Municipal applies to the combined value of the Fund's holdings in invest at least 65% debt obligations lower-rated bonds and its holding of derivative tax-exemt of tis total assets rated lower than securities. We will not invest in securities, that are rated in medium- and in investment grade by lower than B by S&P or similarly by another rating agency. We lower-rated, an NRSRO or, if will not invest in unrated bonds that we consider to be of a high-yield unrated, of quality lower than B. securities. In comparable doing so, the Fund quality. These may offer higher securities are income potential, often referred to but is also subject as "junk bonds" and to greater risk, are considered to including price be of poor standing volatility during and predominately periods of adverse speculative. economic conditions. The Fund may also experience a higher incidence of credit problems. - ------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------ Illiquid securities Each Fund may invest up to 15% of its net assets in illiquid securities. are securities that do not have a ready market, and cannot be easily sold, within seven days, at approximately the price that the Fund has valued them. - ------------------------------------------------------------------------------------------------------------
52
- ------------------------------------------------------------------------------------------------------------- Securities How we use them - ------------------------------------------------------------------------------------------------------------- Insured Single- Single-State Tax-Free Minnesota Minnesota State Tax-Exempt Tax-Free Funds Intermediate Fund High-Yield Funds (AZ, CA, CO, FL, Municipal Bond Fund (AZ, CA, FL, MN, ID, IA, KS, MN, MO, OR) MT, NM, NY, ND, WI) - ------------------------------------------------------------------------------------------------------------- Repurchase Typically, we use repurchase agreements as a short-term investment for our cash agreements are position. We may not enter into repurchase agreements that represent more than agreements between a 10% of total assets of a Fund except when investing for defensive purposes during buyer and seller of periods of adverse market conditions. securities in which the seller agrees to buy the securities back within a specified time at the same price the buyer paid for them, plus an amount equal to an agreed upon interest rate. Repurchase agreements are often viewed as equivalent to cash. - ------------------------------------------------------------------------------------------------------------
53
- ------------------------------------------------------------------------------------------------------------- Securities How we use them - ------------------------------------------------------------------------------------------------------------- Insured Single- Single-State Tax-Free Minnesota Minnesota State Tax-Exempt Tax-Free Funds Intermediate Fund High-Yield Funds (AZ, CA, CO, FL, Municipal Bond Fund (AZ, CA, FL, MN, ID, IA, KS, MN, MO, OR) MT, NM, NY, ND, WI) - ------------------------------------------------------------------------------------------------------------- Reverse repurchase The Insured Funds Tax-Free Arizona Fund, Tax-Free California Fund, Tax-Free agreements may not use Reverse Florida Fund, Tax-Free Idaho Fund, Tax-Free Montana, are the same as Repurchase Tax-Free New York Fund and Minnesota High-Yield Municipal repurchase agreements Agreements. Bond Fund may invest up to 10% of their total assets in except that the Funds reverse repurchase agreements. This may be preferable to a would act as the regular sale and later repurchase of securities because it seller and agree to avoids certain market risk and transaction costs. However, buy back the these may be used as a form of leveraging which may securities at the exaggerate any increases or decreases in each Fund's net same price the buyer asset value. Because we limit the use of this speculative paid for them, plus technique to 10% of a Fund's total assets, we believe we can an agreed upon use it to facilitate a Fund's ability to provide current interest rate. income while reducing the potential risk that leveraging can have on a Fund's principal. Funds that are not listed above may not use reverse repurchase agreements. - -------------------------------------------------------------------------------------------------------------
The Funds may also invest in other securities including zero coupon bonds, options, futures and restricted securities. Please see the Statement of Additional Information for additional descriptions on these securities as well as those listed in the table above. Downgraded Quality Ratings The credit quality restrictions described above for each Fund apply only at the time of purchase. The funds may continue to hold securities whose quality rating has been lowered or in the case of an unrated bond, after we have changed our assessment of its credit quality. However, no Fund (except Minnesota High-Yield Municipal Bond Fund) may have more than 5% of assets invested in securities that have been downgraded to a rating lower than the lowest rating permitted for that Fund. The Insured Funds may invest up to 35% of total assets in securities that have been downgraded to AA or Aa before the Fund initially purchased them. Minnesota High-Yield Municipal Bond Fund may retain securities that are downgraded after investment. Borrowing money Each Fund is permitted to borrow money but normally does not do so. As a temporary measure for extraordinary purposes or to meet redemption requests, the Funds may borrow up to 20% (10% for Tax-Free Colorado) of the value of their assets. Purchasing securities on a when-issued or delayed delivery basis The Funds may buy or sell securities on a when-issued or delayed delivery basis; that is, paying for securities before delivery or taking delivery up to 45 days later. There is no percentage limit on the amount of each Fund's total assets which may be invested in securities issued in this manner. Portfolio turnover We anticipate that each Fund's annual portfolio turnover will be less than 100%. A turnover rate of 100% would occur if a Fund sold and replaced securities valued at 100% of its net assets within one year. Concentration Where we feel there is a limited supply of appropriate investments, the Funds' may concentrate their investments in the housing healthcare and/or utility industries. Tax-Free Arizona, Tax-Free California, Tax-Free Florida, Tax-Free Idaho, Tax-Free New York and Tax-Free Montana Funds may also, under certain circumstances invest in transportation, education and/or industrial obligations. Minnesota High Yield Municipal Bond 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, housing, health care, utility, transportation, education or industrial obligations. 54 The risks of investing in the Funds Investing in any mutual fund involves risk, including the risk that you may receive little or no return on your investment, and the risk that you may lose part or all of the money you invest. Before you invest in a Fund you should carefully evaluate the risks. An investment in any of the municipal bond funds described here typically provides the best results when held for a number of years. The following are the chief risks you assume when investing in these funds. Please see the Statement of Additional Information for further discussion of these risks and the other risks not discussed here.
- ------------------------------------------------------------------------------------------------------------- The risks How we strive to manage them - ------------------------------------------------------------------------------------------------------------- Insured Single- Single-State Tax-Free Minnesota Minnesota State Tax-Exempt Tax-Free Funds Intermediate Fund High-Yield Funds (AZ, CA, (AZ, CA, CO, FL, Municipal Bond Fund FL, MN, MO, OR) ID, IA, KS, MN,MT, NM, NY, ND, WI) - ------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------- Interest rate risk Interest rate risk is generally the most significant risk for these funds. Because is the risk that interest rate movements can be unpredictable, we do not try to increase return by securities, aggressively capitalizing on interest rate moves. particularly bonds with longer maturities, will decrease in value if interest rates rise. - ------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------- Market risk is the We maintain a long-term investment approach and focus on bonds we believe will risk that all or a provide a steady income stream regardless of interim market fluctuations. We do not majority of the try to predict overall market movements and generally do not trade for short-term securities in a purposes. We do attempt to manage the duration of a fund in order to take advantage certain market--like of our market outlook, especially on a longer-term basis. the stock or bond market--will decline in value because of factors such as economic conditions, future expectations or investor confidence. - -------------------------------------------------------------------------------------------------------------
55
- ------------------------------------------------------------------------------------------------------------- The risks How we strive to manage them - ------------------------------------------------------------------------------------------------------------- Insured Single- Single-State Tax-Free Minnesota Minnesota State Tax-Exempt Tax-Free Funds Intermediate Fund High-Yield Funds (AZ, CA, (AZ, CA, CO, FL, Municipal Bond Fund FL, MN, MO, OR) ID, IA, KS, MN,MT, NM, NY, ND, WI) - ------------------------------------------------------------------------------------------------------------- Industry and We spread each Fund's assets across different types of municipal bonds and among security risk is the bonds representing different industries and regions within a state. We also follow a risk that the value rigorous selection process before choosing securities for the portfolios. However, of securities in a as discussed under "Concentration" above, where we feel there is a limited supply of particular industry appropriate investments, the Funds may concentrate their investments in just a few or the value of an industries. This will expose a Fund to greater industry and security risk. individual security will decline because of changing expectations for the performance of that industry or for the individual issuer of the security. - ------------------------------------------------------------------------------------------------------------- The Insured Funds may be less subject to industry and security risk because payment of interest and principal on the bonds in these portfolio are insured, potentially reducing the effect that changing expectations might have on an individual bond. - -------------------------------------------------------------------------------------------------------------
56
- ------------------------------------------------------------------------------------------------------------- The risks How we strive to manage them - ------------------------------------------------------------------------------------------------------------- Insured Single- Single-State Tax-Free Minnesota Minnesota State Tax-Exempt Tax-Free Funds Intermediate Fund High-Yield Funds (AZ, CA, (AZ, CA, CO, FL, Municipal Bond Fund FL, MN, MO, OR) ID, IA, KS, MN,MT, NM, NY, ND, WI) - ------------------------------------------------------------------------------------------------------------- Credit Risk The Insured Funds We conduct careful, credit analysis of Minnesota Is the possibility are less affected by individual bonds; we focus on high quality High-Yield that a bond's issuer credit risk because bonds and limit our holdings of bonds rated Municipal Bond (or an entity that the bonds in the below investment grade; and we hold a Fund is subject insures the bond) portfolios are number of different bonds in each to significant will be unable to insured. This portfolio. All of this is designed to help credit risk due make timely payments insurance is reduce credit risk. to its of interest and designed to minimize investment in principal. credit risks to the lower quality, Funds, by increasing high-yielding In the case of the likelihood that bonds. This municipal bonds, the Funds would risk is issuers may be still receive described more affected by poor payment even if an fully below. We economic conditions issuer defaulted. strive to in their states. manage this risk by maintaining a number of different bonds from different issuers so that if one issuer experiences difficulties, it will have a lesser effect on the entire portfolio. - ------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------- Call risk is the risk We take into consideration the likelihood of prepayment when we select bonds and, that a bond issuer generally look for bonds that have protection against early prepayment. This may will prepay the bond have the added benefit of improving a Fund's investment performance in a declining during periods of low interest rate environment. interest rates, forcing investors to reinvest their money at interest rates that might be lower than rates on the called bond. - -------------------------------------------------------------------------------------------------------------
57
- ------------------------------------------------------------------------------------------------------------- The risks How we strive to manage them - ------------------------------------------------------------------------------------------------------------- Insured Single- Single-State Tax-Free Minnesota Minnesota State Tax-Exempt Tax-Free Funds Intermediate Fund High-Yield Funds (AZ, CA, (AZ, CA, CO, FL, Municipal Bond Fund FL, MN, MO, OR) ID, IA, KS, MN,MT, NM, NY, ND, WI) - ------------------------------------------------------------------------------------------------------------- Liquidity risk is the We limit exposure to illiquid securities. possibility that securities cannot be readily sold, within seven days, at approximately the price that a Fund values them. - -------------------------------------------------------------------------------------------------------------
58
- ------------------------------------------------------------------------------------------------------------- The risks How we strive to manage them - ------------------------------------------------------------------------------------------------------------- Insured Single- Single-State Tax-Free Minnesota Minnesota State Tax-Exempt Tax-Free Funds Intermediate Fund High-Yield Funds (AZ, CA, (AZ, CA, CO, FL, Municipal Bond Fund FL, MN, MO, OR) ID, IA, KS, MN,MT, NM, NY, ND, WI) - ------------------------------------------------------------------------------------------------------------- High yield, high risk The Insured Funds We limit the amount of each portfolio which We hold a municipal bonds may not invest in may be invested in lower quality higher number of Investing in high-yield yielding bonds. different bonds so-called "junk" municipal bonds and representing a bonds entails the therefore are not variety of risk of principal subject to this industries and loss, which may be risk. municipal greater than the risk projects, involved in seeking to investment grade minimize the bonds. High-yield effect that any bonds are sometimes one bond may issued by have on the municipalities with portfolio. lesser financial strength and therefore less ability to make projected debt payments on the bonds. Although experts disagree on the impact recessionary periods have had and will have on high-yield municipal bonds, some analysts believe a protracted economic downturn would adversely affect the value of outstanding bonds and the ability of high-yield issuers to repay principal and interest. In particular, for a high yield revenue bond, adverse economic conditions to the particular project, or industry, which backs the bond would pose a significant risk. - -------------------------------------------------------------------------------------------------------------
59
- ------------------------------------------------------------------------------------------------------------- The risks How we strive to manage them - ------------------------------------------------------------------------------------------------------------- Insured Single- Single-State Tax-Free Minnesota Minnesota State Tax-Exempt Tax-Free Funds Intermediate Fund High-Yield Funds (AZ, CA, (AZ, CA, CO, FL, Municipal Bond Fund FL, MN, MO, OR) ID, IA, KS, MN,MT, NM, NY, ND, WI) - ------------------------------------------------------------------------------------------------------------- Non-diversified funds All Funds described in this Prospectus are non-diversified funds and is subject Non-diversified to this risk. Nevertheless, we typically hold securities from a variety of investment companies different issuers, representing different sectors and different types of municipal have the flexibility projects. We also perform extensive credit analysis on all securities. We are to invest as much as particularly diligent in reviewing the credit status of bonds that represent a 50% of their assets larger percentage of portfolio assets. in as few as two issuers provided no single issuer accounts for more than 25% of the portfolio. The remaining 50% of the portfolio must be diversified so that no more than 5% of a fund's assets is invested in the securities of a single issuer. Because a non-diversified fund may invest its assets in fewer issuers, the value of fund shares may increase or decrease more rapidly than if a fund were fully diversified. If a Fund were to invest a large portion of its assets in a single issuer, the Fund could be significantly affected if that issuer was unable to satisfy its financial obligations. - -------------------------------------------------------------------------------------------------------------
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- ------------------------------------------------------------------------------------------------------------- Concentration risk is Each Fund invests primarily in a specific state and may be subject to concentration the risk related to a risk. We carefully monitor the economies of each state, and in general we believe heightened they are broad enough to satisfy our investment needs. In addition, we have the sensitivity to flexibility to invest in issuers in Puerto Rico and the Virgin Islands and Guam whose regional, state and bonds are also free of individual state income taxes. local political and economic conditions that could adversely affect the holdings in the Fund. There is also a risk that there could be inadequate supply of municipal bonds particular to the applicable state. - -------------------------------------------------------------------------------------------------------------
61 Who manages the Funds Investment manager The Funds are managed by Delaware Management Company, a series of Delaware Management Business Trust which is an indirect, wholly owned subsidiary of Delaware Management Holdings, Inc. Delaware Management Company makes investment decisions for the Funds, manages the Funds' business affairs and provides daily administrative services. For these services, the manager was paid a fee for the last fiscal year as follows: - -------------------------------------------------------------------------------- Management fee as a percentage of average daily net assets - -------------------------------------------------------------------------------- Minnesota High-Yield Municipal Bond Fund - -------------------------------------------------------------------------------- Minnesota Insured Fund - -------------------------------------------------------------------------------- Tax-Free Arizona Fund - -------------------------------------------------------------------------------- Tax-Free Arizona Insured Fund - -------------------------------------------------------------------------------- Tax-Free California Fund - -------------------------------------------------------------------------------- Tax-Free California Insured Fund - -------------------------------------------------------------------------------- Tax-Free Colorado Fund - -------------------------------------------------------------------------------- Tax-Free Florida Fund - -------------------------------------------------------------------------------- Tax-Free Florida Insured Fund - -------------------------------------------------------------------------------- Tax-Free Idaho Fund - -------------------------------------------------------------------------------- Tax-Free Iowa Fund - -------------------------------------------------------------------------------- Tax-Free Kansas Fund - -------------------------------------------------------------------------------- Tax-Free Minnesota Fund - -------------------------------------------------------------------------------- Tax-Free Missouri Insured Fund - -------------------------------------------------------------------------------- Tax-Free New Mexico Fund - -------------------------------------------------------------------------------- Tax-Free New York Fund - -------------------------------------------------------------------------------- Tax-Free North Dakota Fund - -------------------------------------------------------------------------------- Tax-Free Oregon Insured Fund - -------------------------------------------------------------------------------- Tax-Free Wisconsin Fund - -------------------------------------------------------------------------------- *Reflects the voluntary waiver of fees by the manager. Portfolio managers Andrew M. McCullagh, Jr., Vice President/Senior Portfolio Manager, has primary responsibility for making day-to-day investment decisions for Tax-Free Arizona Fund, Tax-Free Arizona Insured Fund, Tax-Free California Fund, Tax-Free California Insured Fund, Tax-Free Colorado Fund and Tax-Free New Mexico Fund. Mr. McCullagh has been managing these Funds since their inception. Mr. McCullagh is a graduate of Washington College and has a Graduate Certificate in Public Finance from the University of Michigan. Prior to joining Delaware Investments, he served as a Senior Vice President and Senior Portfolio Manager of Voyageur Asset Management. Mr. McCullagh was a Director of Voyageur and the Voyageur Fund Distributors, Inc. from 1993 through 1995 and a Senior Tax Exempt Portfolio Manager for Voyageur from January 1990 through May 1997. He was also President of Tax-Free Colorado Fund and an Executive Vice President of each of the other Voyageur Funds. Mr. McCullagh currently has over 27 years experience in municipal bond trading, underwriting and portfolio management. Mr. McCullagh is a past member of the Board of Directors of the Colorado Municipal Bond Dealers Association. Elizabeth H. Howell, Vice President/Senior Portfolio Manager, has primary responsibility for making day-to-day investment decisions for each of the Minnesota Funds, Tax-Free Idaho Fund, Tax-Free Kansas Fund, Tax-Free Missouri Fund, Tax-Free North Dakota Fund and Tax-Free Oregon Fund. She has been managing the Minnesota Funds since 1991, Tax-Free North Dakota Fund since November 1, 1997 and the other funds since their inception. In addition, on May 1, 1997, Ms. Howell resumed day-to-day portfolio management responsibility for Tax-Free Iowa 62 Fund and Tax-Free Wisconsin Fund, which she managed from their inception to July 1995. 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 was a Vice President and Senior Tax Exempt Portfolio Manager for Voyageur from 1991 through 1997 and was a Vice President of each of the Voyageur Funds. Ms. Howell has over 15 years experience as a securities analyst and portfolio manager. Patrick P. Coyne and Mitchell L. Conery have primary responsibility for making day-to-day investment decisions for Tax-Free Florida Fund, Tax-Free Florida Insured Fund and Tax-Free New York Fund. Mr. Coyne and Mr. Conery assumed this responsibility on May 1, 1997. Patrick P. Coyne, Vice President/Senior Portfolio Manager for the Fund, is a graduate of Harvard University with an MBA from the University of Pennsylvania's Wharton School. Mr. Coyne joined Delaware Investment's fixed-income department in 1990. Prior to joining Delaware Investments, he was a manager of Kidder, Peabody & Co. Inc.'s trading desk, and specialized in trading high grade municipal bonds and municipal futures contracts. Mr. Coyne is a member of the Municipal Bond Club of Philadelphia. Mitchell L. Conery, Vice President/Senior Portfolio Manager for the Fund, joined Delaware Investments in January 1997. Mr. Conery holds a bachelor's degree from Boston University and an MBA in Finance from the State University of New York at Albany. He has served as an investment officer with Travelers Insurance and as a research analyst with CS First Boston and MBIA Corporation. 63 Who's who? This diagram shows the various organizations involved with managing, administering, and servicing the Delaware Investments funds. [GRAPHIC OMITTED: DIAGRAM SHOWING THE VARIOUS ORGANIZATIONS INVOLVED WITH MANAGING, ADMINISTERING, AND SERVICING THE DELAWARE INVESTMENTS FUNDS]
Board of Trustees Investment Manager The Funds Custodian Delaware Management Company The Chase Manhattan Bank One Commerce Square 4 Chase Metrotech Center Philadelphia, PA 19103 Brooklyn, NY 11245 Portfolio managers Distributor Service agent (see page ___ for details) Delaware Distributors, L.P. Delaware Service Company, Inc. 1818 Market Street 1818 Market Street Philadelphia, PA 19103 Philadelphia, PA 19103 Financial advisers Shareholders
Board of trustees A mutual fund is governed by a board of trustees which has oversight responsibility for the management of the fund's business affairs. Trustees establish procedures and oversee and review the performance of the investment manager, the distributor and others that perform services for the fund. At least 40% of the board of trustees must be independent of the fund's investment manager or distributor. These independent fund trustees, in particular, are advocates for shareholder interests. Investment manager An investment manager is a company responsible for selecting portfolio investments consistent with the objective and policies stated in the mutual fund's prospectus. The investment manager places portfolio orders with broker/dealers and is responsible for obtaining the best overall execution of those orders. A written contract between a mutual fund and its investment manager specifies the services the manager performs. Most management contracts provide for the manager to receive an annual fee based on a percentage of the fund's average daily net assets. The manager is subject to numerous legal restrictions, especially regarding transactions between itself and the funds it advises. Portfolio managers Portfolio managers are employed by the investment manager to make investment decisions for individual portfolios on a day-to-day basis. Custodian Mutual funds are legally required to protect their portfolio securities and typically place them with a qualified bank custodian who segregates fund securities from other bank assets. Distributor Most mutual funds continuously offer new shares to the public through distributors who are regulated as broker-dealers and are subject to National Association of Securities Dealers, Inc. (NASD) rules governing mutual fund sales practices. Service agent Mutual fund companies employ service agents (sometimes called transfer agents) to maintain records of shareholder accounts, calculate and disburse dividends and capital gains and prepare and mail shareholder statements and tax information, among other functions. Many service agents also provide customer service to shareholders. 64 Financial advisers Financial advisers provide advice to their clients--analyzing their financial objectives and recommending appropriate funds or other investments. Financial advisers are compensated for their services, generally through sales commissions, and through 12b-1 and/or service fees deducted from the fund's assets. Shareholders Like shareholders of other companies, mutual fund shareholders have specific voting rights, including the right to elect trustees. Material changes in the terms of a fund's management contract must be approved by a shareholder vote, and funds seeking to change fundamental investment objectives or policies must also seek shareholder approval. 65 About your account Investing in the Funds You can choose from a number of share classes for each Fund. Because each share class has a different combination of sales charges, fees, and other features, you should consult your financial adviser to determine which class best suits your investment goals and time frame. Choosing a share class Class A o Class A shares have an up-front sales charge of up to 3.75% that you pay when you buy the shares. The offering price for Class A shares includes the front-end sales charge. Class A shares of Tax-Free Minnesota Intermediate Fund have an up-front sales charge of 2.75%. o If you invest $100,000 or more, your front-end sales charge will be reduced. o You may qualify for other reduced sales charges, as described in "How to reduce your sales charge," and under certain circumstances the sales charge may be waived; please see the Statement of Additional Information for details. o Class A shares are also subject to an annual 12b-1 fee no greater than 0.25% of average daily net assets, which is lower than the 12b-1 fee for Class B and Class C shares. o Class A shares generally are not subject to a contingent deferred sales charge. Class A Sales Charges
- ------------------------------------------------------------------------------------------------------------------------------------ Tax-Free Funds, Insured Funds, Minnesota High-Yield Minnesota Intermediate Fund - ------------------------------------------------------------------------------------------------------------------------------------ Amount of Sales Sales charge as Dealer's Commission Sales charge as % Sales charge Dealer's purchase charge as % % of amount as % of offering of offering price as % of amount Commission as % of offering invested price invested of offering price price - ------------------------------------------------------------------------------------------------------------------------------------ * Tax-Free Minnesota Intermediate Fund - ------------------------------------------------------------------------------------------------------------------------------------ Less than 3.75% 3.25% 2.75% 2.35% $100,000 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ $100,000 but 3.00% 2.50% 2.00% 1.75% under $250,000 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ $250,000 but 2.50% 2.00% 1.00% 0.75% under $500,000 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ $500,000 but 2.00% 1.75% 1.00% 0.75% under $1 million - ------------------------------------------------------------------------------------------------------------------------------------
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- ------------------------------------------------------------------------------------------------------------------------------------ *Front-End Sales Charge as a percentage of the amount invested - ------------------------------------------------------------------------------------------------------------------------------------ 3.75% 3.00% 2.50% 2.00% - ------------------------------------------------------------------------------------------------------------------------------------ Tax-Free Arizona - ------------------------------------------------------------------------------------------------------------------------------------ Tax-Free Arizona Insured - ------------------------------------------------------------------------------------------------------------------------------------ Tax-Free California - ------------------------------------------------------------------------------------------------------------------------------------ Tax-Free California Insured - ------------------------------------------------------------------------------------------------------------------------------------ Tax-Free Colorado - ------------------------------------------------------------------------------------------------------------------------------------ Tax-Free Florida - ------------------------------------------------------------------------------------------------------------------------------------ Tax-Free Florida Insured - ------------------------------------------------------------------------------------------------------------------------------------ Tax-Free Idaho - ------------------------------------------------------------------------------------------------------------------------------------ Tax-Free Iowa - ------------------------------------------------------------------------------------------------------------------------------------ Tax-Free Kansas - ------------------------------------------------------------------------------------------------------------------------------------ Tax-Free Minnesota - ------------------------------------------------------------------------------------------------------------------------------------ Minnesota Insured - ------------------------------------------------------------------------------------------------------------------------------------ Minnesota High-Yield - ------------------------------------------------------------------------------------------------------------------------------------ Tax-Free Missouri Insured - ------------------------------------------------------------------------------------------------------------------------------------ Tax-Free New Mexico - ------------------------------------------------------------------------------------------------------------------------------------ Tax-Free New York - ------------------------------------------------------------------------------------------------------------------------------------ Tax-Free North Dakota - ------------------------------------------------------------------------------------------------------------------------------------ Tax-Free Oregon Insured - ------------------------------------------------------------------------------------------------------------------------------------ Tax-Free Wisconsin - ------------------------------------------------------------------------------------------------------------------------------------
As shown below, there is no front-end sales charge when you purchase $1 million or more of Class A shares. However, if your financial adviser is paid a commission on your purchase, you may have to pay a limited contingent deferred sales charge of 1% if you redeem these shares within the first year and 0.50% if you redeem them within the second year for the following Funds.
- -------------------------------------------------------------------------------------------------------- Amount of purchase Sales charge as % Sales charge as % Dealer's commission as % of of offering price of amount invested offering price - -------------------------------------------------------------------------------------------------------- Tax-Free Funds, Insured Funds and Minnesota High-Yield - -------------------------------------------------------------------------------------------------------- $1 million up to $5 million none none 1.00% - -------------------------------------------------------------------------------------------------------- Next $20 million none none 0.50% Up to $25 million - -------------------------------------------------------------------------------------------------------- Amount over $25 million none none 0.25% - --------------------------------------------------------------------------------------------------------
If your financial adviser is paid a commission on your purchase, you may have to pay a limited contingent deferred sales charge of 1% if you redeem these shares within the first year for Tax-Free Minnesota Intermediate Fund.
- -------------------------------------------------------------------------------------------------------- Amount of purchase Sales charge as % Sales charge as % Dealer's commission as % of of offering price of amount invested offering price - -------------------------------------------------------------------------------------------------------- Minnesota Intermediate Fund - -------------------------------------------------------------------------------------------------------- $1 million up to $5 million none none 0.50% - -------------------------------------------------------------------------------------------------------- Amount over $5 million none none 0.25% - --------------------------------------------------------------------------------------------------------
67 Class B o Class B shares have no up-front sales charge, so the full amount of your purchase is invested in the Fund. However, you will pay a contingent deferred sales charge if you redeem your shares within six years after you buy them. o If you redeem Class B shares during the first two years after you buy them, the shares will be subject to a contingent deferred sales charge of 4%. The contingent deferred sales charge is 3% during the third and fourth years, 2% during the fifth year, 1% during the sixth year, and 0% thereafter. For Tax-Free Minnesota Intermediate Fund, the contingent deferred sales charge is 2% during the two years, 1% during the third year and 0% thereafter. o Under certain circumstances the contingent deferred sales charge may be waived; please see the Statement of Additional Information for details. o For approximately eight years after you buy your Class B shares, they are subject to annual 12b-1 fees no greater than 1% of average daily net assets, of which 0.25% are service fees paid to the distributor, dealers or others for providing services and maintaining accounts. o Because of the higher 12b-1 fees, Class B shares have higher expenses and any dividends paid on these shares are lower than dividends on Class A shares. o Approximately eight years (five years for Tax-Free Minnesota Intermediate Fund) after you buy them, Class B shares automatically convert into Class A shares with a 12b-1 fee of no more than 0.25%. Conversion may occur as late as three months after, as applicable, the eighth or fifth anniversary of purchase, during which time Class B's higher 12b-1 fees apply. o You may purchase up to $250,000 of Class B shares at any one time. The limitation on maximum purchases varies for retirement plans. Class C o Class C shares have no up-front sales charge, so the full amount of your purchase is invested in the Fund. However, you will pay a contingent deferred sales charge if you redeem your shares within 12 months after you buy them. o Under certain circumstances the contingent deferred sales charge may be waived; please see the Statement of Additional Information for details. o Class C shares are subject to an annual 12b-1 fee which may not be greater than 1% of average daily net assets, of which 0.25% are service fees paid to the distributor, dealers or others for providing services and maintaining shareholder accounts. o Because of the higher 12b-1 fees, Class C shares have higher expenses and pay lower dividends than Class A shares. o Unlike Class B shares, Class C shares do not automatically convert into another class. o You may purchase any amount less than $1,000,000 of Class C shares at any one time. The limitation on maximum purchases varies for retirement plans. Each share class of the Funds has adopted a separate 12b-1 plan that allows it to pay distribution fees for the sales and distribution of its shares. Because these fees are paid out of the Fund's assets on an ongoing basis, over time these fees will increase the cost of your investment and may cost you more than paying other types of sales charges. 68 About your account (continued) How to reduce your sales charge We offer a number of ways to reduce or eliminate the sales charge on shares. Please refer to the Statement of Additional Information for detailed information and eligibility requirements. You can also get additional information from your financial adviser. You or your financial adviser must notify us at the time you purchase shares if you are eligible for any of these programs.
- --------------------------------------------------------------------------------------------------------------------------- Program How it works Share class A B C - --------------------------------------------------------------------------------------------------------------------------- Letter of Intent Through a Letter of Intent you X Although the Letter of agree to invest a certain Intent and Rights of amount in Delaware Investment Accumulation do not apply Funds (except money market to the purchase of Class funds with no sales charge) B and C shares, you can over a 13-month period to combine your purchase of qualify for reduced front-end Class A shares with your sales charges. purchase of B and C shares to fulfill your Letter of Intent or qualify for Rights of Accumulation. - --------------------------------------------------------------------------------------------------------------------------- Rights of Accumulation You can combine your holdings X or purchases of all funds in the Delaware Investments family (except money market funds with no sales charge) as well as the holdings and purchases of your spouse and children under 21 to qualify for reduced front-end sales charges. - --------------------------------------------------------------------------------------------------------------------------- Reinvestment of redeemed shares Up to 12 months after you X X Not redeem shares, you can reinvest available the proceeds without paying a front-end sales charge for Class A. For Class B your CDSC will be reimbursed. - ---------------------------------------------------------------------------------------------------------------------------
69 How to buy shares [GRAPHIC OMITTED: ILLUSTRATION OF A PERSON] Through your financial adviser Your financial adviser can handle all the details of purchasing shares, including opening an account. Your adviser may charge a separate fee for this service. [GRAPHIC OMITTED: ILLUSTRATION OF AN ENVELOPE] By mail Complete an investment slip and mail it with your check, made payable to the fund and class of shares you wish to purchase, to Delaware Investments, 1818 Market Street, Philadelphia, PA 19103-3682. If you are making an initial purchase by mail, you must include a completed investment application (or an appropriate retirement plan application if you are opening a retirement account) with your check. [GRAPHIC OMITTED: ILLUSTRATION OF A JAGGED LINE] By wire Ask your bank to wire the amount you want to invest to First Union Bank, ABA #031201467, Bank Account number 2014 12893 4013. Include your account number and the name of the fund in which you want to invest. If you are making an initial purchase by wire, you must call us so we can assign you an account number. [GRAPHIC OMITTED: ILLUSTRATION OF AN EXCHANGE SYMBOL] By exchange You can exchange all or part of your investment in one or more funds in the Delaware Investments family for shares of other funds in the family. Please keep in mind, however, that under most circumstances you are allowed to exchange only between like classes of shares. To open an account by exchange, call the Shareholder Service Center at 800.523.1918. [GRAPHIC OMITTED: ILLUSTRATION OF A KEYPAD] Through automated shareholder services You can purchase or exchange shares through Delaphone, our automated telephone service or through our web site, www.delawareinvestments.com. For more information about how to sign up for these services, call our Shareholder Service Center at 800.523.1918. 70 About your account (continued) How to buy shares (continued) Once you have completed an application, you can generally open an account with an initial investment of $1,000 and make additional investments at any time for as little as $100. If you are buying shares under the Uniform Gifts to Minors Act or the Uniform Transfers to Minors Act; or through an Automatic Investing Plan, the minimum purchase is $250, and you can make additional investments of only $25. The price you pay for shares will depend on when we receive your purchase order. If we or an authorized agent receive your order before the close of trading on the New York Stock Exchange (normally 4:00 p.m. Eastern Time) on a business day, you will pay that day's closing share price which is based on the Fund's net asset value. If we receive your order after the close of trading, you will pay the next business day's price. A business day is any day that the New York Stock Exchange is open for business. We reserve the right to reject any purchase order. We determine the Funds' net asset value (NAV) per share at the close of trading of the New York Stock Exchange each business day that the Exchange is open. We calculate this value by adding the market value of all the securities and assets in a Fund's portfolio, deducting all liabilities, and dividing the resulting number by the number of shares outstanding. The result is the net asset value per share. We price securities and other assets for which market quotations are available at their market value. We price fixed-income securities on the basis of valuations provided to us by an independent pricing service that uses methods approved by the board of trustees. Any fixed-income securities that have a maturity of less than 60 days we price at amortized cost. We price all other securities at their fair market value using a method approved by the board of trustees. 71 How to redeem shares [GRAPHIC OMITTED: ILLUSTRATION OF A PERSON] Through your financial adviser Your financial adviser can handle all the details of redeeming your shares. Your adviser may charge a separate fee for this service. [GRAPHIC OMITTED: ILLUSTRATION OF AN ENVELOPE] By mail You can redeem your shares (sell them back to the fund) by mail by writing to: Delaware Investments, 1818 Market Street, Philadelphia, PA 19103-3682. All owners of the account must sign the request, and for redemptions of $50,000 or more, you must include a signature guarantee for each owner. Signature guarantees are also required when redemption proceeds are going to an address other than the address of record on an account. [GRAPHIC OMITTED: ILLUSTRATION OF A TELEPHONE] By telephone You can redeem up to $50,000 of your shares by telephone. You may have the proceeds sent to you by check, or, if you redeem at least $1,000 of shares, you may have the proceeds sent directly to your bank by wire. Bank information must be on file before you request a wire redemption. [GRAPHIC OMITTED: ILLUSTRATION OF A JAGGED LINE] By wire You can redeem $1,000 or more of your shares and have the proceeds deposited directly to your bank account the next business day after we receive your request. If you request a wire deposit, the First Union Bank fee (currently $7.50) will be deducted from your proceeds. Bank information must be on file before you request a wire redemption. [GRAPHIC OMITTED: ILLUSTRATION OF A KEYPAD] Through automated shareholder services You can redeem shares through Delaphone, our automated telephone service or through our web site, www.delawareinvestments.com. For more information about how to sign up for these services, call our Shareholder Service Center at 800.523.1918. 72 About your account (continued) How to redeem shares (continued) If you hold your shares in certificates, you must submit the certificates with your request to sell the shares. We recommend that you send your certificates by certified mail. When you send us a properly completed request to redeem or exchange shares before the close of trading on the New York Stock Exchange (normally 4:00 p.m. Eastern time) you will receive the net asset value as determined on the business day we receive your request. We will deduct any applicable contingent deferred sales charges. You may also have to pay taxes on the proceeds from your sale of shares. We will send you a check, normally the next business day, but no later than seven days after we receive your request to sell your shares. If you purchased your shares by check, we will wait until your check has cleared, which can take up to 15 days, before we send your redemption proceeds. If you are required to pay a contingent deferred sales charge when you redeem your shares, the amount subject to the fee will be based on the shares' net asset value when you purchased them or their net asset value when you redeem them, whichever is less. This arrangement assures that you will not pay a contingent deferred sales charge on any increase in the value of your shares. You also will not pay the charge on any shares acquired by reinvesting dividends or capital gains. If you exchange shares of one fund for shares of another, you do not pay a contingent deferred sales charge at the time of the exchange. If you later redeem those shares, the purchase price for purposes of the contingent deferred sales charge formula will be the price you paid for the original shares--not the exchange price. The redemption price for purposes of this formula will be the NAV of the shares you are actually redeeming. Account minimums If you redeem shares and your account balance falls below the required account minimum of $1,000 ($250 for Uniform Gift to Minors Act accounts or accounts with automatic investing plans) for three or more consecutive months, you will have until the end of the current calendar quarter to raise the balance to the minimum. If your account is not at the minimum by the required time, you will be charged a $9 fee for that quarter and each quarter after that until your account reaches the minimum balance. If your account does not reach the minimum balance, the Fund may redeem your account after 60 days' written notice to you. 73 Special services To help make investing with us as easy as possible, and to help you build your investments, we offer the following special services. Automatic Investing Plan The Automatic Investing Plan allows you to make regular monthly investments directly from your checking account. Direct Deposit With Direct Deposit you can make additional investments through payroll deductions, recurring government or private payments such as Social Security or direct transfers from your bank account. Wealth Builder Option With the Wealth Builder Option you can arrange automatic monthly exchanges between your shares in one or more Delaware Investments funds. Wealth Builder exchanges are subject to the same rules as regular exchanges (see below) and require a minimum monthly exchange of $100 per fund. Dividend Reinvestment Plan Through our Dividend Reinvestment Plan, you can have your distributions reinvested in your account or the same share class in another fund in the Delaware Investments family. The shares that you purchase through the Dividend Reinvestment Plan are not subject to a front-end sales charge or to a contingent deferred sales charge. Under most circumstances, you may reinvest dividends only into like classes of shares. Exchanges You can exchange all or part of your shares for shares of the same class in another Delaware Investments fund without paying a sales charge and without paying a contingent deferred sales charge at the time of the exchange. However, if you exchange shares from a money market fund that does not have a sales charge you will pay any applicable sales charges on your new shares. When exchanging Class B and Class C shares of one fund for similar shares in other funds, your new shares will be subject to the same contingent deferred sales charge as the shares you originally purchased. The holding period for the CDSC will also remain the same, with the amount of time you held your original shares being credited toward the holding period of your new shares. You don't pay sales charges on shares that you acquired through the reinvestment of dividends. You may have to pay taxes on your exchange. When you exchange shares, you are purchasing shares in another fund so you should be sure to get a copy of the fund's prospectus and read it carefully before buying shares through an exchange. 74 About your account (continued) Special services (continued) MoneyLineSM On Demand Service Through our MoneyLineSM On Demand Service, you or your financial adviser may transfer money between your Fund account and your predesignated bank account by telephone request. MoneyLine has a minimum transfer of $25 and a maximum transfer of $50,000. MoneyLine Direct Deposit Service Through our MoneyLine Direct Deposit Service you can have $25 or more in dividends and distributions deposited directly to your bank account. Delaware Investments does not charge a fee for this service; however, your bank may assess one. Systematic Withdrawal Plan Through our Systematic Withdrawal Plan you can arrange a regular monthly or quarterly payment from your account made to you or someone you designate. If the value of your account is $5,000 or more, you can make withdrawals of at least $25 monthly, or $75 quarterly. You may also have your withdrawals deposited directly to your bank account through our MoneyLine Direct Deposit Service. Dividends, distributions and taxes For each Fund, dividends, if any, are paid monthly, while any capital gains are distributed annually. We automatically reinvest all dividends and any capital gains, unless you tell us otherwise. Tax laws are subject to change, so we urge you to consult your tax adviser about your particular tax situation and how it might be affected by current tax law. The tax status of your distributions from these Funds is the same whether you reinvest your dividends or receive them in cash. Dividends paid by the Funds are generally expected to be exempt from federal income tax. However, they must be included in the tax base for determining how much of a shareholder's Social Security benefits are subject to federal income tax. Shareholders are required to disclose tax-exempt interest received from the Funds on their federal income tax returns. Distributions from a Fund's long-term capital gains are taxable as capital gains. Short-term capital gains are generally taxable as ordinary income. Any capital gains may be taxable at different rates depending on the length of time the Fund held the assets. In addition, you may be subject to state and local taxes on distributions. The sale of Fund shares either through redemption or exchange, is a taxable event and may result in a capital gain or loss to shareholders. We will send you a statement each year by January 31 detailing the amount and nature of all dividends and capital gains that you were paid for the prior year as well as all redemptions and exchanges. The following discussion relates to federal and state taxation on each of the Funds described in this Prospectus. The information is current as of the date of this Prospectus. Distributions from the Funds including exempt-interest dividends and capital gains distributions may be subject to tax in states other than the one cited in each Fund's name. We do not intend this information to replace careful tax planning and we encourage you to consult your tax adviser regarding your own tax situation. Arizona State Considerations You may exclude any exempt interest dividends paid to you by the Arizona Tax-Free Funds from your Arizona taxable income if they can be excluded from your gross income for federal income tax purposes and if they are derived from interest on o obligations of the State of Arizona and its political subdivisions or 75 o obligations of United States possessions that are exempt from state taxation under federal law This is the same tax treatment as if you held these securities directly rather than investing in them through a mutual fund. California State Taxation You may exclude dividends paid to you by the California Tax-Free Funds from your taxable income for purposes of the California personal income tax, if o you are an individual, and o your Fund properly identifies the dividends as California exempt interest dividends in a written notice mailed to you. The portion of each California Tax-Free Fund's dividends that are designated as California exempt interest dividends may not exceed the amount of interest (minus certain non-deductible expenses) each Fund receives, during its taxable year, on obligations that would pay tax-exempt interest if held by an individual. Each California Tax-Free Fund may designate dividends as exempt from California income tax, only if o it qualifies as a regulated investment company under the IRS Code, and o 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 is exempt from taxation by the State of California when held by an individual. Shareholders subject to the California Bank and Corporation Tax Law may have to pay the California franchise tax on any distributions, including California exempt interest dividends, that are paid by each California Tax-Free Fund. Colorado State Taxation You may exclude any exempt interest dividends paid to you by the Tax-Free Colorado Fund from your Colorado taxable income if they can be excluded from your gross income for federal income tax purposes and if they are attributable to interest on: o obligations of the State of Colorado or its political subdivisions which are issued on or after May 1, 1980, o 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 Colorado state laws authorizing the issuance of such obligations, and o obligations of United States possessions that are exempt from state taxation under federal law 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 Tax-Free Funds are not subject to the intangible property tax so long as, on the last business day of each calendar year, o all of the assets of the Florida Tax-Free Funds consist of obligations of the U.S. government and its agencies and territories that are exempt from state taxation under federal law, and o obligations of the State of Florida and its municipalities, counties and other taxing districts. If the Florida Tax-Free Funds hold any other types of assets on that date, then the entire value of the shares in the Florida Tax-Free Funds (except for the portion attributable to U. S. government obligations) is subject to the intangible property tax. If the Funds were to invest in non-exempt securities, each Tax-Free Florida Fund would have to sell any non-exempt assets held in its portfolio during the year and reinvest the proceeds in exempt assets prior to December 31. If the Funds were to do so, transaction costs involved in repositioning the portfolio's assets would likely reduce each Fund's investment return and might, in extraordinary circumstances, eliminate any investment gains the Fund had achieved by investing in non-exempt assets during the year. Florida does impose an income tax on corporations and certain other entities; distributions from the Florida Tax-Free Funds may be subject to this income tax. 76 Idaho State Taxation According to a ruling which Tax-Free Idaho Fund received from the Idaho Department of Revenue, dated December 13, 1994, any exempt interest dividends paid to you by the Tax-Free Idaho Fund are not subject to either the Idaho personal income tax or the Idaho corporate income tax as long as the dividends are attributable to: o interest earned on bonds issued by the State of Idaho, its cities and political subdivisions, or o interest earned on obligations of the U.S. government or its territories and possessions that are exempt from state taxation under federal law. Iowa State Taxation According to a ruling which Tax-Free Iowa Fund received from the Iowa Department of Revenue and Finance, dated May 21, 1993, dividends paid by a fund such as the Iowa Fund 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) as long as: o dividends are attributable to 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, or o dividends are attributable 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, and o Tax-Free Iowa Fund provides statements to the shareholders identifying what percentage of dividends from the Tax-Free Iowa Fund are attributable to such interest. Kansas State Taxation You may exclude any exempt interest dividends paid to you by the Tax-Free Kansas Fund from your taxable income if they can be excluded from your gross income for federal income tax purposes and if they are attributable to interest on: o obligations of the State of Kansas or its political subdivisions issued after December 31, 1987, o 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 o obligations of possessions of the United States that are exempt from state taxation under federal law. Distributions from Tax-Free 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 these taxes. Minnesota State Taxation Minnesota taxable net income is generally based on federal taxable income. Individuals, estates and trusts may exclude the portion of exempt interest dividends that is derived from interest income on Minnesota tax-exempt obligations from their Minnesota taxable net income as long as the following condition is met: o interest income from Minnesota tax-exempt obligations must represent 95% of the total exempt interest dividends paid to shareholders by the Fund. Exempt interest dividends that are subject to the federal alternative minimum tax are also subject to the Minnesota alternative minimum tax on individuals, estates and trusts. Corporations that receive distributions from the Minnesota Funds, including exempt interest dividends, may be subject to the Minnesota income tax imposed on corporations. In 1995, the Minnesota Legislature enacted a statement of intent that interest on obligations of Minnesota governmental units and Indian tribes would 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. This provision applies to taxable years that begin during or after the calendar year in which any such court decision becomes final, regardless of the date on which the obligations 77 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 unlawfully discriminates against interstate commerce or otherwise conflicts with the United States Constitution. The Minnesota Funds cannot predict whether interest on the Minnesota obligations held by the Minnesota Funds would become taxable under this Minnesota statutory provision in the future. Missouri State Taxation Individuals, trusts, estates and certain corporations may exclude any exempt interest dividends paid by the Tax-Free Missouri Insured Fund from their taxable income if the dividends can be excluded from gross income for federal income tax purposes and if the dividends are attributable to interest on: o obligations of the State of Missouri or any of its political subdivisions or authorities, or o obligations of possessions of the United States that are exempt from state taxation under federal law. Tax-Free Missouri Insured Fund must identify the source of such dividends in an annual notice mailed to shareholders. Distributions from the Tax-Free Missouri Insured Fund, including exempt interest dividends, may be subject to the franchise taxes imposed on banking institutions, credit institutions, credit unions and savings and loan associations when received by shareholders subject to such taxes. Montana State Taxation Exempt interest dividends from the Montana Fund that are excluded from gross income for federal income tax purposes and that are attributable to: o interest on obligations of the State of Montana or counties, municipalities, districts or other political subdivisions of the State of Montana; or o interest on obligations of the United States government and other interest income that is exempt from taxation by Montana under federal law, are excluded from taxable income for purposes of the Montana personal income tax imposed on individuals, estates and trusts. Distributions from the Montana Fund, including exempt interest dividends, may be subject to the Montana corporate license and income taxes when received by shareholders subject to such taxes. Shares of the Montana Fund may be subject to the Montana property tax. New Mexico State Taxation You may exclude any exempt interest dividends paid to you by the Tax-Free New Mexico Fund from your taxable income for purposes of the New Mexico income tax on individuals and the New Mexico corporate income and franchise tax imposed on corporations, if they can be excluded from gross income for federal income tax purposes and if they are attributable to interest on: o obligations of the United States, o obligations of the State of New Mexico or any of its agencies, institutions, instrumentalities or political subdivisions, and o obligations of possessions of the United States that are exempt from state taxation under federal law. The Tax-Free New Mexico Fund must provide an annual statement to each shareholder that identifies the source of income that was distributed to the shareholder in order for shareholders to exclude the tax-exempt dividends from their taxable income. New York State and City Taxation You may exclude any exempt interest dividends paid to you by the Tax-Free New York Fund from your taxable income for purposes of the New York state income taxes and the New York City income tax on resident individuals, estates and trust, if they can be excluded from your gross income for federal income tax purposes and if they are attributable to interest on: o obligations of the State of New York or its political subdivisions, o obligations of possessions of the United States that are exempt from state taxation under federal law. Dividends from the Tax-Free New Your 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 paid to shareholders subject to such taxes. North Dakota State Taxation As long as the Tax-Free North Dakota Fund provides certain required information to the North Dakota tax commissioner in each year, individuals, estates and trusts may exclude exempt interest dividends from the Tax- 78 Free North Dakota Fund from taxable income for purposes of the North Dakota personal income tax if they can be excluded from gross income for federal income tax purposes and that are attributable to interest earned on: o obligations of the State of North Dakota or its political subdivisions However, to the extent that any exempt interest dividends from the Tax-Free North Dakota Fund are subject to the federal alternative minimum tax, such dividends could affect taxpayers' North Dakota income tax liability if they compute their tax liability using the optional "percentage of federal income tax liability" method permitted by North Dakota law. Distributions from the Tax-Free 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 paid to shareholders subject to such taxes. Oregon State Taxation You may exclude any exempt interest dividends paid to you by the Tax-Free Oregon Insured Fund from your taxable income for purposes of the income tax imposed by the State of Oregon on individuals, if the dividends can be excluded from gross income for federal income tax purposes and if they are attributable to interest on: o obligations of the State of Oregon or its political subdivisions, or o obligations of possessions of the United States that are exempt from state taxation under federal law. Distributions from the Tax-Free Oregon Insured Fund, including exempt interest dividends, may be subject to the Oregon Corporate Excise Tax or Corporate Income Tax when paid to shareholders subject to such taxes. Wisconsin State Taxation According to a ruling which Tax-Free Wisconsin Fund received from the Wisconsin Department of Revenue dated July 7, 1993, dividends paid by a fund such as the Tax-Free Wisconsin Fund are not included in the income of shareholders subject to the Wisconsin personal income tax as long as dividends paid are attributable to: o 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, or o 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. Distributions from the Tax-Free 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. 79 Certain management considerations Year 2000 As with other mutual funds, financial and business organizations and individuals around the world, the Funds could be adversely affected if the computer systems used by their service providers do not properly process and calculate date-related information from and after January 1, 2000. This is commonly known as the "Year 2000 Problem." Each Fund is taking steps to obtain satisfactory assurances that its major service providers are taking steps reasonably designed to address the Year 2000 Problem on the computer systems that the service providers use. However, there can be no assurance that these steps will be sufficient to avoid any adverse impact on the business of the Funds. The portfolio managers and investment professionals of the Fund consider Year 2000 compliance in the securities selection and investment process. However, there can be no guarantees that, even with their due diligence efforts, they will be able to predict the affect of Year 2000 on any company or the performance of its securities. Fund companies The Funds are separate series of the investment companies shown below. Voyageur Insured Funds Delaware Tax-Free Arizona Insured Fund Delaware Minnesota Insured Fund Voyageur Intermediate Tax Free Funds Delaware Tax-Free Minnesota Intermediate Fund Voyageur Investment Trust Delaware Tax-Free California Insured Fund Delaware Tax-Free Florida Insured Fund Delaware Tax-Free Florida Fund Delaware Tax-Free Kansas Fund Delaware Tax-Free Missouri Insured Fund Delaware Tax-Free New Mexico Fund Delaware Tax-Free Oregon Insured Fund Voyageur Mutual Funds Delaware Tax-Free Arizona Fund Delaware Tax-Free California Fund Delaware Tax-Free Iowa Fund Delaware Tax-Free Idaho Fund Delaware Minnesota High-Yield Municipal Bond Fund Delaware Tax-Free Montana Fund Delaware National High-Yield Municipal Bond Fund Delaware Tax-Free New York Fund Delaware Tax-Free Wisconsin Fund Voyageur Mutual Funds II Delaware Tax-Free Colorado Fund Voyageur Tax Free Funds Delaware Tax-Free Minnesota Fund Delaware Tax-Free North Dakota Fund 80 Financial information Financial highlights The financial highlights table is intended to help you understand the Fund's financial performance. All "per share" information reflects financial results for a single Fund share. This information has been audited by Ernst & Young LLP, whose report, along with the Fund's financial statements, is included in the Fund's annual report, which is available upon request by calling 800.523.1918.
- ------------------------------------------------------------------------------------------- Delaware Tax-Free Class A Arizona Fund - ------------------------------------------------------------------------------------------- Eight Period Year Months Year Year 3/2/95(3) Ended Ended Ended Ended through 1999 8/31/98(1) 1997(2) 1996 12/31/95 - ------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------- Net asset value, beginning of period $11.140 $10.700 $10.750 $10.000 - ------------------------------------------------------------------------------------------- Income from investment operations: - ------------------------------------------------------------------------------------------- Net investment income 0.376 0.589 0.580 0.460 - ------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) from investments 0.170 0.455 (0.010) 0.840 ------- ------- ------- ------- - ------------------------------------------------------------------------------------------- Total from investment operations 0.546 1.044 0.570 1.300 ----- ----- ----- ----- - ------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------- Less dividends and distributions: - ------------------------------------------------------------------------------------------- Dividends from net investment income (0.376) (0.589) (0.580) (0.460) - ------------------------------------------------------------------------------------------- Distributions from net realized gain on investment transactions (0.100) (0.015) (0.040) (0.090) ------- ------- ------- ------- - ------------------------------------------------------------------------------------------- Total dividends and distributions (0.476) (0.604) (0.620) (0.550) ------- ------- ------- ------- - ------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------- Net asset value, end of period $11.210 $11.140 $10.700 $10.750 ======= ======= ======= ======= - ------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------- Total return(4) 4.99% 10.07% 5.48% 13.27% - ------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------- Ratios and supplemental data: - ------------------------------------------------------------------------------------------- Net assets, end of period (000 omitted) $12,177 $10,916 $9,755 $6,225 - ------------------------------------------------------------------------------------------- Ratio of expenses to average net assets 0.49% 0.48% 0.46% 0.52%(5) - ------------------------------------------------------------------------------------------- Ratio of expenses to average net assets prior to expense limitation 1.07% 1.08% 1.25% 1.25%(5) - ------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets 5.03% 5.42% 5.43% 5.19%(5) - ------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets prior to expense limitation 4.45% 4.82% 4.64% 4.46%(5) - ------------------------------------------------------------------------------------------- Portfolio turnover 96% 39% 70% 38% - -------------------------------------------------------------------------------------------
[RESTUBED TABLE FOR ABOVE]
- ------------------------------------------------------------------------------------------- Delaware Tax-Free Class B Arizona Fund - ------------------------------------------------------------------------------------------- Eight Period Year Months Year Year 6/29/95(3) Ended Ended Ended Ended through 1999 8/31/98(1) 1997(2) 1996 12/31/95 - ------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------- Net asset value, beginning of period $11.140 $10.690 $10.740 $10.300 - ------------------------------------------------------------------------------------------- Income from investment operations: - ------------------------------------------------------------------------------------------- Net investment income 0.319 0.502 0.510 0.260 - ------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) from investments 0.160 0.469 (0.010) 0.530 ----- ----- ------- ----- - ------------------------------------------------------------------------------------------- Total from investment operations 0.479 0.971 0.500 0.790 ----- ----- ----- ----- - ------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------- Less dividends and distributions: - ------------------------------------------------------------------------------------------- Dividends from net investment income (0.319) (0.506) (0.510) (0.260) - ------------------------------------------------------------------------------------------- Distributions from net realized gain on investment transactions (0.100) (0.015) (0.040) (0.090) ------- ------- ------- ------- - ------------------------------------------------------------------------------------------- Total dividends and distributions (0.419) (0.521) (0.550) (0.350) ------- ------- ------- ------- - ------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------- Net asset value, end of period $11.200 $11.140 $10.690 $10.740 ======= ======= ======= ======= - ------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------- Total return(4) 4.38% 9.34% 4.84% 7.74% - ------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------- Ratios and supplemental data: - ------------------------------------------------------------------------------------------- Net assets, end of period (000 omitted) $4,952 $3,711 $3,491 $1,629 - ------------------------------------------------------------------------------------------- Ratio of expenses to average net assets 1.23% 1.22% 1.11% 0.99%(5) - ------------------------------------------------------------------------------------------- Ratio of expenses to average net assets 1.81% 1.82% 2.00% 2.00%(5) prior to expense limitation - ------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets 4.29% 4.68% 4.77% 4.60%(5) - ------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets prior to expense limitation 3.71% 4.08% 3.88% 3.59%(5) - ------------------------------------------------------------------------------------------- Portfolio turnover 96% 39% 70% 38% - -------------------------------------------------------------------------------------------
[RESTUBED TABLE FOR ABOVE]
- ----------------------------------------------------------------------------------------- Delaware Tax-Free Class C Arizona Fund - ----------------------------------------------------------------------------------------- Eight Period Year Months Year Year 5/13/95(3) Ended Ended Ended Ended through 1999 8/31/98(1) 1997(2) 1996 12/31/95 - ----------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------- Net asset value, beginning of period $11.160 $10.710 $10.760 $10.200 - ----------------------------------------------------------------------------------------- Income from investment operations: - ----------------------------------------------------------------------------------------- Net investment income 0.313 0.534 0.500 0.300 - ----------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) from investments 0.176 0.437 (0.010) 0.650 ----- ----- ------- ----- - ----------------------------------------------------------------------------------------- Total from investment operations 0.489 0.971 0.490 0.950 ----- ----- ----- ----- - ----------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------- Less dividends and distributions: - ----------------------------------------------------------------------------------------- Dividends from net investment income (0.319) (0.506) (0.500) (0.300) - ----------------------------------------------------------------------------------------- Distributions from net realized gain on investment transactions (0.100) (0.015) (0.040) (0.090) ------- ------- ------- ------- - ----------------------------------------------------------------------------------------- Total dividends and distributions (0.419) (0.521) (0.540) (0.390) ------- ------- ------- ------- - ----------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------- Net asset value, end of period $11.230 $11.160 $10.710 $10.760 ======= ======= ======= ======= - ----------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------- Total return(4) 4.46% 9.32% 4.70% 9.43% - ----------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------- Ratios and supplemental data: - ----------------------------------------------------------------------------------------- Net assets, end of period (000 omitted) $632 $332 $23 $27 - ----------------------------------------------------------------------------------------- Ratio of expenses to average net assets 1.23% 1.23% 1.21% 1.20%(5) - ----------------------------------------------------------------------------------------- Ratio of expenses to average net assets prior to expense limitation 1.81% 1.83% 2.00% 2.00%(5) - ----------------------------------------------------------------------------------------- Ratio of net investment income to average net assets 4.29% 4.67% 4.68% 4.65%(5) - ----------------------------------------------------------------------------------------- Ratio of net investment income to average net assets prior to expense limitation 3.71% 4.07% 3.89% 3.85%(5) - ----------------------------------------------------------------------------------------- Portfolio turnover 96% 39% 70% 38% - -----------------------------------------------------------------------------------------
(1) Ratios have been annualized and the total returns has not been annualized. (2) Commencing May 1, 1997, Delaware Management Company replaced Voyageur Fund Managers, Inc. as the Fund's investment manager. (3) Commencement of operations. (4) 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. (5) Annualized. 81 Financial information Financial highlights The financial highlights table is intended to help you understand the Fund's financial performance. All "per share" information reflects financial results for a single Fund share. This information has been audited by Ernst & Young LLP, whose report, along with the Fund's financial statements, is included in the Fund's annual report, which is available upon request by calling 800.523.1918.
- ------------------------------------------------------------------------------------------- Delaware Tax-Free Class A Arizona Insured Fund - ------------------------------------------------------------------------------------------- Eight Year Months Year Year Year Ended Ended Ended Ended Ended 1999 8/31/98(1) 1997(2) 1996 1995 - ------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------- Net asset value, beginning of period $11.470 $11.060 $11.150 $9.860 - ------------------------------------------------------------------------------------------- Income from investment operations: - ------------------------------------------------------------------------------------------- Net investment income 0.358 0.548 0.530 0.540 - ------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) from investments 0.080 0.416 (0.090) 1.310 ----- ----- ------- ----- - ------------------------------------------------------------------------------------------- Total from investment operations 0.438 0.964 0.440 1.850 ----- ----- ----- ----- - ------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------- Less dividends and distributions: - ------------------------------------------------------------------------------------------- Dividends from net investment income (0.358) (0.554) (0.530) (0.560) - ------------------------------------------------------------------------------------------- Distributions from net realized gain on investment transactions --- --- --- --- ----- ----- ----- ----- - ------------------------------------------------------------------------------------------- In excess of net realized gains --- --- --- --- ----- ----- ----- ----- - ------------------------------------------------------------------------------------------- Total dividends and distributions (0.358) (0.554) (0.530) (0.560) ------- ------- ------- ------- - ------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------- Net asset value, end of period $11.550 $11.470 $11.060 $11.150 ======= ======= ======= ======= - ------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------- Total return(4) 3.88% 8.96% 4.09% 19.10% - ------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------- Ratios and supplemental data: - ------------------------------------------------------------------------------------------- Net assets, end of period (000 omitted) $179,306 $186,485 $209,258 $238,114 - ------------------------------------------------------------------------------------------- Ratio of expenses to average net assets 0.84% 0.84% 0.82% 0.69% - ------------------------------------------------------------------------------------------- Ratio of expenses to average net assets prior to expense limitation 0.91% 0.89% 0.95% 0.95% - ------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets 4.68% 4.92% 4.89% 5.07% - ------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets prior to expense limitation 4.61% 4.87% 4.76% 4.81% - ------------------------------------------------------------------------------------------- Portfolio turnover 21% 42% 42% 42% - -------------------------------------------------------------------------------------------
[RESTUBED FOR TABLE ABOVE]
- ------------------------------------------------------------------------------------------------ Delaware Tax-Free Class B Arizona Insured Fund - ------------------------------------------------------------------------------------------------ Eight Period Year Months Year Year 3/10/95(3) Ended Ended Ended Ended through 1999 8/31/98(1) 1997(2) 1996 12/31/95 - ------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------ Net asset value, beginning of period $11.460 $11.050 $11.140 $10.440 - ------------------------------------------------------------------------------------------------ Income from investment operations: - ------------------------------------------------------------------------------------------------ Net investment income 0.300 0.455 0.450 0.380 - ------------------------------------------------------------------------------------------------ Net realized and unrealized gain (loss) from investments 0.091 0.414 (0.090) 0.690 ----- ----- ------- ----- - ------------------------------------------------------------------------------------------------ Total from investment operations 0.391 0.869 0.360 1.070 ----- ----- ----- ----- - ------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------ Less dividends and distributions: - ------------------------------------------------------------------------------------------------ Dividends from net investment income (0.301) (0.459) (0.450) (0.370) - ------------------------------------------------------------------------------------------------ Distributions from net realized gain on investment transactions --- --- --- --- ----- ----- ----- ----- - ------------------------------------------------------------------------------------------------ In excess of net realized gains --- --- --- --- ----- ----- ----- ----- - ------------------------------------------------------------------------------------------------ Total dividends and distributions (0.301) (0.459) (0.450) (0.370) ------- ------- ------- ------- - ------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------ Net asset value, end of period $11.550 $11.460 $11.050 $11.140 ======= ======= ======= ======= - ------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------ Total return(4) 3.46% 8.06% 3.32% 10.36% - ------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------ Ratios and supplemental data: - ------------------------------------------------------------------------------------------------ Net assets, end of period (000 omitted) $4,782 $3,657 $3,110 $2,048 - ------------------------------------------------------------------------------------------------ Ratio of expenses to average net assets 1.59% 1.65% 1.59% 1.33%(5) - ------------------------------------------------------------------------------------------------ Ratio of expenses to average net assets prior to expense limitation 1.66% 1.70% 1.70% 1.60%(5) - ------------------------------------------------------------------------------------------------ Ratio of net investment income to average net assets 3.93% 4.11% 4.11% 4.08%(5) - ------------------------------------------------------------------------------------------------ Ratio of net investment income to average net assets prior to expense limitation 3.86% 4.06% 4.00% 3.81%(5) - ------------------------------------------------------------------------------------------------ Portfolio turnover 21% 42% 42% 42% - ------------------------------------------------------------------------------------------------
[RESTUBED FOR TABLE ABOVE]
- ------------------------------------------------------------------------------------------- Delaware Tax-Free Class C Arizona Insured Fund - ------------------------------------------------------------------------------------------- Eight Year Months Year Year Year Ended Ended Ended Ended Ended 1999 8/31/98(1) 1997(2) 1996 1995 - ------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------- Net asset value, beginning of period $11.470 $11.060 $11.150 $9.860 - ------------------------------------------------------------------------------------------- Income from investment operations: - ------------------------------------------------------------------------------------------- Net investment income 0.301 0.456 0.430 0.450 - ------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) from investments 0.090 0.414 (0.090) 1.310 ----- ----- ------- ----- - ------------------------------------------------------------------------------------------- Total from investment operations 0.391 0.870 0.340 1.760 ----- ----- ----- ----- - ------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------- Less dividends and distributions: - ------------------------------------------------------------------------------------------- Dividends from net investment income (0.301) (0.460) (0.430) (0.470) - ------------------------------------------------------------------------------------------- Distributions from net realized gain on investment transactions --- --- --- --- ----- ----- ----- ----- - ------------------------------------------------------------------------------------------- In excess of net realized gains --- --- --- --- ----- ----- ----- ----- - ------------------------------------------------------------------------------------------- Total dividends and distributions (0.301) (0.460) (0.430) (0.470) ------- ------- ------- ------- - ------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------- Net asset value, end of period $11.560 $11.470 $11.060 $11.150 ======= ======= ======= ======= - ----------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------- Total return(4) 3.46% 8.05% 3.18% 18.10% - ------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------- Ratios and supplemental data: - ------------------------------------------------------------------------------------------- Net assets, end of period (000 omitted) $627 $675 $554 $541 - ------------------------------------------------------------------------------------------- Ratio of expenses to average net assets 1.59% 1.65% 1.70% 1.54% - ------------------------------------------------------------------------------------------- Ratio of expenses to average net assets prior to expense limitation 1.66% 1.70% 1.70% 1.69% - ------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets 3.93% 4.11% 4.01% 4.18% - ------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets prior to expense limitation 3.86% 4.06% 4.01% 4.03% - ------------------------------------------------------------------------------------------- Portfolio turnover 21% 42% 42% 42% - -------------------------------------------------------------------------------------------
(1) Ratios have been annualized and the total returns has not been annualized. (2) Commencing May 1, 1997, Delaware Management Company replaced Voyageur Fund Managers, Inc. as the Fund's investment manager. (3) Commencement of operations. (4) 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. (5) Annualized. 82 Financial information Financial highlights The financial highlights table is intended to help you understand the Fund's financial performance. All "per share" information reflects financial results for a single Fund share. This information has been audited by Ernst & Young LLP, whose report, along with the Fund's financial statements, is included in the Fund's annual report, which is available upon request by calling 800.523.1918.
- ------------------------------------------------------------------------------------------- Delaware Tax-Free Class A California Fund - ------------------------------------------------------------------------------------------- Eight Period Year Months Year Year 3/2/95(3) Ended Ended Ended Ended through 1999 8/31/98(1) 1997(2) 1996 12/31/95 - ------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------- Net asset value, beginning of period $11.050 $10.430 $10.640 $10.000 - ------------------------------------------------------------------------------------------- Income from investment operations: - ------------------------------------------------------------------------------------------- Net investment income 0.387 0.590 0.600 0.470 - ------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) from investments 0.163 0.665 (0.180) 0.700 ----- ----- ------- ----- - ------------------------------------------------------------------------------------------- Total from investment operations 0.550 1.255 0.420 1.170 ----- ----- ----- ----- - ------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------- Less dividends and distributions: - ------------------------------------------------------------------------------------------- Dividends from net investment income (0.380) (0.595) (0.600) (0.470) - ------------------------------------------------------------------------------------------- Distributions from net realized gain on investment transactions --- (0.040) (0.030) (0.060) ----- ------- ------- ------- - ------------------------------------------------------------------------------------------- Total dividends and distributions (0.380) (0.635) (0.630) (0.530) ------- ------- ------- ------- - ------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------- Net asset value, end of period $11.220 $11.050 $10.430 $10.640 ======= ======= ======= ======= - ------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------- Total return(4) 5.07% 12.43% 4.21% 11.97% - ------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------- Ratios and supplemental data: - ------------------------------------------------------------------------------------------- Net assets, end of period (000 omitted) $11,600 $4,385 $1,218 $1,012 - ------------------------------------------------------------------------------------------- Ratio of expenses to average net assets 0.22% 0.13% 0.27% 0.46%(5) - ------------------------------------------------------------------------------------------- Ratio of expenses to average net assets prior to expense limitation 1.07% 1.19% 1.25% 1.22%(5) - ------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets 5.00% 5.32% 5.71% 5.57%(5) - ------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets prior to expense limitation 4.15% 4.26% 4.73% 4.81%(5) - ------------------------------------------------------------------------------------------- Portfolio turnover 62% 17% 8% 40% - -------------------------------------------------------------------------------------------
[RESTUBED TABLE FOR ABOVE]
- ----------------------------------------------------------------------------------------------- Delaware Tax-Free Class B California Fund - ----------------------------------------------------------------------------------------------- Eight Period Year Months Year Year 8/23/95(3) Ended Ended Ended Ended through 1999 8/31/98(1) 1997(2) 1996 12/31/95 - ----------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------- Net asset value, beginning of period $11.080 $10.440 $10.650 $9.960 - ----------------------------------------------------------------------------------------------- Income from investment operations: - ----------------------------------------------------------------------------------------------- Net investment income 0.319 0.520 0.560 0.200 - ----------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) from investments 0.186 0.688 (0.180) 0.740 ----- ----- ------- ----- - ----------------------------------------------------------------------------------------------- Total from investment operations 0.505 1.208 0.380 0.940 ----- ----- ----- ----- - ----------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------- Less dividends and distributions: - ----------------------------------------------------------------------------------------------- Dividends from net investment income (0.325) (0.528) (0.560) (0.190) - ----------------------------------------------------------------------------------------------- Distributions from net realized gain on investment transactions --- (0.040) (0.030) (0.060) ----- ------- ------- ------- - ----------------------------------------------------------------------------------------------- Total dividends and distributions (0.325) (0.568) (0.590) (0.250) ------- ------- ------- ------- - ----------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------- Net asset value, end of period $11.260 $11.080 $10.440 $10.650 ======= ======= ======= ======= - ----------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------- Total return(4) 4.62% 11.91% 3.77% 9.52% - ----------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------- Ratios and supplemental data: - ----------------------------------------------------------------------------------------------- Net assets, end of period (000 omitted) $8,962 $5,576 $660 $128 - ----------------------------------------------------------------------------------------------- Ratio of expenses to average net assets 0.97% 0.80% 0.50% 0.60%(5) - ----------------------------------------------------------------------------------------------- Ratio of expenses to average net assets prior to expense limitation 1.82% 1.86% 2.00% 1.93%(5) - ----------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets 4.27% 4.65% 5.34% 5.33%(5) - ----------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets prior to expense limitation 3.42% 3.59% 3.84% 4.00%(5) - ----------------------------------------------------------------------------------------------- Portfolio turnover 62% 17% 8% 40% - -----------------------------------------------------------------------------------------------
[RESTUBED TABLE FOR ABOVE]
- -------------------------------------------------------------------------------------- Delaware Tax-Free Class C California Fund - -------------------------------------------------------------------------------------- Eight Period Year Months Year 4/9/96(3) Ended Ended Ended through 1999 8/31/98(1) 1997(2) 12/31/96 - -------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------- Net asset value, beginning of period $11.050 $10.420 $10.070 - -------------------------------------------------------------------------------------- Income from investment operations: - -------------------------------------------------------------------------------------- Net investment income 0.335 0.487 0.370 - -------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) from investments 0.170 0.696 0.380 ----- ----- ----- - -------------------------------------------------------------------------------------- Total from investment operations 0.505 1.183 0.750 ----- ----- ----- - -------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------- Less dividends and distributions: - -------------------------------------------------------------------------------------- Dividends from net investment income (0.325) (0.513) (0.370) - -------------------------------------------------------------------------------------- Distributions from net realized gain on investment transactions --- (0.040) (0.030) ----- ------- ------- - -------------------------------------------------------------------------------------- Total dividends and distributions (0.325) (0.553) (0.400) ------- ------- ------- - -------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------- Net asset value, end of period $11.230 $11.050 $10.420 ======= ======= ======= - -------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------- Total return(4) 4.64% 11.69% 7.58% - -------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------- Ratios and supplemental data: - -------------------------------------------------------------------------------------- Net assets, end of period (000 omitted) $774 $109 $94 - -------------------------------------------------------------------------------------- Ratio of expenses to average net assets 0.97% 0.87% 0.78%(5) - -------------------------------------------------------------------------------------- Ratio of expenses to average net assets prior to expense limitation 1.82% 1.93% 2.00%(5) - -------------------------------------------------------------------------------------- Ratio of net investment income to average net assets 4.27% 4.58% 5.13%(5) - -------------------------------------------------------------------------------------- Ratio of net investment income to average net assets prior to expense limitation 3.42% 3.52% 3.91%(5) - -------------------------------------------------------------------------------------- Portfolio turnover 62% 17% 8% - --------------------------------------------------------------------------------------
(1) Ratios have been annualized and the total returns has not been annualized. (2) Commencing May 1, 1997, Delaware Management Company replaced Voyageur Fund Managers, Inc. as the Fund's investment manager. (3) Commencement of operations. (4) 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. (5) Annualized. Financial information Financial highlights The financial highlights table is intended to help you understand the Fund's financial performance. All "per share" information reflects financial results for a single Fund share. This information has been audited by Ernst & Young LLP, whose report, along with the Fund's financial statements, is included in the Fund's annual report, which is available upon request by calling 800.523.1918.
- ------------------------------------------------------------------------------------- Delaware Tax-Free Class A California Insured - ------------------------------------------------------------------------------------- Eight Year Months Year Year Year Ended Ended Ended Ended Ended 1999 8/31/98(1) 1997(2) 1996 1995 - ------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------- Net asset value, beginning of period $10.980 $10.500 $10.650 $9.330 - ------------------------------------------------------------------------------------- Income from investment operations: - ------------------------------------------------------------------------------------- Net investment income 0.345 0.513 0.520 0.530 - ------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) from investments 0.150 0.486 (0.150) 1.340 ----- ----- ----- ----- - ------------------------------------------------------------------------------------- Total from investment operations 0.495 0.999 0.370 1.870 ----- ----- ----- ----- - ------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------- Less dividends and distributions: - ------------------------------------------------------------------------------------- Dividends from net investment income (0.345) (0.519) (0.520) (0.550) - ------------------------------------------------------------------------------------- Distributions from net realized gain on investment transactions --- --- --- --- - ------------------------------------------------------------------------------------- Total dividends and distributions (0.345) (0.519) (0.520) (0.550) ------- ------- ------- ------- - ------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------- Net asset value, end of period $11.130 $10.980 $10.500 $10.650 ======= ======= ======= ======= - ------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------- Total return(4) 4.58% 9.78% 3.63% 20.51% - ------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------- Ratios and supplemental data: - ------------------------------------------------------------------------------------- Net assets, end of period (000 omitted) $28,577 $26,923 $30,551 $33,860 - ------------------------------------------------------------------------------------- Ratio of expenses to average net assets 0.94% 0.99% 0.82% 0.70% - ------------------------------------------------------------------------------------- Ratio of expenses to average net assets prior to expense limitation 0.94% 1.02% 1.01% 1.02% - ------------------------------------------------------------------------------------- Ratio of net investment income to average net assets 4.69% 4.85% 5.05% 5.23% - ------------------------------------------------------------------------------------- Ratio of net investment income to average net assets prior to expense limitation 4.69% 4.82% 4.86% 4.91% - ------------------------------------------------------------------------------------- Portfolio turnover 44% 63% 55% 107% - -------------------------------------------------------------------------------------
(RESTUBBED TABLE)
- --------------------------------------------------------------------------------------- Delaware Tax-Free Class B California Insured - --------------------------------------------------------------------------------------- Eight Year Months Year Year Year Ended Ended Ended Ended Ended 1999 8/31/98(1) 1997(2) 1996 1995 - --------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------- Net asset value, beginning of period $10.990 $10.500 $10.650 $9.330 - --------------------------------------------------------------------------------------- Income from investment operations: - --------------------------------------------------------------------------------------- Net investment income 0.290 0.457 0.480 0.500 - --------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) from investments 0.140 0.495 (0.150) 1.330 ----- ----- ----- ----- - --------------------------------------------------------------------------------------- Total from investment operations 0.430 0.952 0.330 1.830 ----- ----- ----- ----- - --------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------- Less dividends and distributions: - --------------------------------------------------------------------------------------- Dividends from net investment income (0.290) (0.462) (0.480) (0.510) - --------------------------------------------------------------------------------------- Distributions from net realized gain on investment transactions --- --- --- --- - --------------------------------------------------------------------------------------- Total dividends and distributions (0.290) (0.462) (0.480) (0.510) ------- ------- ------- ------- - --------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------- Net asset value, end of period $11.130 $10.990 $10.500 $10.650 ======= ======= ======= ======= - --------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------- Total return(4) 3.96% 9.29% 3.22% 20.01% - --------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------- Ratios and supplemental data: - --------------------------------------------------------------------------------------- Net assets, end of period (000 omitted) $6,588 $6,629 $6,717 $6,029 - --------------------------------------------------------------------------------------- Ratio of expenses to average net assets 1.69% 1.53% 1.21% 1.10% - --------------------------------------------------------------------------------------- Ratio of expenses to average net assets prior to expense limitation 1.69% 1.56% 1.76% 1.75% - --------------------------------------------------------------------------------------- Ratio of net investment income to average net assets 3.94% 4.31% 4.64% 4.75% - --------------------------------------------------------------------------------------- Ratio of net investment income to average net assets prior to expense limitation 3.94% 4.28% 4.09% 4.10% - --------------------------------------------------------------------------------------- Portfolio turnover 44% 63% 55% 107% - ---------------------------------------------------------------------------------------
(RESTUBBED TABLE)
- -------------------------------------------------------------------------------------------- Delaware Tax-Free Class C California Insured - -------------------------------------------------------------------------------------------- Eight Period Year Months Year Year 4/12/95(3) Ended Ended Ended Ended through 1999 8/31/98(1) 1997(2) 1996 12/31/95 - -------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------- Net asset value, beginning of period $10.940 $10.460 $10.650 $10.190 - -------------------------------------------------------------------------------------------- Income from investment operations: - -------------------------------------------------------------------------------------------- Net investment income 0.289 0.485 0.440 0.250 - -------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) from investments 0.151 0.432 (0.190) 0.530 ----- ----- ----- ----- - -------------------------------------------------------------------------------------------- Total from investment operations 0.440 0.917 0.250 0.780 ----- ----- ----- ----- - -------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------- Less dividends and distributions: - -------------------------------------------------------------------------------------------- Dividends from net investment income (0.290) (0.437) (0.440) (0.320) - -------------------------------------------------------------------------------------------- Distributions from net realized gain on investment transactions --- --- --- --- - -------------------------------------------------------------------------------------------- Total dividends and distributions (0.290) (0.437) (0.440) (0.320) ------- ------- ------- ------- - -------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------- Net asset value, end of period $11.090 $10.940 $10.460 $10.650 ======= ======= ======= ======= - -------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------- Total return(4) 4.08% 8.98% 2.47% 7.77% - -------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------- Ratios and supplemental data: - -------------------------------------------------------------------------------------------- Net assets, end of period (000 omitted) $461 $476 $55 $53 - -------------------------------------------------------------------------------------------- Ratio of expenses to average net assets 1.69% 1.71% 1.58% 1.53%(5) - -------------------------------------------------------------------------------------------- Ratio of expenses to average net assets prior to expense limitation 1.69% 1.74% 1.77% 1.77%(5) - -------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets 3.94% 4.13% 4.02% 4.25%(5) - -------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets prior to expense limitation 3.94% 4.10% 3.83% 4.01%(5) - -------------------------------------------------------------------------------------------- Portfolio turnover 44% 63% 55% 107% - --------------------------------------------------------------------------------------------
(1) Ratios have been annualized and the total returns has not been annualized. (2) Commencing May 1, 1997, Delaware Management Company replaced Voyageur Fund Managers, Inc. as the Fund's investment manager. (3) Commencement of operations. (4) 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. (5) Annualized. 84 Financial information Financial highlights The financial highlights table is intended to help you understand the Fund's financial performance. All "per share" information reflects financial results for a single Fund share. This information has been audited by Ernst & Young LLP, whose report, along with the Fund's financial statements, is included in the Fund's annual report, which is available upon request by calling 800.523.1918.
- -------------------------------------------------------------------------------------- Delaware Tax-Free Class A Colorado Fund - -------------------------------------------------------------------------------------- Eight Year Months Year Year Year Ended Ended Ended Ended Ended 1999 8/31/98(1) 1997(2) 1996 1995 - -------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------- Net asset value, beginning of period $11.380 $10.780 $10.900 $9.530 - -------------------------------------------------------------------------------------- Income from investment operations: - -------------------------------------------------------------------------------------- Net investment income 0.376 0.574 0.560 0.540 - -------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) from investments 0.130 0.618 (0.130) 1.380 ----- ----- ----- ----- - -------------------------------------------------------------------------------------- Total from investment operations 0.506 1.192 0.430 1.920 ----- ----- ----- ----- - -------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------- Less dividends and distributions: - -------------------------------------------------------------------------------------- Dividends from net investment income (0.376) (0.592) (0.550) (0.550) - -------------------------------------------------------------------------------------- Distributions from net realized gain on investment investment transactions --- --- --- --- - -------------------------------------------------------------------------------------- Total dividends and distributions (0.376) (0.592) (0.550) (0.550) ------- ------- ------- ------- - -------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------- Net asset value, end of period $11.510 $11.380 $10.780 $10.990 ======= ======= ======= ======= - -------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------- Total return(4) 4.51% 11.40% 4.08% 20.54% - -------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------- Ratios and supplemental data: - -------------------------------------------------------------------------------------- Net assets, end of period (000 omitted) $357,127 $357,993 $358,328 $392,815 - -------------------------------------------------------------------------------------- Ratio of expenses to average net assets 0.83% 0.81% 0.78% 0.76% - -------------------------------------------------------------------------------------- Ratio of expenses to average net assets prior to expense limitation 0.92% 0.86% 0.91% 0.93% - -------------------------------------------------------------------------------------- Ratio of net investment income to average net assets 4.93% 5.25% 5.27% 5.18% - -------------------------------------------------------------------------------------- Ratio of net investment income to average net assets prior to expense limitation 4.84% 5.20% 5.14% 5.01% - -------------------------------------------------------------------------------------- Portfolio turnover 36% 54% 40% 82% - --------------------------------------------------------------------------------------
(RESTUBBED TABLE)
- ---------------------------------------------------------------------------------- Delaware Tax-Free Class B Colorado Fund - ---------------------------------------------------------------------------------- Eight Period Year Months Year Year 3/22/95(3) Ended Ended Ended Ended through 1999 8/31/98(1) 1997(2) 1996 12/31/95 - ---------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------- Net asset value, beginning of period $11.380 $10.780 $10.900 $10.250 - ---------------------------------------------------------------------------------- Income from investment operations: - ---------------------------------------------------------------------------------- Net investment income 0.319 0.483 0.470 0.350 - ---------------------------------------------------------------------------------- Net realized and unrealized gain (loss) from investments 0.130 0.616 (0.130) 0.650 ----- ----- ----- ----- - ---------------------------------------------------------------------------------- Total from investment operations 0.449 1.099 0.340 1.000 ----- ----- ----- ----- - ---------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------- Less dividends and distributions: - ---------------------------------------------------------------------------------- Dividends from net investment income (0.319) (0.499) (0.460) (0.350) - ---------------------------------------------------------------------------------- Distributions from net realized gain on investment investment transactions --- --- --- --- - ---------------------------------------------------------------------------------- Total dividends and distributions (0.319) (0.499) (0.460) (0.350) ------- ------- ------- ------- - ---------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------- Net asset value, end of period $11.510 $11.380 $10.780 $10.900 ======= ======= ======= ======= - ---------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------- Total return(4) 3.99% 10.47% 3.25% 9.96% - ---------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------- Ratios and supplemental data: - ---------------------------------------------------------------------------------- Net assets, end of period (000 omitted) $10,726 $7,798 $4,172 $1,643 - ---------------------------------------------------------------------------------- Ratio of expenses to average net asset 1.58% 1.62% 1.58% 1.39%(5) - ---------------------------------------------------------------------------------- Ratio of expenses to average net asset prior to expense limitation 1.67% 1.67% 1.65% 1.60%(5) - ---------------------------------------------------------------------------------- Ratio of net investment income to average net assets 4.18% 4.44% 4.45% 3.96%(5) - ---------------------------------------------------------------------------------- Ratio of net investment income to average net assets prior to expense limitation 4.09% 4.39% 4.38% 3.75%(5) - ---------------------------------------------------------------------------------- Portfolio turnover 36% 54% 40% 82% - ----------------------------------------------------------------------------------
(RESTUBBED TABLE)
- -------------------------------------------------------------------------------------------- Delaware Tax-Free Class C Colorado Fund - -------------------------------------------------------------------------------------------- Eight Year Months Year Year Year Ended Ended Ended Ended Ended 1999 8/31/98(1) 1997(2) 1996 1995 - -------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------- Net asset value, beginning of period $11.380 $10.780 $10.900 $9.530 - ------------------------------------------------------------------------------------------- Income from investment operations: - ------------------------------------------------------------------------------------------- Net investment income 0.319 0.484 0.460 0.450 - ------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) from investments 0.140 0.615 (0.130) 1.370 - ------------------------------------------------------------------------------------------- Total from investment operations 0.459 1.099 0.330 1.820 ----- ----- ----- ----- - ------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------- Less dividends and distributions: - ------------------------------------------------------------------------------------------- Dividends from net investment income (0.319) (0.499) (0.450) (0.450) - ------------------------------------------------------------------------------------------- Distributions from net realized gain on investment investment transactions --- --- --- --- - ------------------------------------------------------------------------------------------- Total dividends and distributions (0.319) (0.499) (0.450) (0.450) ------- ------- ------- ------- - ------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------- Net asset value, end of period $11.520 $11.380 $10.780 $10.900 ======= ======= ======= ======= - ------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------- Total return(4) 4.08% 10.47% 3.17% 19.44% - ------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------- Ratios and supplemental data: - ------------------------------------------------------------------------------------------- Net assets, end of period (000 omitted) $2,068 $1,697 $1,522 $1,042 - ------------------------------------------------------------------------------------------- Ratio of expenses to average net assets 1.58% 1.64% 1.66% 1.66% - ------------------------------------------------------------------------------------------- Ratio of expenses to average net assets prior to expense limitation 1.67% 1.69% 1.66% 1.66% - ------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets 4.18% 4.42% 4.40% 4.20% - ------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets prior to expense limitation 4.09% 4.37% 4.40% 4.20% - ------------------------------------------------------------------------------------------- Portfolio turnover 36% 54% 40% 82% - -------------------------------------------------------------------------------------------
(1) Ratios have been annualized and the total returns has not been annualized. (2) Commencing May 1, 1997, Delaware Management Company replaced Voyageur Fund Managers, Inc. as the Fund's investment manager. (3) Commencement of operations. (4) 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. (5) Annualized. 85 Financial information Financial highlights The financial highlights table is intended to help you understand the Fund's financial performance. All "per share" information reflects financial results for a single Fund share. This information has been audited by Ernst & Young LLP, whose report, along with the Fund's financial statements, is included in the Fund's annual report, which is available upon request by calling 800.523.1918.
- -------------------------------------------------------------------------------------------- Delaware Tax-Free Class A Florida Fund - -------------------------------------------------------------------------------------------- Eight Period Year Months Year Year 3/2/95(3) Year Ended Ended Ended Ended through Ended 1999 8/31/98(1) 1997(2) 1996 12/31/95 1999 - -------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------- Net asset value, beginning of period $11.020 $10.520 $10.730 $10.000 - -------------------------------------------------------------------------------------------- Income from investment operations: - -------------------------------------------------------------------------------------------- Net investment income 0.374 0.591 0.590 0.470 - -------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments 0.215 0.523 (0.210) 0.750 ----- ----- ------- ----- - -------------------------------------------------------------------------------------------- Total from investment operations 0.589 1.114 0.380 1.220 ----- ----- ----- ----- - -------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------- Less dividends and distributions: - -------------------------------------------------------------------------------------------- Dividends from net investment income (0.374) (0.594) (0.590) (0.470) - -------------------------------------------------------------------------------------------- Distributions from net realized gain on investment transactions (0.005) (0.020) -- (0.020) - -------------------------------------------------------------------------------------------- Total dividends and distributions (0.379) (0.614) (0.590) (0.490) ------- ------- ------- ------- - -------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------- Net asset value, end of period $11.230 $11.020 $10.520 $10.730 ======= ======= ======= ======= - -------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------- Total return(4) 5.44% 10.93% 3.74% 12.49% - -------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------- Ratios and supplemental data: - -------------------------------------------------------------------------------------------- Net assets, end of period (000 omitted) $9,988 $7,506 $5,761 $4,421 - -------------------------------------------------------------------------------------------- Ratio of expenses to average net assets 0.55% 0.56% 0.33% 0.32%(5) - -------------------------------------------------------------------------------------------- Ratio of expenses to average net assets prior to expense limitation 1.10% 1.11% 1.25% 1.25%(5) - -------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets 4.92% 5.53% 5.66% 5.26%(5) - -------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets prior to expense limitation 4.37% 4.98% 4.74% 4.33%(5) - -------------------------------------------------------------------------------------------- Portfolio turnover 20% 19% 70% 64% - --------------------------------------------------------------------------------------------
(RESTUBBED TABLE)
- -------------------------------------------------------------------------------------- Delaware Tax-Free Class B Florida Fund - -------------------------------------------------------------------------------------- Eight Period Year Months Year Year 9/15/93(3) Ended Ended Ended Ended through 1999 8/31/98(1) 1997(2) 1996 12/31/95 - -------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------- Net asset value, beginning of period $11.030 $10.530 $10.730 $10.370 - -------------------------------------------------------------------------------------- Income from investment operations: - -------------------------------------------------------------------------------------- Net investment income 0.318 0.527 0.560 0.150 - -------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments 0.215 0.531 (0.200) 0.380 ----- ----- ------- ----- - -------------------------------------------------------------------------------------- Total from investment operations 0.533 1.058 0.360 0.530 ----- ----- ----- ----- - -------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------- Less dividends and distributions: - -------------------------------------------------------------------------------------- Dividends from net investment income (0.318) (0.538) (0.560) (0.150) - -------------------------------------------------------------------------------------- Distributions from net realized gain on investment transactions (0.005) (0.020) -- (0.020) - -------------------------------------------------------------------------------------- Total dividends and distributions (0.323) (0.558) (0.560) (0.170) ------- ------- ------- ------- - -------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------- Net asset value, end of period $11.240 $11.030 $10.530 $10.730 ======= ======= ======= ======= - -------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------- Total return(4) 4.91% 10.35% 3.51% 5.10% - -------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------- Ratios and supplemental data: - -------------------------------------------------------------------------------------- Net assets, end of period (000 omitted $3,368 $2,685 $1,635 $101 - -------------------------------------------------------------------------------------- Ratio of expenses to average net asset 1.30% 1.10% 0.76% 0.44%(5) - -------------------------------------------------------------------------------------- Ratio of expenses to average net asset prior to expense limitation 1.85% 1.65% 2.00% 2.00%(5) - -------------------------------------------------------------------------------------- Ratio of net investment income to average net assets 4.17% 4.99% 5.23% 4.88%(5) - -------------------------------------------------------------------------------------- Ratio of net investment income to average net assets prior to expense limitation 3.62% 4.44% 3.99% 3.32%(5) - -------------------------------------------------------------------------------------- Portfolio turnover 20% 19% 70% 64% - --------------------------------------------------------------------------------------
(RESTUBBED TABLE)
- -------------------------------------------------------------------------------------------- Delaware Tax-Free Class C Florida Fund - -------------------------------------------------------------------------------------------- Eight Period Year Months Year Year 4/22/95(3) Ended Ended Ended Ended through 1999 8/31/98(1) 1997(2) 1996 12/31/95 - -------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------- Net asset value, beginning of period $11.020 $10.520 $10.730 $10.200 - -------------------------------------------------------------------------------------------- Income from investment operations: - -------------------------------------------------------------------------------------------- Net investment income 0.318 0.511 0.370 0.330 - -------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments 0.225 0.521 (0.210) 0.560 ----- ----- ------- ----- - -------------------------------------------------------------------------------------------- Total from investment operations 0.543 1.032 0.160 0.890 ----- ----- ----- ----- - -------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------- Less dividends and distributions: - -------------------------------------------------------------------------------------------- Dividends from net investment income (0.318) (0.512) (0.370) (0.340) - -------------------------------------------------------------------------------------------- Distributions from net realized gain on investment transactions (0.005) (0.020) -- (0.020) - -------------------------------------------------------------------------------------------- Total dividends and distributions (0.323) (0.532) (0.370) (0.360) ------- ------- ------- ------- - -------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------- Net asset value, end of period $11.240 $11.020 $10.520 $10.730 ======= ======= ======= ======= - -------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------- Total return(4) 5.01% 10.09% 2.97% 8.88% - -------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------- Ratios and supplemental data: - -------------------------------------------------------------------------------------------- Net assets, end of period (000 omitted) $554 $133 $16 $9 - -------------------------------------------------------------------------------------------- Ratio of expenses to average net assets 1.30% 1.31% 1.15% 1.11%(5) - -------------------------------------------------------------------------------------------- Ratio of expenses to average net assets prior to expense limitation 1.85% 1.86% 2.00% 2.00%(5) - -------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets 4.17% 4.78% 4.83% 4.57%(5) - -------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets prior to expense limitation 3.62% 4.23% 3.98% 3.68%(5) - -------------------------------------------------------------------------------------------- Portfolio turnover 20% 19% 70% 64% - --------------------------------------------------------------------------------------------
(1) Ratios have been annualized and total return has not been annualized. (2) Commencing May 1, 1997, Delaware Management Company replaced Voyageur Fund Managers, Inc. as the Fund's investment manager. (3) Commencement of operations. (4) 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. (5) Annualized. 86 Financial information Financial highlights The financial highlights table is intended to help you understand the Fund's financial performance. All "per share" information reflects financial results for a single Fund share. This information has been audited by Ernst & Young LLP, whose report, along with the Fund's financial statements, is included in the Fund's annual report, which is available upon request by calling 800.523.1918.
- ---------------------------------------------------------------------------------------- Delaware Tax-Free Class A Florida Insured Fund - ---------------------------------------------------------------------------------------- Eight Year Months Year Year Year Ended Ended Ended Ended Ended 1999 8/31/98(1) 1997(2) 1996 1995 - ---------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------- Net asset value, beginning of period $11.240 $10.710 $10.940 $9.520 - ---------------------------------------------------------------------------------------- Income from investment operations: - ---------------------------------------------------------------------------------------- Net investment income 0.355 0.548 0.530 0.540 - ---------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments 0.130 0.536 (0.230) 1.440 ----- ----- ----- ----- - ---------------------------------------------------------------------------------------- Total from investment operations 0.485 1.084 0.300 1.980 ----- ----- ----- ----- - ---------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------- Less dividends and distributions: - ---------------------------------------------------------------------------------------- Dividends from net investment income (0.355) (0.554) (0.530) (0.560) - ---------------------------------------------------------------------------------------- Distributions from net realized gain on investment transactions --- --- --- --- - ---------------------------------------------------------------------------------------- Total dividends and distributions (0.355) (0.554) (0.530) (0.560) ------- ------- ------- ------- - ---------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------- Net asset value, end of period $11.370 $11.240 $10.710 $10.940 ======= ======= ======= ======= - ---------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------- Total return(4) 4.38% 10.42% 2.90% 21.22% - ---------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------- Ratios and supplemental data: - ---------------------------------------------------------------------------------------- Net assets, end of period (000 omitted) $146,659 $162,097 $192,171 $242,425 - ---------------------------------------------------------------------------------------- Ratio of expenses to average net assets 0.87% 0.79% 0.73% 0.51% - ---------------------------------------------------------------------------------------- Ratio of expenses to average net assets prior to expense limitation 1.05% 0.85% 0.96% 0.95% - ---------------------------------------------------------------------------------------- Ratio of net investment income to average net assets 4.72% 5.07% 5.02% 5.24% - ---------------------------------------------------------------------------------------- Ratio of net investment income to average net assets prior to expense limitation 4.54% 5.01% 4.79% 4.80% - ---------------------------------------------------------------------------------------- Portfolio turnover 13% 15% 57% 101% - ----------------------------------------------------------------------------------------
(RESTUBBED TABLE)
- ------------------------------------------------------------------------------------------------------- Delaware Tax-Free Class B Class C Florida Insured Fund - ------------------------------------------------------------------------------------------------------- Eight Period Year Months Year Year Year 1/8/99(3) Ended Ended Ended Ended Ended through 1999 8/31/98(1) 1997(2) 1996 1995 8/31/99 - ------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $11.230 $10.710 $10.940 $9.520 $0.000 - ------------------------------------------------------------------------------------------------------- Income from investment operations: - ------------------------------------------------------------------------------------------------------- Net investment income 0.299 0.477 0.480 0.500 0.000 - ------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments 0.139 0.523 (0.230) 1.440 0.000 ----- ----- ----- ----- ----- - ------------------------------------------------------------------------------------------------------- Total from investment operations 0.438 1.000 0.250 1.940 0.000 ----- ----- ----- ----- ----- - ------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- Less dividends and distributions: - ------------------------------------------------------------------------------------------------------- Dividends from net investment income (0.298) (0.480) (0.480) (0.520) (0.000) - ------------------------------------------------------------------------------------------------------- Distributions from net realized gain on investment transactions --- --- --- --- --- - ------------------------------------------------------------------------------------------------------- Total dividends and distributions (0.298) (0.480) (0.480) (0.520) (0.000) ------- ------- ------- ------- ------- - ------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- Net asset value, end of period $11.370 $11.230 $10.710 $10.940 $00.000 ======= ======= ======= ======= ======= - ------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- Total return(4) 3.95% 9.58% 2.40% 20.76% (5) - ------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- Ratios and supplemental data: - ------------------------------------------------------------------------------------------------------- Net assets, end of period (000 omitted) $4,202 $3,943 $3,222 $2,814 $0,000 - ------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets 1.62% 1.46% 1.24% 0.89% 0.00% - ------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets prior to expense limitation 1.80% 1.52% 1.72% 1.68% 0.00% - ------------------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets 3.97% 4.40% 4.51% 4.80% 0.00% - ------------------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets prior to expense limitation 3.79% 4.34% 4.03% 4.01% 0.00% - ------------------------------------------------------------------------------------------------------- Portfolio turnover 13% 15% 57% 101% 00% - -------------------------------------------------------------------------------------------------------
(1) Ratios have been annualized and total return has not been annualized. (2) Commencing May 1, 1997, Delaware Management Company replaced Voyageur Fund Managers, Inc. as the Fund's investment manager. (3) Redemption of operations. Florida Insured C Class was established on September 29, 1997. However, the shareholders all liquidated by the end of 1997 and the Class was inactive until this date. (4) 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. (5) Total return has been omitted as management believes that such information for this relatively short period is not meaningful. 87 Financial information Financial highlights The financial highlights table is intended to help you understand the Fund's financial performance. All "per share" information reflects financial results for a single Fund share. This information has been audited by Ernst & Young LLP, whose report, along with the Fund's financial statements, is included in the Fund's annual report, which is available upon request by calling 800.523.1918.
- --------------------------------------------------------------------------------------- Delaware Tax-Free Class A Idaho Fund - --------------------------------------------------------------------------------------- Eight Period Year Months Year Year 1/4/95(3) Ended Ended Ended Ended through 1999 8/31/98(1) 1997(2) 1996 12/31/95 - --------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------- Net asset value, beginning of period $11.450 $10.910 $11.020 $10.000 - --------------------------------------------------------------------------------------- Income from investment operations: - --------------------------------------------------------------------------------------- Net investment income 0.356 0.551 0.580 0.600 - --------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments 0.115 0.552 (0.120) 1.100 - --------------------------------------------------------------------------------------- Total from investment operations 0.471 1.103 0.460 1.700 ----- ----- ----- ----- - --------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------- Less dividends and distributions: - --------------------------------------------------------------------------------------- Dividends from net investment income (0.356) (0.563) (0.570) (0.600) - --------------------------------------------------------------------------------------- Distributions from net realized gain on investment transactions (0.005) -- -- (0.080) - --------------------------------------------------------------------------------------- Total dividends and distributions (0.361) (0.563) (0.570) (0.680) ----- ----- ----- ----- - --------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------- Net asset value, end of period $11.560 $11.450 $10.910 $11.020 ======= ======= ======= ======= - --------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------- Total return(4) 4.19% 10.41% 4.36% 17.48% - --------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------- Ratios and supplemental data: - --------------------------------------------------------------------------------------- Net assets, end of period (000 omitted) $39,843 $33,788 $27,684 $13,540 - --------------------------------------------------------------------------------------- Ratio of expenses to average net assets 0.95% 0.87% 0.60% 0.26%(5) - --------------------------------------------------------------------------------------- Ratio of expenses to average net assets prior to expense limitation 1.02% 1.02% 1.10% 1.25%(5) - --------------------------------------------------------------------------------------- Ratio of net investment income to average net assets 4.65% 4.98% 5.29% 5.24%(5) - --------------------------------------------------------------------------------------- Ratio of net investment income to average net assets prior to expense limitation 4.58% 4.83% 4.79% 4.25%(5) - --------------------------------------------------------------------------------------- Portfolio turnover 8% 19% 35% 42% - ---------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------ Delaware Tax-Free Class B Idaho Fund - ------------------------------------------------------------------------------------ Eight Period Year Months Year Year 3/16/95(3) Ended Ended Ended Ended through 1999 8/31/98(1) 1997(2) 1996 12/31/95 - ------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------ Net asset value, beginning of period $11.440 $10.890 $11.010 $10.500 - ------------------------------------------------------------------------------------ Income from investment operations: - ------------------------------------------------------------------------------------ Net investment income 0.298 0.487 0.520 0.420 - ------------------------------------------------------------------------------------ Net realized and unrealized gain (loss) on investments 0.117 0.560 (0.130) 0.590 - ------------------------------------------------------------------------------------ Total from investment operations 0.415 1.047 0.390 1.010 ----- ----- ----- ----- - ------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------ Less dividends and distributions: - ------------------------------------------------------------------------------------ Dividends from net investment income (0.300) (0.497) (0.510) (0.420) - ------------------------------------------------------------------------------------ Distributions from net realized gain on investment transactions (0.005) -- -- (0.080) - ------------------------------------------------------------------------------------ Total dividends and distributions (0.305) (0.497) (0.510) (0.500) ----- ----- ----- ----- - ------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------ Net asset value, end of period $11.550 $11.440 $10.890 $11.010 ======= ======= ======= ======= - ------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------ Total return(4) 3.68% 9.87% 3.75% 9.86% - ------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------ Ratios and supplemental data: - ------------------------------------------------------------------------------------ Net assets, end of period (000 omitted) $7,474 $6,827 $4,945 $1,977 - ------------------------------------------------------------------------------------ Ratio of expenses to average net assets 1.70% 1.46% 1.11% 0.79%(5) - ------------------------------------------------------------------------------------ Ratio of expenses to average net assets prior to expense limitation 1.77% 1.61% 1.85% 1.90%(5) - ------------------------------------------------------------------------------------ Ratio of net investment income to average net assets 3.90% 4.39% 4.78% 4.68%(5) - ------------------------------------------------------------------------------------ Ratio of net investment income to average net assets prior to expense limitation 3.83% 4.24% 4.04% 3.57%(5) - ------------------------------------------------------------------------------------ Portfolio turnover 8% 19% 35% 42% - ------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------- Delaware Tax-Free Class C Idaho Fund - ---------------------------------------------------------------------------------------------- Eight Period Year Months Year Year 1/11/95(3) Ended Ended Ended Ended through 1999 8/31/98(1) 1997(2) 1996 12/31/95 - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- Net asset value, beginning of period $11.430 $10.900 $11.020 $10.040 - ---------------------------------------------------------------------------------------------- Income from investment operations: - ---------------------------------------------------------------------------------------------- Net investment income 0.302 0.459 0.500 0.500 - ---------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments 0.123 0.549 (0.130) 1.060 - ---------------------------------------------------------------------------------------------- Total from investment operations 0.425 1.008 0.370 1.560 ------ ------ ------ ------- - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- Less dividends and distributions: - ---------------------------------------------------------------------------------------------- Dividends from net investment income (0.300) (0.478) (0.490) (0.500) - ---------------------------------------------------------------------------------------------- Distributions from net realized gain on investment transactions (0.005) -- -- (0.080) - ---------------------------------------------------------------------------------------------- Total dividends and distributions (0.305) (0.478) (0.490) (0.580) ------ ------ ------ ------- - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- Net asset value, end of period $11.550 $11.430 $10.900 $11.020 ======= ======= ======= ======= - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- Total return(4) 3.77% 9.49% 3.48% 15.81% - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- Ratios and supplemental data: - ---------------------------------------------------------------------------------------------- Net assets, end of period (000 omitted) $1,719 $1,125 $822 $789 - ---------------------------------------------------------------------------------------------- Ratio of expenses to average net assets 1.70% 1.62% 1.33% 1.05%(5) - ---------------------------------------------------------------------------------------------- Ratio of expenses to average net assets prior to expense limitation 1.77% 1.77% 1.82% 2.00%(5) - ---------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets 3.90% 4.23% 4.57% 4.48%(5) - ---------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets prior to expense limitation 3.83% 4.08% 4.08% 3.53%(5) - ---------------------------------------------------------------------------------------------- Portfolio turnover 8% 19% 35% 42% - ----------------------------------------------------------------------------------------------
(1) Ratios have been annualized and total return has not been annualized. (2) Commencing May 1, 1997, Delaware Management Company replaced Voyageur Fund Managers, Inc. as the Fund's investment manager. (3) Commencement of operations. (4) 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. (5) Annualized. 88 Financial information Financial highlights The financial highlights table is intended to help you understand the Fund's financial performance. All "per share" information reflects financial results for a single Fund share. This information has been audited by Ernst & Young LLP, whose report, along with the Fund's financial statements, is included in the Fund's annual report, which is available upon request by calling 800.523.1918.
- -------------------------------------------------------------------------------------- Delaware Tax-Free Class A Iowa Fund - -------------------------------------------------------------------------------------- Eight Year Months Year Year Year Ended Ended Ended Ended Ended 1999 8/31/98(1) 1997(2) 1996 1995 - -------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------- Net asset value, beginning of period $10.060 $9.620 $9.830 $8.560 - -------------------------------------------------------------------------------------- Income from investment operations: - -------------------------------------------------------------------------------------- Net investment income 0.294 0.449 0.440 0.450 - -------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments 0.100 0.440 (0.210) 1.290 - -------------------------------------------------------------------------------------- Total from investment operations 0.394 0.889 0.230 1.740 ----- ----- ----- ----- - -------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------- Less dividends: - -------------------------------------------------------------------------------------- Dividends from net investment income (0.294) (0.449) (0.440) (0.470) ------- ------- ------- ------- - -------------------------------------------------------------------------------------- Total dividends (0.294) (0.449) (0.440) (0.470) ------- ------- ------- ------- - -------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------- Net asset value, end of period $10.160 $10.060 $9.620 $9.830 ======= ======= ====== ====== - -------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------- Total return(4) 3.98% 9.49% 2.56% 20.80% - -------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------- Ratios and supplemental data: - -------------------------------------------------------------------------------------- Net assets, end of period (000 omitted) $39,345 $38,343 $40,037 $42,374 - -------------------------------------------------------------------------------------- Ratio of expenses to average net assets 0.96% 0.91% 0.92% 0.72% - -------------------------------------------------------------------------------------- Ratio of expenses to average net assets prior to expense limitation 1.06% 0.97% 1.06% 1.06% - -------------------------------------------------------------------------------------- Ratio of net investment income to average net assets 4.38% 4.62% 4.68% 4.88% - -------------------------------------------------------------------------------------- Ratio of net investment income to average net assets prior to expense limitation 4.28% 4.56% 4.54% 4.54% - -------------------------------------------------------------------------------------- Portfolio turnover 13% 14% 14% 21% - --------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------- Delaware Tax-Free Class B Iowa Fund - ------------------------------------------------------------------------------------- Eight Period Year Months Year Year 3/24/95(3) Ended Ended Ended Ended through 1999 8/31/98(1) 1997(2) 1996 12/31/95 - ------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------- Net asset value, beginning of period $10.060 $9.610 $9.830 $9.180 - ------------------------------------------------------------------------------------- Income from investment operations: - ------------------------------------------------------------------------------------- Net investment income 0.243 0.366 0.380 0.310 - ------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments 0.100 0.457 (0.220) 0.640 - ------------------------------------------------------------------------------------- Total from investment operations 0.343 0.823 0.160 0.950 ----- ----- ----- ----- - ------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------- Less dividends: - ------------------------------------------------------------------------------------- Dividends from net investment income (0.243) (0.373) (0.380) (0.300) ------- ------- ------- ------- - ------------------------------------------------------------------------------------- Total dividends (0.243) (0.373) (0.380) (0.300) ------- ------- ------- ------- - ------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------- Net asset value, end of period $10.160 $10.060 $9.610 $9.830 ======= ======= ====== ====== - ------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------- Total return(4) 3.46% 8.75% 1.76% 10.62% - ------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------- Ratios and supplemental data: - ------------------------------------------------------------------------------------- Net assets, end of period (000 omitted) $3,910 $2,910 $1,645 $819 - ------------------------------------------------------------------------------------- Ratio of expenses to average net assets 1.71% 1.67% 1.61% 1.28%(5) - ------------------------------------------------------------------------------------- Ratio of expenses to average net assets prior to expense limitation 1.81% 1.73% 1.81% 1.65%(5) - ------------------------------------------------------------------------------------- Ratio of net investment income to average net assets 3.63% 3.86% 3.97% 4.06%(5) - ------------------------------------------------------------------------------------- Ratio of net investment income to average net assets prior to expense limitation 3.53% 3.80% 3.77% 3.69%(5) - ------------------------------------------------------------------------------------- Portfolio turnover 13% 14% 14% 21% - -------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------- Delaware Tax-Free Class C Iowa Fund - ----------------------------------------------------------------------------------------- Eight Period Year Months Year 1/4/95(3) Ended Ended Ended through 1999 8/31/98(1) 1997(2) 12/31/95 - ----------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------- Net asset value, beginning of period $10.060 $9.610 $9.830 $8.550 - ----------------------------------------------------------------------------------------- Income from investment operations: - ----------------------------------------------------------------------------------------- Net investment income 0.243 0.360 0.360 0.370 - ----------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments 0.100 0.456 (0.220) 1.280 - ----------------------------------------------------------------------------------------- Total from investment operations 0.343 0.816 0.140 1.650 ----- ----- ----- ----- - ----------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------- Less dividends: - ----------------------------------------------------------------------------------------- Dividends from net investment income (0.243) (0.366) (0.360) (0.370) ------- ------- ------- ------- - ----------------------------------------------------------------------------------------- Total dividends (0.243) (0.366) (0.360) (0.370) ------- ------- ------- ------- - ----------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------- Net asset value, end of period $10.160 $10.060 $9.610 $9.830 ======= ======= ====== ====== - ----------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------- Total return(4) 3.46% 8.68% 1.56% 19.66% - ----------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------- Ratios and supplemental data: - ----------------------------------------------------------------------------------------- Net assets, end of period (000 omitted) $1,225 $871 $670 $462 - ----------------------------------------------------------------------------------------- Ratio of expenses to average net assets 1.71% 1.74% 1.75% 1.61%(5) - ----------------------------------------------------------------------------------------- Ratio of expenses to average net assets prior to expense limitation 1.81% 1.80% 1.81% 1.72%(5) - ----------------------------------------------------------------------------------------- Ratio of net investment income to average net assets 3.63% 3.79% 3.82% 3.74%(5) - ----------------------------------------------------------------------------------------- Ratio of net investment income to average net assets prior to expense limitation 3.53% 3.73% 3.76% 3.63%(5) - ----------------------------------------------------------------------------------------- Portfolio turnover 13% 14% 14% 21% - -----------------------------------------------------------------------------------------
(1) Ratios have been annualized and total return has not been annualized. (2) Commencing May 1, 1997, Delaware Management Company replaced Voyageur Fund Managers, Inc. as the Fund's investment manager. (3) Commencement of operations. (4) 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. (5) Annualized. 89 Financial information Financial highlights The financial highlights table is intended to help you understand the Fund's financial performance. All "per share" information reflects financial results for a single Fund share. This information has been audited by Ernst & Young LLP, whose report, along with the Fund's financial statements, is included in the Fund's annual report, which is available upon request by calling 800.523.1918.
- -------------------------------------------------------------------------------------- Delaware Tax-Free Class A Kansas Fund - -------------------------------------------------------------------------------------- Eight Period Year Months Year Year 4/12/95(3) Ended Ended Ended Ended through 1999 8/31/98(1) 1997(2) 1996 12/31/95 - -------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------- Net asset value, beginning of period $11.060 $10.560 $10.730 $9.500 - -------------------------------------------------------------------------------------- Income from investment operations: - -------------------------------------------------------------------------------------- Net investment income 0.351 0.526 0.520 0.560 - -------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments 0.100 0.506 (0.170) 1.220 - -------------------------------------------------------------------------------------- Total from investment operations 0.451 1.032 0.350 1.780 ----- ----- ----- ----- - -------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------- Less dividends and distributions: - -------------------------------------------------------------------------------------- Dividends from net investment income (0.351) (0.532) (0.520) (0.550) - -------------------------------------------------------------------------------------- Distributions from net realized gain on investment transactions -- -- -- -- - -------------------------------------------------------------------------------------- Total dividends and distributions (0.351) (0.532) (0.520) (0.550) ------- ------- ------- ------- - -------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------- Net asset value, end of period $11.160 $11.060 $10.560 $10.730 ======= ======= ======= ======= - -------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------- Total return(4) 4.14% 10.06% 3.43% 19.13% - -------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------- Ratios and supplemental data: - -------------------------------------------------------------------------------------- Net assets, end of period (000 omitted) $12,548 $10,663 $10,176 $10,677 - -------------------------------------------------------------------------------------- Ratio of expenses to average net assets 0.89% 0.84% 0.83% 0.37% - -------------------------------------------------------------------------------------- Ratio of expenses to average net assets prior to expense limitation 0.99% 1.03% 1.21% 1.11% - -------------------------------------------------------------------------------------- Ratio of net investment income to average net assets 4.75% 4.92% 4.97% 5.32% - -------------------------------------------------------------------------------------- Ratio of net investment income to average net assets prior to expense limitation 4.65% 4.73% 4.59% 4.58% - -------------------------------------------------------------------------------------- Portfolio turnover 40% 30% 56% 19% - --------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------- Delaware Tax-Free Class B Kansas Fund - ------------------------------------------------------------------------------------- Eight Period Year Months Year Year 4/8/95(3) Ended Ended Ended Ended through 1999 8/31/98(1) 1997(2) 1996 12/31/95 - ------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------- Net asset value, beginning of period $11.080 $10.570 $10.740 $10.190 - ------------------------------------------------------------------------------------- Income from investment operations: - ------------------------------------------------------------------------------------- Net investment income 0.296 0.440 0.450 0.340 - ------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments 0.099 0.516 (0.170) 0.540 - ------------------------------------------------------------------------------------- Total from investment operations 0.395 0.956 0.280 0.880 ----- ----- ----- ----- - ------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------- Less dividends and distributions: - ------------------------------------------------------------------------------------- Dividends from net investment income (0.295) (0.446) (0.450) (0.330) - ------------------------------------------------------------------------------------- Distributions from net realized gain on investment transactions -- -- -- -- - ------------------------------------------------------------------------------------- Total dividends and distributions (0.295) (0.446) (0.450) (0.330) ------- ------- ------- ------- - ------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------- Net asset value, end of period $11.180 $11.080 $10.570 $10.740 ======= ======= ======= ======= - ------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------- Total return(4) 3.62% 9.28% 2.69% 8.76% - ------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------- Ratios and supplemental data: - ------------------------------------------------------------------------------------- Net assets, end of period (000 omitted) $3,694 $3,452 $2,402 $677 - ------------------------------------------------------------------------------------- Ratio of expenses to average net assets 1.64% 1.61% 1.61% 0.94%(5) - ------------------------------------------------------------------------------------- Ratio of expenses to average net assets prior to expense limitation 1.74% 1.80% 2.00% 1.68%(5) - ------------------------------------------------------------------------------------- Ratio of net investment income to average net assets 4.00% 4.15% 4.16 4.63%(5) - ------------------------------------------------------------------------------------- Ratio of net investment income to average net assets prior to expense limitation 3.90% 3.96% 3.77% 3.89%(5) - ------------------------------------------------------------------------------------- Portfolio turnover 40% 30% 56% 19% - -------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------- Delaware Tax-Free Class C Kansas Fund - ------------------------------------------------------------------------------------------- Eight Period Year Months Year Year 4/12/95(3) Ended Ended Ended Ended through 1999 8/31/98(1) 1997(2) 1996 12/31/95 - -------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------- Net asset value, beginning of period $11.050 $10.550 $10.720 $10.200 - -------------------------------------------------------------------------------------------- Income from investment operations: - -------------------------------------------------------------------------------------------- Net investment income 0.296 0.439 0.430 0.320 - -------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments 0.110 0.504 (0.170) 0.540 - -------------------------------------------------------------------------------------------- Total from investment operations 0.406 0.943 0.260 0.830 ----- ----- ----- ----- - -------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------- Less dividends and distributions: - -------------------------------------------------------------------------------------------- Dividends from net investment income (0.296) (0.443) (0.430) (0.310) - -------------------------------------------------------------------------------------------- Distributions from net realized gain on investment transactions -- -- -- -- - -------------------------------------------------------------------------------------------- Total dividends and distributions (0.296) (0.443) (0.430) (0.310) ------- ------- ------- ------- - -------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------- Net asset value, end of period $11.160 $11.050 $10.550 $10.720 ======= ======= ======= ======= - -------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------- Total return(4) 3.72% 9.17% 2.52% 8.29% - -------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------- Ratios and supplemental data: - -------------------------------------------------------------------------------------------- Net assets, end of period (000 omitted) $127 $108 $90 $40 - -------------------------------------------------------------------------------------------- Ratio of expenses to average net assets 1.64% 1.64% 1.77% 1.27%(5) - -------------------------------------------------------------------------------------------- Ratio of expenses to average net assets prior to expense limitation 1.74% 1.83% 2.00% 1.79%(5) - -------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets 4.00% 4.12% 4.02% 4.21%(5) - -------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets prior to expense limitation 3.90% 3.93% 3.79% 3.69%(5) - -------------------------------------------------------------------------------------------- Portfolio turnover 40% 30% 56% 19% - --------------------------------------------------------------------------------------------
(1) Ratios have been annualized and total return has not been annualized. (2) Commencing May 1, 1997, Delaware Management Company replaced Voyageur Fund Managers, Inc. as the Fund's investment manager. (3) Commencement of operations. (4) 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. (5) Annualized. 90 Financial information Financial highlights The financial highlights table is intended to help you understand the Fund's financial performance. All "per share" information reflects financial results for a single Fund share. This information has been audited by Ernst & Young LLP, whose report, along with the Fund's financial statements, is included in the Fund's annual report, which is available upon request by calling 800.523.1918.
- -------------------------------------------------------------------------------------- Delaware Tax-Free Class A Missouri Insured Fund - -------------------------------------------------------------------------------------- Eight Year Months Year Year Year Ended Ended Ended Ended Ended 1999 8/31/98(1) 1997(2) 1996 1995 - -------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------- Net asset value, beginning of period $10.810 $10.370 $10.540 $9.270 - -------------------------------------------------------------------------------------- Income from investment operations: - -------------------------------------------------------------------------------------- Net investment income 0.333 0.504 0.520 0.520 - -------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments 0.060 0.446 (0.180) 1.290 - -------------------------------------------------------------------------------------- Total from investment operations 0.393 0.950 0.340 1.810 ----- ----- ----- ----- - -------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------- Less dividends and distributions: - -------------------------------------------------------------------------------------- Dividends from net investment income (0.333) (0.510) (0.510) (0.540) - -------------------------------------------------------------------------------------- Distributions from net realized gain on investment transactions -- -- -- -- - -------------------------------------------------------------------------------------- Total dividends and distributions (0.333) (0.510) (0.510) (0.540) ------- ------- ------- ------- - -------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------- Net asset value, end of period $10.870 $10.810 $10.370 $10.540 ======= ======= ======= ======= - -------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------- Total return(4) 3.70% 9.43% 3.41% 19.96% - -------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------- Ratios and supplemental data: - -------------------------------------------------------------------------------------- Net assets, end of period (000 omitted $46,939 $48,565 $49,301 $50,211 - -------------------------------------------------------------------------------------- Ratio of expenses to average net assets 0.92% 0.91% 0.71% 0.50% - -------------------------------------------------------------------------------------- Ratio of expenses to average net assets prior to expense limitation 1.02% 0.93% 1.03% 1.07% - -------------------------------------------------------------------------------------- Ratio of net investment income to average net assets 4.64% 4.81% 5.05% 5.25% - -------------------------------------------------------------------------------------- Ratio of net investment income to average net assets prior to expense limitation 4.54% 4.79% 4.73% 4.68% - -------------------------------------------------------------------------------------- Portfolio turnover 18% 12% 28% 31% - --------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------ Delaware Tax-Free Class B Missouri Insured Fund - ------------------------------------------------------------------------------------- Eight Year Months Year Year Year Ended Ended Ended Ended Ended 1999 8/31/98(1) 1997(2) 1996 1995 - ------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------- Net asset value, beginning of period $10.810 $10.370 $10.540 $9.270 - ------------------------------------------------------------------------------------- Income from investment operations: - ------------------------------------------------------------------------------------- Net investment income 0.279 0.425 0.460 0.480 - ------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments 0.060 0.451 (0.180) 1.280 - ------------------------------------------------------------------------------------- Total from investment operations 0.339 0.876 0.280 1.760 ----- ----- ----- ----- - ------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------- Less dividends and distributions: - ------------------------------------------------------------------------------------- Dividends from net investment income (0.279) (0.436) (0.450) (0.490) - ------------------------------------------------------------------------------------- Distributions from net realized gain on investment transactions -- -- -- -- - ------------------------------------------------------------------------------------- Total dividends and distributions (0.279) (0.436) (0.450) (0.490) ------- ------- ------- ------- - ------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------- Net asset value, end of period $10.870 $10.810 $10.370 $10.540 ======= ======= ======= ======= - ------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------- Total return(4) 3.19% 8.66% 2.93% 19.18% - ------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------- Ratios and supplemental data: - ------------------------------------------------------------------------------------- Net assets, end of period (000 omitted $11,317 $11,507 $10,432 $6,195 - ------------------------------------------------------------------------------------- Ratio of expenses to average net assets 1.67% 1.61% 1.29% 0.97% - ------------------------------------------------------------------------------------- Ratio of expenses to average net assets prior to expense limitation 1.77% 1.63% 1.78% 1.81% - ------------------------------------------------------------------------------------- Ratio of net investment income to average net assets 3.89% 4.11% 4.46% 4.70% - ------------------------------------------------------------------------------------- Ratio of net investment income to average net assets prior to expense limitation 3.79% 4.09% 3.97% 3.86% - ------------------------------------------------------------------------------------- Portfolio turnover 18% 12% 28% 31% - -------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------- Delaware Tax-Free Class C Missouri Insured Fund - --------------------------------------------------------------------------------------------- Eight Period Year Months Year Year 11/11/95(3) Ended Ended Ended Ended through 1999 8/31/98(1) 1997(2) 1996 12/31/95 - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- Net asset value, beginning of period $10.810 $10.370 $10.540 $10.360 - ---------------------------------------------------------------------------------------------- Income from investment operations: - ---------------------------------------------------------------------------------------------- Net investment income 0.279 0.405 0.430 0.060 - ---------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments 0.070 0.455 (0.180) 0.170 - ---------------------------------------------------------------------------------------------- Total from investment operations 0.349 0.860 0.250 0.230 ----- ----- ----- ----- - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- Less dividends and distributions: - ---------------------------------------------------------------------------------------------- Dividends from net investment income (0.279) (0.420) (0.420) (0.050) - ---------------------------------------------------------------------------------------------- Distributions from net realized gain on investment transactions -- -- -- -- - ---------------------------------------------------------------------------------------------- Total dividends and distributions (0.279) (0.420) (0.420) (0.050) ------- ------- ------- ------- - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- Net asset value, end of period $10.880 $10.810 $10.370 $10.540 ======= ======= ======= ======= - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- Total return(4) 3.28% 8.49% 2.48% 2.24% - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- Ratios and supplemental data: - ---------------------------------------------------------------------------------------------- Net assets, end of period (000 omitted $112 $225 $152 $20 - ---------------------------------------------------------------------------------------------- Ratio of expenses to average net assets 1.67% 1.74% 1.62% 1.22%(5) - ---------------------------------------------------------------------------------------------- Ratio of expenses to average net assets prior to expense limitation 1.77% 1.76% 1.78% 1.55%(5) - ---------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets 3.89% 3.98% 4.10% 4.09%(5) - ---------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets prior to expense limitation 3.79% 3.96% 3.94% 3.76%(5) - ---------------------------------------------------------------------------------------------- Portfolio turnover 18% 12% 28% 31% - ----------------------------------------------------------------------------------------------
(1) Ratios have been annualized and total return has not been annualized. (2) Commencing May 1, 1997, Delaware Management Company replaced Voyageur Fund Managers, Inc. as the Fund's investment manager. (3) Commencement of operations. (4) 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. (5) Annualized. 91 Financial information Financial highlights The financial highlights table is intended to help you understand the Fund's financial performance. All "per share" information reflects financial results for a single Fund share. This information has been audited by Ernst & Young LLP, whose report, along with the Fund's financial statements, is included in the Fund's annual report, which is available upon request by calling 800.523.1918.
- --------------------------------------------------------------------------------------- Delaware Tax-Free Class A New Mexico Fund - --------------------------------------------------------------------------------------- Eight Year Months Year Year Year Ended Ended Ended Ended Ended 1999 8/31/98(1) 1997(2) 1996 1995 - --------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------- Net asset value, beginning of period $11.280 $10.790 $10.890 $9.590 - --------------------------------------------------------------------------------------- Income from investment operations: - --------------------------------------------------------------------------------------- Net investment income 0.364 0.547 0.540 0.520 - --------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) from investments 0.171 0.503 (0.110) 1.330 ----- ----- ------- ----- - --------------------------------------------------------------------------------------- Total from investment operations 0.535 1.050 0.430 1.850 ----- ----- ----- ----- - --------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------- Less dividends and distributions: - --------------------------------------------------------------------------------------- Dividends from net investment income (0.365) (0.560) (0.530) (0.550) - --------------------------------------------------------------------------------------- Distributions from net realized gain on investment transactions --- --- --- --- ------- ------- ------- ------- - --------------------------------------------------------------------------------------- Total dividends and distributions (0.365) (0.560) (0.530) (0.550) ------- ------- ------- ------- - --------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------- Net asset value, end of period $11.450 $11.280 $10.790 $10.890 ======= ======= ======= ======= - --------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------- Total return(4) 4.81% 10.01% 4.13% 19.64% - --------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------- Ratios and supplemental data: - --------------------------------------------------------------------------------------- Net assets, end of period (000 omitted) $21,155 $18,959 $20,133 $21,402 - --------------------------------------------------------------------------------------- Ratio of expenses to average net assets 1.00% 0.99% 0.88% 0.87% - --------------------------------------------------------------------------------------- Ratio of expenses to average net assets prior to expense limitation 1.15% 1.04% 1.07% 1.09% - --------------------------------------------------------------------------------------- Ratio of net investment income to average net assets 4.81% 5.00% 5.06% 5.07% - --------------------------------------------------------------------------------------- Ratio of net investment income to average net assets prior to expense limitation 4.66% 4.95% 4.87% 4.85% - --------------------------------------------------------------------------------------- Portfolio turnover 20% 28% 42% 55% - ---------------------------------------------------------------------------------------
[RESTUBBED TABLE]
- --------------------------------------------------------------------------------------- Delaware Tax-Free Class B New Mexico Fund - --------------------------------------------------------------------------------------- Eight Year Months Year Year Year Ended Ended Ended Ended Ended 1999 8/31/98(1) 1997(2) 1996 1995 - --------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------- Net asset value, beginning of period $11.290 $10.790 $10.890 $9.590 - --------------------------------------------------------------------------------------- Income from investment operations: - --------------------------------------------------------------------------------------- Net investment income 0.309 0.465 0.460 0.460 - --------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) from investments 0.169 0.508 (0.110) 1.320 ----- ----- ------- ----- - --------------------------------------------------------------------------------------- Total from investment operations 0.478 0.973 0.350 1.780 ----- ----- ----- ----- - --------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------- Less dividends and distributions: - --------------------------------------------------------------------------------------- Dividends from net investment income (0.308) (0.473) (0.450) (0.480) - --------------------------------------------------------------------------------------- Distributions from net realized gain on investment transactions --- --- --- --- ----- ----- ------- ----- - --------------------------------------------------------------------------------------- Total dividends and distributions (0.308) (0.473) (0.450) (0.480) ------- ------- ------- ------- - --------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------- Net asset value, end of period $11.460 $11.290 $10.790 $10.890 ======= ======= ======= ======= - --------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------- Total return(4) 4.29% 9.24% 3.39% 18.84% - --------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------- Ratios and supplemental data: - --------------------------------------------------------------------------------------- Net assets, end of period (000 omitted) $1,782 $1,065 $794 $605 - --------------------------------------------------------------------------------------- Ratio of expenses to average net assets 1.75% 1.76% 1.61% 1.53% - --------------------------------------------------------------------------------------- Ratio of expenses to average net assets prior to expense limitation 1.90% 1.81% 1.82% 1.83% - --------------------------------------------------------------------------------------- Ratio of net investment income to average net assets 4.06% 4.23% 4.31% 4.33% - --------------------------------------------------------------------------------------- Ratio of net investment income to average net assets prior to expense limitation 3.91% 4.18% 4.10% 4.03% - --------------------------------------------------------------------------------------- Portfolio turnover 20% 28% 42% 55% - ---------------------------------------------------------------------------------------
[RESTUBBED TABLE]
- --------------------------------------------------------------------------------------- Delaware Tax-Free Class C New Mexico Fund - --------------------------------------------------------------------------------------- Eight Period Year Months Year 5/7/96(3) Ended Ended Ended through 1999 8/31/98(1) 1997(2) 12/31/95 - --------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------- Net asset value, beginning of period $11.280 $10.790 $10.410 - --------------------------------------------------------------------------------------- Income from investment operations: - --------------------------------------------------------------------------------------- Net investment income 0.305 0.459 0.280 - --------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) from investments 0.183 0.495 0.370 ----- ----- ----- - --------------------------------------------------------------------------------------- Total from investment operations 0.448 0.954 0.650 ----- ----- ----- - --------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------- Less dividends and distributions: - --------------------------------------------------------------------------------------- Dividends from net investment income (0.308) (0.464) (0.270) - --------------------------------------------------------------------------------------- Distributions from net realized gain on investment transactions --- --- --- ----- ----- ----- - --------------------------------------------------------------------------------------- Total dividends and distributions (0.308) (0.464) (0.270) ------- ------- ------- - --------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------- Net asset value, end of period $11.460 $11.280 $10.790 ======= ======= ======= - --------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------- Total return(4) 4.38% 9.06% 6.30% - --------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------- Ratios and supplemental data: - --------------------------------------------------------------------------------------- Net assets, end of period (000 omitted) $394 $315 $341 - --------------------------------------------------------------------------------------- Ratio of expenses to average net assets 1.75% 1.84% 1.74%(5) - --------------------------------------------------------------------------------------- Ratio of expenses to average net assets prior to expense limitation 1.90% 1.89% 1.83%(5) - --------------------------------------------------------------------------------------- Ratio of net investment income to average net assets 4.06% 4.15% 4.21%(5) - --------------------------------------------------------------------------------------- Ratio of net investment income to average net assets prior to expense limitation 3.91% 4.10% 4.12%(5) - --------------------------------------------------------------------------------------- Portfolio turnover 20% 28% 42% - ---------------------------------------------------------------------------------------
(1) Ratios have been annualized and the total returns has not been annualized. (2) Commencing May 1, 1997, Delaware Management Company replaced Voyageur Fund Managers, Inc. as the Fund's investment manager. (3) Commencement of operations. (4) 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. (5) Annualized. 92 Financial information Financial highlights The financial highlights table is intended to help you understand the Fund's financial performance. All "per share" information reflects financial results for a single Fund share. This information has been audited by Ernst & Young LLP, whose report, along with the Fund's financial statements, is included in the Fund's annual report, which is available upon request by calling 800.523.1918.
- ------------------------------------------------------------------------------------------------------- Delaware Tax-Free Class A New York Fund - ------------------------------------------------------------------------------------------------------- Eight Three Year Months Year Months Year Year Ended Ended Ended Ended Ended Ended 1999 8/31/98(1) 1997(2) 12/31/96(3) 1996 1995 - ------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $10.640 $10.690 $10.720 $10.870 $10.740 - ------------------------------------------------------------------------------------------------------- Income from investment operations: - ------------------------------------------------------------------------------------------------------- Net investment income 0.362 0.603 0.120 0.550 0.570 - ------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments 0.040 0.128 0.010 (0.130) 0.170 ----- ----- ----- ------- ----- - ------------------------------------------------------------------------------------------------------- Total from investment operations 0.402 0.731 0.130 0.420 0.740 ----- ----- ----- ----- ----- - ------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- Less dividends and distributions: - ------------------------------------------------------------------------------------------------------- Dividends from net investment income (0.362) (0.606) (0.120) (0.550) (0.590) - ------------------------------------------------------------------------------------------------------- Distributions from net realized gain on investment transactions (0.010) (0.175) (0.040) (0.020) (0.020) ------- ------- ------- ------- ------- - ------------------------------------------------------------------------------------------------------- Total dividends and distributions (0.372) (0.781) (0.160) (0.570) (0.610) ------- ------- ------- ------- ------- - ------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- Net asset value, end of period $10.670 $10.640 $10.690 $10.720 $10.870 ======= ======= ======= ======= ======= - ------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- Total return(5) 3.85% 7.09% 1.21% 3.94% 7.31% - ------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- Ratios and supplemental data: - ------------------------------------------------------------------------------------------------------- Net assets, end of period (000 omitted) $9.978 $9,563 $10,044 $10.548 $11,931 - ------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets 1.00% 1.00% 0.97%(6) 1.34% 1.31% - ------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets prior to expense limitation 1.15% 1.39% 1.12%(6) 1.55% 1.82% - ------------------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets 5.12% 5.66% 5.31%(6) 5.14% 5.66% - ------------------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets prior to expense limitation 4.97% 5.27% 5.16%(6) 4.93% 5.15% - ------------------------------------------------------------------------------------------------------- Portfolio turnover 21% 30% 5% 12% 10% - -------------------------------------------------------------------------------------------------------
[RESTUBBED TABLE]
- ------------------------------------------------------------------------------------------------------- Delaware Tax-Free Class B New York Fund - ------------------------------------------------------------------------------------------------------- Eight Three Period Year Months Year Months Year 11/14/94(4) Ended Ended Ended Ended Ended through 1999 8/31/98(1) 1997(2) 12/31/96(3) 1995 9/30/95 - ------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $10.610 $10.650 $10.690 $10.840 $10.340 - ------------------------------------------------------------------------------------------------------- Income from investment operations: - ------------------------------------------------------------------------------------------------------- Net investment income 0.311 0.524 0.100 0.470 0.430 - ------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments 0.049 0.136 --- (0.130) 0.540 ----- ----- -------- ------- ----- - ------------------------------------------------------------------------------------------------------- Total from investment operations 0.360 0.660 0.100 0.340 0.970 ----- ----- ----- ----- ----- - ------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- Less dividends and distributions: - ------------------------------------------------------------------------------------------------------- Dividends from net investment income (0.310) (0.525) (0.100) (0.470) (0.450) - ------------------------------------------------------------------------------------------------------- Distributions from net realized gain on investment transactions (0.010) (0.175) (0.040) (0.020) (0.020) ------- ------- ------- ------- ------- - ------------------------------------------------------------------------------------------------------- Total dividends and distributions (0.320) (0.700) (0.140) (0.490) (0.470) ------- ------- ------- ------- ------- - ------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- Net asset value, end of period $10.650 $10.610 $10.650 $10.690 $10.840 ======= ======= ======= ======= ======= - ------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- Total return(5) 3.44% 6.39% 0.95% 3.14% 9.46% - ------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- Ratios and supplemental data: - ------------------------------------------------------------------------------------------------------- Net assets, end of period (000 omitted) $469 $167 $254 $448 $266 - ------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets 1.75% 1.75% 1.87%(6) 2.09% 2.09%(6) - ------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets prior to expense limitation 1.90% 2.14% 2.00%(6) 2.30% 2.60%(6) - ------------------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets 4.37% 4.91% 4.43%(6) 4.39% 4.68%(6) - ------------------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets prior to expense limitation 4.22% 4.52% 4.30%(6) 4.18% 4.17%(6) - ------------------------------------------------------------------------------------------------------ Portfolio turnover 21% 30% 5% 12% 10% - -------------------------------------------------------------------------------------------------------
[RESTUBBED TABLE]
- ------------------------------------------------------------------------------------------------------- Delaware Tax-Free Class C New York Fund - ------------------------------------------------------------------------------------------------------- Eight Three Period Year Months Year Months Year 4/26/95(4) Ended Ended Ended Ended Ended through 1999 8/31/98(1) 1997(2) 12/31/96(3) 1995 9/30/95 - ------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $10.610 $10.660 $10.700 $10.850 $10.790 - ------------------------------------------------------------------------------------------------------- Income from investment operations: - ------------------------------------------------------------------------------------------------------- Net investment income 0.308 0.522 0.100 0.470 0.210 - ------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments 0.042 0.128 --- (0.130) 0.060 ----- ----- ------ ------- ----- - ------------------------------------------------------------------------------------------------------- Total from investment operations 0.350 0.650 0.100 0.340 0.270 ----- ----- ----- ----- ----- - ------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- Less dividends and distributions: - ------------------------------------------------------------------------------------------------------- Dividends from net investment income (0.310) (0.525) (0.100) (0.470) (0.210) - ------------------------------------------------------------------------------------------------------- Distributions from net realized gain on investment transactions (0.010) (0.175) (0.040) (0.020) --- ------- ------- ------- ------- ------- - ------------------------------------------------------------------------------------------------------- Total dividends and distributions (0.320) (0.700) (0.140) (0.490) (0.210) ------- ------- ------- ------- ------- - ------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- Net asset value, end of period $10.640 $10.610 $10.660 $10.700 $10.850 ======= ======= ======= ======= ======= - ------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- Total return(5) 3.35% 6.29% 0.95% 3.14% 2.54% - ------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- Ratios and supplemental data: - ------------------------------------------------------------------------------------------------------- Net assets, end of period (000 omitted) $58 $56 $53 $52 $51 - ------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets 1.75% 1.75% 1.84%(6) 2.09% 2.09%(6) - ------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets prior to expense limitation 1.90% 2.14% 2.00%(6) 2.30% 2.60%(6) - ------------------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets 4.37% 4.91% 4.45%(6) 4.39% 4.44%(6) - ------------------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets prior to expense limitation 4.22% 4.52% 4.29%(6) 4.18% 3.93%(6) - ------------------------------------------------------------------------------------------------------- Portfolio turnover 21% 30% 5% 12% 10% - -------------------------------------------------------------------------------------------------------
(1) Ratios have been annualized and total return has not been annualized. (2) Commencing May 1, 1997, Delaware Management Company replaced Voyageur Fund Managers, Inc. as the Fund's investment manager. (3) Effective November 16, 1996, the Fund's shareholders approved a change of investment advisor from Fortis Advisers, Inc. to Voyageur Fund Managers, Inc. (4) Commencement of operations. (5) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of distributions at net asset value and does not reflect the impact of a sales charge. (6) Annualized. 93 Financial information Financial highlights The financial highlights table is intended to help you understand the Fund's financial performance. All "per share" information reflects financial results for a single Fund share. This information has been audited by Ernst & Young LLP, whose report, along with the Fund's financial statements, is included in the Fund's annual report, which is available upon request by calling 800.523.1918.
- ------------------------------------------------------------------------------------------------------- Delaware Tax-Free Class A North Dakota Fund - ------------------------------------------------------------------------------------------------------- Eight Year Months Year Year Year Ended Ended Ended Ended Ended 1999 8/31/98(1) 1997(2) 1996 1995 - ------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $11.320 $10.880 $11.000 $9.850 - ------------------------------------------------------------------------------------------------------- Income from investment operations: - ------------------------------------------------------------------------------------------------------- Net investment income 0.364 0.546 0.540 0.540 - ------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments 0.120 0.451 (0.130) 1.180 ----- ----- ------- ----- - ------------------------------------------------------------------------------------------------------- Total from investment operations 0.484 0.997 0.410 1.720 ----- ----- ----- ----- - ------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- Less dividends and distributions: - ------------------------------------------------------------------------------------------------------- Dividends from net investment income (0.364) (0.557) (0.530) (0.570) - ------------------------------------------------------------------------------------------------------- Distributions from net realized gain on investment transactions --- --- --- --- ----- ----- ----- ----- - ------------------------------------------------------------------------------------------------------- Distributions in excess of net realized gains --- --- --- --- ----- ----- ----- ----- - ------------------------------------------------------------------------------------------------------- Total dividends and distributions (0.364) (0.557) (0.530) (0.570) ------- ------- ------- ------- - ------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- Net asset value, end of period $11.440 $11.320 $10.880 $11.000 ======= ======= ======= ======= - ------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- Total return(4) 4.35% 9.43% 3.89% 17.81% - ------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- Ratios and supplemental data: - ------------------------------------------------------------------------------------------------------- Net assets, end of period (000 omitted) $30,496 $30,965 $33,713 $36,096 - ------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets 1.00% 1.00% 0.88% 0.81% - ------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets prior to expense limitation 1.15% 1.04% 1.08% 1.05% - ------------------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets 4.82% 4.97% 5.01% 5.07% - ------------------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets prior to expense limitation 4.67% 4.93% 4.81% 4.83% - ------------------------------------------------------------------------------------------------------- Portfolio turnover 23% 41% 58% 45% - -------------------------------------------------------------------------------------------------------
[RESTUBBED TABLE]
- ------------------------------------------------------------------------------------------------------- Delaware Tax-Free Class B North Dakota Fund - ------------------------------------------------------------------------------------------------------- Eight Year Months Year Year Year Ended Ended Ended Ended Ended 1999 8/31/98(1) 1997(2) 1996 1995 - ------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $11.320 $10.880 $11.000 $9.850 - ------------------------------------------------------------------------------------------------------- Income from investment operations: - ------------------------------------------------------------------------------------------------------- Net investment income 0.308 0.484 0.490 0.480 - ------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments 0.119 0.451 (0.130) 1.180 ----- ----- ------- ----- - ------------------------------------------------------------------------------------------------------- Total from investment operations 0.427 0.935 0.360 1.660 ----- ----- ----- ----- - ------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- Less dividends and distributions: - ------------------------------------------------------------------------------------------------------- Dividends from net investment income (0.307) (0.480) (0.430) (0.510) - ------------------------------------------------------------------------------------------------------- Distributions from net realized gain on investment transactions --- --- --- --- ----- ----- ------- ----- - ------------------------------------------------------------------------------------------------------- Distributions in excess of net realized gains --- --- --- --- ----- ----- ------- ----- - ------------------------------------------------------------------------------------------------------- Total dividends and distributions (0.307) (0.480) (0.430) (0.510) ------- ------- ------- ------- - ------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- Net asset value, end of period $11.440 $11.320 $10.880 $11.000 ======= ======= ======= ======= - ------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- Total return(4) 3.83% 8.82% 3.39% 17.24% - ------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- Ratios and supplemental data: - ------------------------------------------------------------------------------------------------------- Net assets, end of period (000 omitted) $980 $889 $700 $375 - ------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets 1.75% 1.55% 1.36% 1.29% - ------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets prior to expense limitation 1.90% 1.59% 1.83% 1.79% - ------------------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets 4.07% 4.42% 4.52% 4.56% - ------------------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets prior to expense limitation 3.92% 4.38% 4.05% 4.06% - ------------------------------------------------------------------------------------------------------- Portfolio turnover 23% 41% 58% 45% - -------------------------------------------------------------------------------------------------------
[RESTUBBED TABLE]
- ------------------------------------------------------------------------------------------------------- Delaware Tax-Free Class C North Dakota Fund - ------------------------------------------------------------------------------------------------------- Eight Period Year Months Year Year 7/29/95(3) Ended Ended Ended Ended through 1999 8/31/98(1) 1997(2) 1996 12/31/95 - ------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $11.320 $10.870 $11.000 $10.510 - ------------------------------------------------------------------------------------------------------- Income from investment operations: - ------------------------------------------------------------------------------------------------------- Net investment income 0.307 0.441 0.440 0.170 - ------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments 0.110 0.468 (0.140) 0.500 ----- ----- ------- ----- - ------------------------------------------------------------------------------------------------------- Total from investment operations 0.417 0.909 0.300 0.670 ----- ----- ----- ----- - ------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- Less dividends and distributions: - ------------------------------------------------------------------------------------------------------- Dividends from net investment income (0.307) (0.459) (0.430) (0.180) - ------------------------------------------------------------------------------------------------------- Distributions from net realized gain on investment transactions --- --- --- --- ----- ----- ----- ----- - ------------------------------------------------------------------------------------------------------- Distributions in excess of net realized gains --- --- --- --- ----- ----- ----- ----- - ------------------------------------------------------------------------------------------------------- Total dividends and distributions (0.307) (0.459) (0.430) (0.180) ------- ------- ------- ------- - ------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- Net asset value, end of period $11.430 $11.320 $10.870 $11.000 ======= ======= ======= ======= - ------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- Total return(4) 3.74% 8.57% 2.81% 6.47% - ------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- Ratios and supplemental data: - ------------------------------------------------------------------------------------------------------- Net assets, end of period (000 omitted) $30 $41 $40 $20 - ------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets 1.75% 1.87% 1.75% 1.73%(5) - ------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets prior to expense limitation 1.90% 1.91% 1.75% 1.73%(5) - ------------------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets 4.07% 4.10% 4.06% 4.00%(5) - ------------------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets prior to expense limitation 3.92% 4.06% 4.06% 4.00%(5) - ------------------------------------------------------------------------------------------------------- Portfolio turnover 23% 41% 58% 45% - -------------------------------------------------------------------------------------------------------
(1) Ratios have been annualized and total return has not been annualized. (2) Commencing May 1, 1997, Delaware Management Company replaced Voyageur Fund Managers, Inc. as the Fund's investment manager. (3) Commencement of operations. (4) 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. (5) Annualized. 94 Financial information Financial highlights The financial highlights table is intended to help you understand the Fund's financial performance. All "per share" information reflects financial results for a single Fund share. This information has been audited by Ernst & Young LLP, whose report, along with the Fund's financial statements, is included in the Fund's annual report, which is available upon request by calling 800.523.1918.
- ------------------------------------------------------------------------------------------- Delaware Tax-Free Class A Oregon Insured Fund - ------------------------------------------------------------------------------------------- Eight Year Months Year Year Year Ended Ended Ended Ended Ended 1999 8/31/98(1) 1997(2) 1996 1995 - ------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------- Net asset value, beginning of period $10.310 $9.870 $10.050 $8.920 - ------------------------------------------------------------------------------------------- Income from investment operations: - ------------------------------------------------------------------------------------------- Net investment income 0.320 0.481 0.480 0.490 - ------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments 0.120 0.444 (0.180) 1.140 ------- ------- ------- ------- - ------------------------------------------------------------------------------------------- Total from investment operations 0.440 0.925 0.300 1.630 ------- ------- ------- ------- - ------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------- Less dividends: - ------------------------------------------------------------------------------------------- Dividends from net investment income (0.320) (0.485) (0.480) (0.500) - ------------------------------------------------------------------------------------------- Total dividends (0.320) (0.485) (0.480) (0.500) ------- ------- ------- ------- - ------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------- Net asset value, end of period $10.430 $10.310 $9.870 $10.050 ======= ======= ====== ======= - ------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------- Total return(4) 4.33% 9.66% 3.15% 18.71% - ------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------- Ratios and supplemental data: - ------------------------------------------------------------------------------------------- Net assets, end of period (000 omitted) $24,336 $22,071 $20,913 $21,590 - ------------------------------------------------------------------------------------------- Ratio of expenses to average net assets 0.71% 0.71% 0.71% 0.54% - ------------------------------------------------------------------------------------------- Ratio of expenses to average net assets prior to expense limitation 1.03% 0.94% 1.07% 1.11% - ------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets 4.64% 4.83% 4.92% 5.12% - ------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets prior to expense limitation 4.32% 4.60% 4.56% 4.55% - ------------------------------------------------------------------------------------------- Portfolio turnover 5% 5% 40% 41% - -------------------------------------------------------------------------------------------
(RESTUBBED TABLE)
- ------------------------------------------------------------------------------------------- Delaware Tax-Free Class B Oregon Insured Fund - ------------------------------------------------------------------------------------------- Eight Year Months Year Year Year Ended Ended Ended Ended Ended 1999 8/31/98(1) 1997(2) 1996 1995 - ------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------- Net asset value, beginning of period $10.310 $9.870 $10.050 $8.920 - ------------------------------------------------------------------------------------------- Income from investment operations: - ------------------------------------------------------------------------------------------- Net investment income 0.268 0.422 0.430 0.440 - ------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments 0.120 0.434 (0.180) 1.140 ----- ----- ----- ----- - ------------------------------------------------------------------------------------------- Total from investment operations 0.388 0.856 0.250 1.580 ----- ----- ----- ----- - ------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------- Less dividends: - ------------------------------------------------------------------------------------------- Dividends from net investment income (0.268) (0.416) (0.430) (0.450) - ------------------------------------------------------------------------------------------- Total dividends (0.268) (0.416) (0.430) (0.450) ------- ------- ------- ------- - ------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------- Net asset value, end of period $10.430 $10.310 $9.870 $10.050 ======= ======= ====== ======= - ------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------- Total return(4) 3.82% 8.90% 2.61% 18.10% - ------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------- Ratios and supplemental data: - ------------------------------------------------------------------------------------------- Net assets, end of period (000 omitted) $6,011 $6,461 $4,758 $2,786 - ------------------------------------------------------------------------------------------- Ratio of expenses to average net assets 1.46% 1.39% 1.25% 1.04% - ------------------------------------------------------------------------------------------- Ratio of expenses to average net assets prior to expense limitation 1.78% 1.62% 1.83% 1.86% - ------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets 3.89% 4.15% 4.37% 4.57% - ------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets prior to expense limitation 3.57% 3.92% 3.79% 3.75% - ------------------------------------------------------------------------------------------- Portfolio turnover 5% 5% 40% 41% - -------------------------------------------------------------------------------------------
(RESTUBBED TABLE)
- --------------------------------------------------------------------------------------------------- Delaware Tax-Free Class C Oregon Insured Fund - --------------------------------------------------------------------------------------------------- Eight Period Year Months Year Year 7/7/95(3) Ended Ended Ended Ended through 1999 8/31/98(1) 1997(2) 1996 12/31/95 - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- Net asset value, beginning of period $10.440 $9.880 $10.050 $9.630 - --------------------------------------------------------------------------------------------------- Income from investment operations: - --------------------------------------------------------------------------------------------------- Net investment income 0.268 0.411 0.400 0.190 - --------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments 0.120 0.431 (0.170) 0.410 ----- ----- ----- ----- - --------------------------------------------------------------------------------------------------- Total from investment operations 0.388 0.842 0.230 0.600 ----- ----- ----- ----- - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- Less dividends: - --------------------------------------------------------------------------------------------------- Dividends from net investment income (0.268) (0.402) (0.400) (0.180) - --------------------------------------------------------------------------------------------------- Total dividends (0.268) (0.402) (0.400) (0.180) ------- ------- ------- ------- - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- Net asset value, end of period $10.440 $10.320 $9.880 $10.050 ======= ======= ====== ======= - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- Total return(4) 3.81% 8.75% 2.38% 6.35% - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- Ratios and supplemental data: - --------------------------------------------------------------------------------------------------- Net assets, end of period (000 omitted) $999 $532 $360 $250 - --------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets 1.46% 1.51% 1.55% 1.39%(5) - ---------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets prior to expense limitation 1.78% 1.74% 1.82% 1.74%(5) - --------------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets 3.89% 4.03% 4.03% 4.00%(5) - --------------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets prior to expense limitation 3.57% 3.80% 3.76% 3.65%(5) - --------------------------------------------------------------------------------------------------- Portfolio turnover 5% 5% 40% 41% - ---------------------------------------------------------------------------------------------------
(1) Ratios have been annualized and total return has not been annualized. (2) Commencing May 1, 1997, Delaware Management Company replaced Voyageur Fund Managers, Inc. as the Fund's investment manager. (3) Commencement of operations. (4) 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. (5) Annualized. 95 Financial information Financial highlights The financial highlights table is intended to help you understand the Fund's financial performance. All "per share" information reflects financial results for a single Fund share. This information has been audited by Ernst & Young LLP, whose report, along with the Fund's financial statements, is included in the Fund's annual report, which is available upon request by calling 800.523.1918.
- ----------------------------------------------------------------------------------------------- Delaware Tax-Free Class A Wisconsin Fund - ----------------------------------------------------------------------------------------------- Eight Year Months Year Year Year Ended Ended Ended Ended Ended 1999 8/31/98(1) 1997(2) 1996 1995 - ----------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------- Net asset value, beginning of period $10.010 $9.640 $9.780 $8.740 - ----------------------------------------------------------------------------------------------- Income from investment operations: - ----------------------------------------------------------------------------------------------- Net investment income 0.304 0.466 0.460 0.480 - ----------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments 0.070 0.383 (0.140) 1.040 ----- ----- ----- ----- - ----------------------------------------------------------------------------------------------- Total from investment operations 0.374 0.849 0.320 1.520 ----- ----- ----- ----- - ----------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------- Less dividends: - ----------------------------------------------------------------------------------------------- Dividends from net investment income (0.304) (0.479) (0.460) (0.480) - ----------------------------------------------------------------------------------------------- Total dividends (0.304) (0.479) (0.460) (0.480) ------- ------- ------- ------- - ----------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------- Net asset value, end of period $10.080 $10.010 $9.640 $9.780 ======= ======= ====== ====== - ----------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------- Total return(4) 3.80% 9.07% 3.49% 17.74% - ----------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------- Ratios and supplemental data: - ----------------------------------------------------------------------------------------------- Net assets, end of period (000 omitted) $34,489 $30,879 $28,292 $26,449 - ----------------------------------------------------------------------------------------------- Ratio of expenses to average net assets 1.00% 1.00% 0.98% 0.88% - ----------------------------------------------------------------------------------------------- Ratio of expenses to average net assets prior to expense limitation 1.04% 1.07% 1.09% 1.09% - ----------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets 4.56% 4.76% 4.90% 5.05% - ----------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets prior to expense limitation 4.52% 4.68% 4.79% 4.84% - ----------------------------------------------------------------------------------------------- Portfolio turnover 16% 30% 38% 12% - -----------------------------------------------------------------------------------------------
(RESTUBBED TABLE)
- ------------------------------------------------------------------------------------------------- Delaware Tax-Free Class B Wisconsin Fund - ------------------------------------------------------------------------------------------------- Eight Period Year Months Year Year 4/22/95(3) Ended Ended Ended Ended through 1999 8/31/98(1) 1997(2) 1996 12/31/95 - ------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------- Net asset value, beginning of period $10.000 $9.630 $9.770 $9.390 - ------------------------------------------------------------------------------------------------- Income from investment operations: - ------------------------------------------------------------------------------------------------- Net investment income 0.255 0.395 0.410 0.280 - ------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments 0.070 0.382 (0.140) 0.370 ----- ----- ----- ----- - ------------------------------------------------------------------------------------------------- Total from investment operations 0.325 0.777 0.270 0.650 ----- ----- ----- ----- - ------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------- Less dividends: - ------------------------------------------------------------------------------------------------- Dividends from net investment income (0.255) (0.407) (0.410) (0.270) - ------------------------------------------------------------------------------------------------- Total dividends (0.255) (0.407) (0.410) (0.270) ------- ------- ------- ------- - ------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------- Net asset value, end of period $10.070 $10.000 $9.630 $9.770 ======= ======= ====== ====== - ------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------- Total return(4) 3.29% 8.27% 2.84% 7.08% - ------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------- Ratios and supplemental data: - ------------------------------------------------------------------------------------------------- Net assets, end of period (000 omitted) $2,621 $1,931 $1,339 $725 - ------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets 1.75% 1.72% 1.66% 1.45%(5) - ------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets prior to expense limitation 1.79% 1.80% 1.85% 1.70%(5) - ------------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets 3.81% 4.03% 4.37% 4.31%(5) - ------------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets prior to expense limitation 3.77% 3.95% 4.18% 4.06%(5) - ------------------------------------------------------------------------------------------------- Portfolio turnover 16% 30% 38% 12% - -------------------------------------------------------------------------------------------------
(RESTUBBED TABLE)
- ------------------------------------------------------------------------------------------------- Delaware Tax-Free Class C Wisconsin Fund - ------------------------------------------------------------------------------------------------- Eight Period Year Months Year Year 3/28/95(3) Ended Ended Ended Ended through 1999 8/31/98(1) 1997(2) 1996 12/31/95 - ------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------- Net asset value, beginning of period $10.030 $9.660 $9.790 $9.340 - ------------------------------------------------------------------------------------------------- Income from investment operations: - ------------------------------------------------------------------------------------------------- Net investment income 0.259 0.380 0.390 0.300 - ------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments 0.075 0.390 (0.130) 0.440 ----- ----- ----- ----- - ------------------------------------------------------------------------------------------------- Total from investment operations 0.334 0.770 0.260 0.740 ----- ----- ----- ----- - ------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------- Less dividends: - ------------------------------------------------------------------------------------------------- Dividends from net investment income (0.254) (0.400) (0.390) (0.290) - ------------------------------------------------------------------------------------------------- Total dividends (0.254) (0.400) (0.390) (0.290) ------- ------- ------- ------- - ------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------- Net asset value, end of period $10.110 $10.030 $9.660 $9.790 ======= ======= ====== ====== - ------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------- Total return(4) 3.38% 8.16% 2.74% 8.06% - ------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------- Ratios and supplemental data: - ------------------------------------------------------------------------------------------------- Net assets, end of period (000 omitted) $1,283 $689 $555 $73 - ------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets 1.75% 1.81% 1.75% 1.77%(5) - ------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets prior to expense limitation 1.79% 1.89% 1.83% 1.77%(5) - ------------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets 3.81% 3.94% 4.12% 4.04%(5) - ------------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets prior to expense limitation 3.77% 3.86% 4.04% 4.04%(5) - ------------------------------------------------------------------------------------------------- Portfolio turnover 16% 30% 38% 12% - -------------------------------------------------------------------------------------------------
(1) Ratios have been annualized and total return has not been annualized. (2) Commencing May 1, 1997, Delaware Management Company replaced Voyageur Fund Managers, Inc. as the Fund's investment manager. (3) Commencement of operations. (4) 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. (5) Annualized. 97 How to read the Financial highlights Net investment income Net investment income includes dividend and interest income earned from the Fund's securities; it is after expenses have been deducted. Net realized and unrealized gain (loss) A realized gain on investments occurs when we sell an investment at a profit, while a realized loss occurs when we sell an investment at a loss. When an investment increases or decreases in value but we do not sell it, we record an unrealized gain or loss. The amount of realized gain per share that we pay to shareholders, if any, is listed under "Less dividends and distributions-Distributions from net realized gain on investments." Net asset value (NAV) This is the value of a mutual fund share, calculated by dividing the net assets by the number of shares outstanding. Total return This represents the rate that an investor would have earned or lost on an investment in the Fund. In calculating this figure for the financial highlights table, we include applicable fee waivers, exclude front-end and contingent deferred sales charges, and assume the shareholder has reinvested all dividends and realized gains. Net assets Net assets represent the total value of all the assets in the Fund's portfolio, less any liabilities, that are attributable to that class of the Fund. Ratio of expenses to average net assets The expense ratio is the percentage of net assets that a fund pays annually for operating expenses and management fees. These expenses include accounting and administration expenses, services for shareholders, and similar expenses. Ratio of net investment income to average net assets We determine this ratio by dividing net investment income by average net assets. Portfolio turnover This figure tells you the amount of trading activity in a fund's portfolio. For example, a fund with a 50% turnover has bought and sold half of the value of its total investment portfolio during the stated period. 97 [begin glossary] Alternative minimum tax Amortized cost Amortized cost is a method used to value a fixed-income security that starts with the face value of the security and then adds or subtracts from that value depending on whether the purchase price was greater or less than the value of the security at maturity. The amount greater or less than the par value is divided equally over the time remaining until maturity. Average maturity An average of when the individual bonds and other debt securities held in a portfolio will mature. Bond A debt security, like an IOU, issued by a company, municipality or government agency. In return for lending money to the issuer, a bond buyer generally receives fixed periodic interest payments and repayment of the loan amount on a specified maturity date. A bond's price changes prior to maturity and is inversely related to current interest rates. When interest rates rise, bond prices fall, and when interest rates fall, bond prices rise. Bond ratings Independent evaluations of creditworthiness, ranging from Aaa/AAA (highest quality) to D (lowest quality). Bonds rated Baa/BBB or better are considered investment grade. Bonds rated Ba/BB or lower are commonly known as junk bonds. See also Nationally recognized statistical rating organization. Capital The amount of money you invest. Capital appreciation An increase in the value of an investment. Capital gains distributions Payments to mutual fund shareholders of profits (realized gains) from the sale of a fund's portfolio securities. Usually paid once a year; may be either short-term gains or long-term gains. Commission The fee an investor pays to a financial adviser for investment advice and help in buying or selling mutual funds, stocks, bonds or other securities. Compounding Earnings on an investment's previous earnings. Consumer Price Index (CPI) Measurement of U.S. inflation; represents the price of a basket of commonly purchased goods. Contingent deferred sales charge (CDSC) Fee charged by some mutual funds when shares are redeemed (sold back to the fund) within a set number of years; an alternative method for investors to compensate a financial adviser for advice and service, rather than an up-front commission. Corporate bond A debt security issued by a corporation. See bond. Depreciation A decline in an investment's value. 98 Diversification The process of spreading investments among a number of different securities, asset classes or investment styles to reduce the risks of investing. Dividend distribution Payments to mutual fund shareholders of dividends passed along from the fund's portfolio of securities. Duration A measurement of a fixed-income investment's price volatility. The larger the number, the greater the likely price change for a given change in interest rates. Expense ratio A mutual fund's total operating expenses, expressed as a percentage of its total net assets. Operating expenses are the costs of running a mutual fund, including management fees, offices, staff, equipment and expenses related to maintaining the fund's portfolio of securities and distributing its shares. They are paid from the fund's assets before any earnings are distributed to shareholders. Financial adviser Financial professional (e.g., broker, banker, accountant, planner or insurance agent) who analyzes clients' finances and prepares personalized programs to meet objectives. Fixed-income securities With fixed-income securities, the money you originally invested is paid back at a pre-specified maturity date. These securities, which include government, corporate or municipal bonds, as well as money market securities, typically pay a fixed rate of return (often referred to as interest). See bond. Inflation The increase in the cost of goods and services over time. U.S. inflation is frequently measured by changes in the Consumer Price Index (CPI). Investment goal The objective, such as long-term capital growth or high current income, that a mutual fund pursues. Lehman Brothers Municipal Bond Index The Lehman Brothers Municipal Bond Index is an index that includes approximately 15,000 bonds. To be included in the index, a municipal bond must meet the following criteria: a minimum credit rating of at least Baa; has been part of a deal of at least $50 million; been issued within the last 5 years, and has a maturity of at least 2 years. Bonds subject to the Alternative Minimum Tax are excluded. Bonds with floating or zero coupons are also excluded Lehman Brothers Insured Municipal Bond Index Lehman Brothers Five-Year Municipal Bond Index Management fee The amount paid by a mutual fund to the investment adviser for management services, expressed as an annual percentage of the fund's average daily net assets. 99 Market capitalization The value of a corporation determined by multiplying the current market price of a share of common stock by the number of shares held by shareholders. A corporation with one million shares outstanding and the market price per share of $10 has a market capitalization of $10 million. Maturity The length of time until a bond issuer must repay the underlying loan principal to bondholders. National Association of Securities Dealers (NASD) A self-regulating organization, consisting of brokerage firms (including distributors of mutual funds), that is responsible for overseeing the actions of its members. Nationally recognized statistical rating organization (NRSRO) A company that assesses the credit quality of bonds, commercial paper, preferred and common stocks and municipal short-term issues, rating the probability that the issuer of the debt will meet the scheduled interest payments and repay the principal. Ratings are published by such companies as Moody's Investors Service (Moody's), Standard & Poor's Corporation (S&P), Duff & Phelps, Inc. (Duff), and Fitch IBCA, Inc. (Fitch). Net asset value (NAV) The daily dollar value of one mutual fund share. Equal to a fund's net assets divided by the number of shares outstanding. Preferred stock Preferred stock has preference over common stock in the payment of dividends and liquidation of assets. Preferred stocks also often pays dividends at a fixed rate and is sometimes convertible into common stock. Price/earnings ratio A measure of a stock's value calculated by dividing the current market price of a share of stock by its annual earnings per share. A stock selling for $100 per share with annual earnings per share of $5 has a P/E of 20. Principal Amount of money you invest (also called capital). Also refers to a bond's original face value, due to be repaid at maturity. Prospectus The official offering document that describes a mutual fund, containing information required by the SEC, such as investment objectives, policies, services and fees. Redeem To cash in your shares by selling them back to the mutual fund. Risk Generally defined as variability of value; also credit risk, inflation risk, currency and interest rate risk. Different investments involve different types and degrees of risk. Sales charge Charge on the purchase or redemption of fund shares sold through financial advisers. May vary with the amount invested. Typically used to compensate advisers for advice and service provided. SEC (Securities and Exchange Commission) Federal agency established by Congress to administer the laws governing the securities industry, including mutual fund companies. Share classes Different classifications of shares; mutual fund share classes offer a variety of sales charge choices. 100 Signature guarantee Certification by a bank, brokerage firm or other financial institution that a customer's signature is valid; signature guarantees can be provided by members of the STAMP program. Standard deviation A measure of an investment's volatility; for mutual funds, measures how much a fund's total return has typically varied from its historical average. Statement of Additional Information (SAI) The document serving as "Part B" of a fund's prospectus that provides more detailed information about the fund's organization, investments, policies and risks. Total return An investment performance measurement, expressed as a percentage, based on the combined earnings from dividends, capital gains and change in price over a given period. Uniform Gift to Minors Act and Uniform Transfers to Minors Act Federal and state laws that provide a simple way to transfer property to a minor with special tax advantages. Volatility The tendency of an investment to go up or down in value by different magnitudes. Investments that generally go up or down in value in relatively small amounts are considered "low volatility" investments, whereas those investments that generally go up or down in value in relatively large amounts are considered "high volatility" investments. 101 - -------------------------------------------------------------------------------- Fund name CUSIP number NASDAQ symbol - -------------------------------------------------------------------------------- 102 State-Specific Tax-Exempt Funds Additional information about the Funds' investments is available in the Funds' annual and semi-annual reports to shareholders. In the Funds' shareholder reports, you will find a discussion of the market conditions and investment strategies that significantly affected the Funds' performance during the report period. You can find more detailed information about the Funds in the current Statement of Additional Information, which we have filed electronically with the Securities and Exchange Commission (SEC) and which is legally a part of this prospectus. If you want a free copy of the Statement of Additional Information, the annual or semi-annual report, or if you have any questions about investing in these Funds, you can write to us at 1818 Market Street, Philadelphia, PA 19103-3682, or call toll-free 800.523.1918. You may also obtain additional information about the Funds from your financial adviser. You can find reports and other information about the Funds on the SEC web site (http://www.sec.gov), or you can get copies of this information, after payment of a duplicating fee, by writing to the Public Reference Section of the SEC, Washington, D.C. 20549-6009. Information about the Funds, including their Statement of Additional Information, can be reviewed and copied at the Securities and Exchange Commission's Public Reference Room in Washington, D.C. You can get information on the public reference room by calling the SEC at 1.800.SEC.0330. Web site www.delawareinvestments.com E-mail service@delinvest.com Shareholder Service Center 800.523.1918 Call the Shareholder Service Center Monday to Friday, 8 a.m. to 8 p.m. Eastern time: oFor fund information; literature; price, yield and performance figures. oFor information on existing regular investment accounts and retirement plan accounts including wire investments; wire redemptions; telephone redemptions and telephone exchanges. Delaphone Service 800.362.FUND (800.362.3863) oFor convenient access to account information or current performance information on all Delaware Investments Funds seven days a week, 24 hours a day, use this Touch-Tone(R) service. 103 Investment Company Act file numbers: 811-3910, 811-4364, 811-4977, 811-6411, 811-7742, 811-4989 DELAWARE INVESTMENTS Philadelphia * London P-002 [--] PP 10/99 104 Delaware Investments includes funds with a wide range of investment objectives. Stock funds, income funds, national and state-specific tax-exempt funds, money market funds, global and international funds and closed-end funds give investors the ability to create a portfolio that fits their personal financial goals. For more information, shareholders of the Classes should contact their financial adviser or call Delaware Investments at 800-523-1918. ---------------------------------------- Voyageur Tax Free Funds Voyageur Intermediate Tax Free Funds Voyageur Insured Funds Voyageur Investment Trust Voyageur Mutual Funds Voyageur Mutual Funds II ---------------------------------------- INVESTMENT MANAGER Delaware Management Company A CLASS One Commerce Square ---------------------------------------- Philadelphia, PA 19103 B CLASS NATIONAL DISTRIBUTOR ---------------------------------------- Delaware Distributors, L.P. 1818 Market Street C CLASS 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 PART B INDEPENDENT AUDITORS STATEMENT OF Ernst & Young LLP ADDITIONAL INFORMATION Two Commerce Square ---------------------------------------- Philadelphia, PA 19103 November 1, 1999 CUSTODIAN Norwest Bank Minnesota, N.A. Sixth Street & Marquette Avenue Minneapolis, MN 55402 -------------------- DELAWARE INVESTMENTS -------------------- - -------------------------------------------------------------------------------- STATEMENT OF ADDITIONAL INFORMATION November 1, 1999 Voyageur Tax Free Funds Voyageur Intermediate Tax-Free Funds Voyageur Insured Funds Voyageur Investment Trust Voyageur Mutual Funds Voyageur Mutual Funds II 1818 Market Street, Philadelphia, PA 19103 For more information about the Institutional Classes: 800-510-4015 For Prospectus, Performance and Information on Existing Accounts of Class A Shares, Class B Shares and Class C Shares: Nationwide 800-523-1918 Dealer Services: (BROKER/DEALERS ONLY) Nationwide 800-362-7500 This Statement of Additional Information ("Part B") describes shares of each fund listed below (individually, a "Fund" and collectively, the "Funds"), which is a series of an open-end management investment company, commonly referred to as a mutual fund. This Part B supplements the information contained in the current Prospectus for the Funds dated November 1, 1999, as it may be amended from time to time. Part B should be read in conjunction with the Funds' Prospectus. Part B is not itself a prospectus but is, in its entirety, incorporated by reference into the Prospectus. The Prospectus for the Funds may be obtained by writing or calling your investment dealer or by contacting the Funds' national distributor, Delaware Distributors, L.P. (the "Distributor"), 1818 Market Street, Philadelphia, PA 19103. The Funds' financial statements, the notes relating thereto, the financial highlights and the report of independent auditors are incorporated by reference from the Annual Reports into this Part B. The Annual Reports will accompany any request for Part B. The Annual Reports can be obtained, without charge, by calling 800-523-1918.
Delaware Tax-Free Arizona Insured Fund Delaware Tax-Free Florida Fund Delaware Tax-Free Missouri Insured Fund Delaware Tax-Free Arizona Fund Delaware Tax-Free Idaho Fund Delaware Tax-Free Montana Fund Delaware Tax-Free California Insured Delaware Tax-Free Iowa Fund Delaware Tax-Free New Mexico Fund Fund Delaware Tax-Free California Fund Delaware Tax-Free Minnesota Delaware Tax-Free New York Fund Intermediate Fund Delaware Tax-Free Colorado Fund Delaware Minnesota Insured Fund Delaware Tax-Free North Dakota Fund Delaware Tax-Free Florida Insured Fund Delaware Tax-Free Minnesota Fund Delaware Tax-Free Oregon Insured Fund Delaware Tax-Free Kansas Fund Delaware Minnesota High-Yield Municipal Delaware Tax-Free Wisconsin Fund Bond Fund
Each Fund offers three retail classes of shares: "Class A Shares," "Class B Shares" and "Class C Shares" (individually, a "Class" and collectively, the "Classes"). This Part B describes each Fund and each Class, except where noted. -2- 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 Exchange - -------------------------------------------------------------------------------- Distributions - -------------------------------------------------------------------------------- Taxes - -------------------------------------------------------------------------------- Investment Management Agreements - -------------------------------------------------------------------------------- Officers and Trustees - -------------------------------------------------------------------------------- General Information - -------------------------------------------------------------------------------- Financial Statements - -------------------------------------------------------------------------------- Appendix A - Special Factors Affecting the Funds - -------------------------------------------------------------------------------- Appendix B - Investment Objectives of the Funds in the Delaware Investments Family Appendix C - Description of Ratings INVESTMENT RESTRICTIONS AND POLICIES Investment Restrictions Fundamental Investment Restrictions The Funds have adopted certain investment restrictions set forth below which 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. Each Fund may not: 1. Make investments that will result in the concentration (as that term may be defined in the 1940 Act, any rule or other thereunder, or U.S. Securities and Exchange Commission ("SEC") staff interpretation thereof) of its investments in the securities of issuers primarily engaged in the same industry, provided that this restriction does not limit the Fund from investing in obligations issued or guaranteed by the U.S. government, its agencies or instrumentalities, or in certificates of deposit. 2. Borrow money or issue senior securities, except as the 1940 Act, any rule or order thereunder, or SEC staff interpretation thereof, may permit. 3. Underwrite the securities of other issuers, except that the Fund may engage in transactions involving the acquisition, disposition or resale of its portfolio securities, under circumstances where it may be considered to be an underwriter under the Securities Act of 1933. 4. Purchase or sell real estate, unless acquired as a result of ownership of securities or other instruments and provided that this restriction does not prevent the Fund from investing in issuers which invest, deal or otherwise engage in transactions in real estate or interests therein, or investing in securities that are secured by real estate or interests therein. -3- 5. Purchase or sell physical commodities, unless acquired as a result of ownership of securities or other instruments and provided that this restriction does not prevent the Fund from engaging in transactions involving futures contracts and options thereon or investing in securities that are secured by physical commodities. 6. Make loans, provided that this restriction does not prevent the Fund from purchasing debt obligations, entering into repurchase agreements, loaning its assets to broker/dealers or institutional investors and investing in loans, including assignments and participation interests. In addition to the fundamental policies and investment restrictions described above, and the various general investment policies described in the prospectus, each Fund will be subject to the following investment restrictions, which are considered non-fundamental and may be changed by the Board of Trustees without shareholder approval. 1. The Fund is permitted to invest in other investment companies, including open-end, closed-end or unregistered investment companies, either within the percentage limits set forth in the 1940 Act, any rule or order thereunder, or SEC staff interpretation thereof, or without regard to percentage limits in connection with a merger, reorganization, consolidation or other similar transaction. However, the Fund may not operate as a "fund of funds" which invests primarily in the shares of other investment companies as permitted by Section 12(d)(1)(F) or (G) of the 1940 Act, if its own shares are utilized as investments by such a "fund of funds." 2. The Fund may not invest more than 15% of its net assets in securities which it cannot sell or dispose of in the ordinary course of business within seven days at approximately the value at which the Fund has valued the investment. Additional Non-fundamental Investment Restrictions The following investment restrictions are non-fundamental to Tax-Free Arizona Insured Fund, Tax-Free Colorado Fund, Minnesota Insured Fund, Tax-Free Minnesota Intermediate Fund, Tax-Free Minnesota Fund and Tax-Free North Dakota Fund, Tax-Free California Insured Fund, Tax-Free Florida Fund, Tax-Free Florida Insured Fund, Tax-Free Kansas Fund, Tax-Free Missouri Fund, Tax-Free New Mexico Fund and Tax-Free Oregon Insured Fund. These Funds will not: (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- (4) Make short sales of securities or maintain a short position for the account of such Fund unless at all times when a short position is open it owns an equal amount of such securities or owns securities which, without payment of any further consideration, are convertible into or exchangeable for securities of the same issue as, and equal in amount to, the securities sold short. (5) Underwrite securities issued by other persons except to the extent that, in connection with the disposition of its portfolio investments, it may be deemed to be an underwriter under federal securities laws. (6) Purchase or sell real estate, although it may purchase securities which are secured by or represent interests in real estate. (7) Purchase or sell commodities or commodity contracts (including futures contracts). (8) Make loans, except by purchase of debt obligations in which such Fund may invest consistent with its investment policies, and through repurchase agreements. (9) Invest in securities of any issuer if, to the knowledge of such Fund, officers and directors or trustees of such Fund or officers and directors or trustees of such Fund's investment adviser who beneficially own more than 1/2 of 1% of the securities of that issuer together own more than 5% of such securities. (10) Invest 25% or more of its assets in the securities of issuers in any single industry, except that the Funds may invest without limitation, in circumstances in which other appropriate available investments may be in limited supply, in housing, health care and utility obligations; provided that there shall be no limitation on the purchase of Tax Exempt Obligations and, for defensive purposes, obligations issued or guaranteed by the U.S. government, its agencies or instrumentalities. (Note: For purposes of this investment restriction, the Funds' investment adviser (the "Manager") interprets "Tax Exempt Obligations" to exclude limited obligation bonds payable only from revenues derived from facilities or projects within a single industry.) (11) Invest more than 15% of its net assets in illiquid investments. The following non-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- (5) Invest 25% or more of its assets in the securities of issuers in any single industry, except that it may invest without limitation, in circumstances in which other appropriate available investments may be in limited supply, in housing, health care and/or utility obligations; provided that there shall be no limitation on the purchase of Tax Exempt Obligations and, for defensive purposes, obligations issued or guaranteed by the U.S. government, its agencies or instrumentalities. (Note: For purposes of this investment restriction, the Manager interprets "Tax Exempt Obligations" to exclude limited obligation bonds payable only from revenues derived from facilities or projects within a single industry.) (6) Issue any senior securities (as defined in the 1940 Act), except as set forth in investment restriction number (1) above, and except to the extent that purchasing or selling on a when-issued or forward commitment basis may be deemed to constitute issuing a senior security. (7) Purchase or sell commodities or commodity contracts (including futures contracts). This restriction shall not restrict such Fund from purchasing or selling, on a basis consistent with any restrictions contained in its then-current prospectus, any financial contracts or instruments which may be deemed commodities (including, by way of example and not by way of limitation, options, futures, and options on futures with respect, in each case, to interest rates, currencies, stock indices, bond indices or interest rate indices). (8) Make short sales of securities or maintain a short position for the account of such Fund unless at all times when a short position is open it owns an equal amount of such securities or owns securities which, without payment of any further consideration, are convertible into or exchangeable for securities of the same issue as, and equal in amount to, the securities sold short. The following restrictions are non-fundamental to Tax-Free Arizona Fund, Tax-Free California Fund, Tax-Free Idaho Fund, Minnesota High-Yield Municipal Bond Fund ("Minnesota High-Yield Fund"), Tax-Free New York Fund and Tax-Free Florida Fund. These Funds will not: (1) Borrow money (provided that such Fund may enter into reverse repurchase agreements and, with respect to Minnesota High-Yield Fund only, repurchase agreements may not exceed 10% of its total assets), except from banks for temporary or emergency purposes in an amount not exceeding 20% of the value of such Fund's total assets, including the amount borrowed. The Funds may not borrow for leverage purposes, provided that such Funds may enter into reverse repurchase agreements for such purposes, and securities will not be purchased while outstanding borrowings exceed 5% of the value of such Fund's total assets. (2) Underwrite securities issued by other persons except to the extent that, in connection with the disposition of portfolio investments, such Fund may be deemed to be an underwriter under federal securities laws. (3) Purchase or sell real estate, although it may purchase securities which are secured by or represent interests in real estate. (4) Make loans, except by purchase of debt obligations in which such Fund may invest consistent with its investment policies, and through repurchase agreements. (5) Except with respect to Minnesota High-Yield Fund, invest 25% or more of its assets in the securities of issuers in any single industry (except that it may invest without limitation, in circumstances in which other appropriate -6- available investments may be in limited supply, in housing, health care, utility, transportation, education and/or industrial obligations); provided that there shall be no limitation on the purchase of Tax Exempt Obligations and, for defensive purposes, obligations issued or guaranteed by the U.S. government, its agencies or instrumentalities. (Note: For purposes of this investment restriction, the Manager interprets "Tax Exempt Obligations" to exclude limited obligation bonds payable only from revenues derived from facilities or projects within a single industry.) Minnesota High-Yield Fund may not invest 25% or more of its total assets in the securities of any industry, although, for purposes of this limitation, tax-exempt securities and U.S. government obligations are not considered to be part of any industry. (6) Issue any senior securities (as defined in the 1940 Act), except as set forth in investment restriction number (1) above, and except to the extent that using options, futures contracts and options on futures contracts, purchasing or selling on a when-issued or forward commitment basis or using similar investment strategies may be deemed to constitute issuing a senior security. (7) Purchase or sell commodities or futures or options contracts with respect to physical commodities. This restriction shall not restrict such Fund from purchasing or selling, on a basis consistent with any restrictions contained in its then-current prospectus, any financial contracts or instruments which may be deemed commodities (including, by way of example and not by way of limitation, options, futures, and options on futures with respect, in each case, to interest rates, currencies, stock indices, bond indices or interest rate indices). The following non-fundamental investment restrictions apply to each Fund. 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. (3) With respect to Tax-Free Arizona Fund, Tax-Free California Fund, Tax-Free Florida Fund, Tax-Free Idaho Fund, Minnesota High-Yield Fund and Tax-Free New York Fund, make short sales of securities or maintain a short position for the account of such Fund, unless at all times when a short position is open it owns an equal amount of such securities or owns securities which, without payment of any further consideration, are convertible into or exchangeable for securities of the same issue as, and equal in amount to, the securities sold short. (4) With respect to Minnesota High-Yield Fund, write puts if, as a result, more than 50% of such Fund's assets would be required to be segregated to cover such puts. Except for Minnesota High-Yield Fund's policy with respect to borrowing, any investment restriction or limitation which involves a maximum percentage of securities or assets shall not be considered to be violated unless an excess over the percentage occurs immediately after an acquisition of securities or a utilization of assets and such excess results therefrom. Tax Exempt Obligations The term "Tax Exempt Obligations" refers to debt obligations issued by or on behalf of a state or territory or its agencies, instrumentalities, municipalities and political subdivisions, the interest payable on which is, in -7- the opinion of bond counsel, excludable from gross income for purposes of federal income taxation (except, in certain instances, the alternative minimum tax, depending upon the shareholder's tax status) and with respect to the Funds, other than the three national funds, personal income tax of the state specified in a Fund's name, if any. Tax-Exempt Obligations are generally issued to obtain funds for various public purposes, including the construction or improvement of a wide range of public facilities such as airports, bridges, highways, housing, hospitals, mass transportation, schools, streets and water and sewer works. Other public purposes for which Tax Exempt Obligations may be issued include refunding outstanding obligations, obtaining funds for general operating expenses and lending such funds to other public institutions and facilities. In addition, Tax Exempt Obligations may be issued by or on behalf of public bodies to obtain funds to provide for the construction, equipping, repair or improvement of housing facilities, convention or trade show facilities, airport, mass transit, industrial, port or parking facilities and certain local facilities for water supply, gas, electricity, sewage or solid waste disposal. Securities in which the Funds may invest, including Tax Exempt Obligations, are subject to the provisions of bankruptcy, insolvency, reorganization and other laws affecting the rights and remedies of creditors, such as the federal Bankruptcy Code, and laws, if any, which may be enacted by the United States Congress or a state's legislature extending the time for payment of principal or interest, or both, or imposing other constraints upon enforcement of such obligations within constitutional limitations. There is also the possibility that, as a result of litigation or other conditions, the power or ability of issuers to meet their obligations for the payment of interest on and principal of their Tax Exempt Obligations may be materially affected. From time to time, legislation has been introduced in the United States Congress for the purpose of restricting the availability of or eliminating the federal income tax exemption for interest on Tax Exempt Obligations, some of which have been enacted. Additional proposals may be introduced in the future which, if enacted, could affect the availability of Tax Exempt Obligations for investment by the Funds and the value of each Fund's portfolio. In such event, management of the Funds may discontinue the issuance of shares to new 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. 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. -8- 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. For each Fund, other than Minnesota High-Yield Fund, 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. 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. -9- Floating and Variable Rate Demand Notes Variable rate master demand notes, in which the Funds may invest, are unsecured demand notes that permit the indebtedness thereunder to vary and provide for periodic adjustments in the interest rate according to the terms of the instrument. Because master demand notes are direct lending arrangements between a Fund and the issuer, they are not normally traded. Although there is no secondary market in the notes, a Fund may demand payment of principal and accrued interest at any time. While the notes are not typically rated by credit rating agencies, issuers of variable amount master demand notes (which are normally manufacturing, retail, financial, and other business concerns) must satisfy the same criteria as set forth above for commercial paper. In determining average weighted portfolio maturity, a variable amount master demand note will be deemed to have a maturity equal to the period of time remaining until the principal amount can be recovered from the issuer through demand. A variable rate note is one whose terms provide for the adjustment of its interest rate on set dates and which, upon such adjustment, can reasonably be expected to have a market value that approximates its par value. A floating rate note is one whose terms provide for the adjustment of its interest rate whenever a specified interest rate changes and which, at any time, can reasonably be expected to have a market value that approximates its par value. Such notes are frequently not rated by credit rating agencies; however, unrated variable and floating rate notes purchased by a Fund will be determined by the Funds' Manager under guidelines established by the Funds' Board of Trustees to be of comparable quality at the time of purchase to rated instruments eligible for purchase under a Fund's investment policies. In making such determinations, the Manager will consider the earning power, cash flow and other liquidity ratios of the issuers of such notes (such issuers include financial, merchandising, bank holding and other companies) and will continuously monitor their financial condition. Although there may be no active secondary market with respect to a particular variable or floating rate note purchased by a Fund, such Fund may re-sell the note at any time to a third party. The absence of such an active secondary market, however, could make it difficult for a Fund to dispose of the variable or floating rate note involved in the event the issuer of the note defaulted on its payment obligations, and a Fund could, for this or other reasons, suffer a loss to the extent of the default. Variable or floating rate notes may be secured by bank letters of credit. With respect to Minnesota High-Yield Fund, variable and floating rate notes for which no readily available market exists will be purchased in an amount which, together with securities with legal or contractual restrictions on resale or for which no readily available market exists (including repurchase agreements providing for settlement more than seven days after notice), exceed 10% of such Fund's total assets only if such notes are subject to a demand feature that will permit that Fund to demand payment of the Principal within seven days after demand by such Fund. If not rated, such instruments must be found by Minnesota High-Yield Fund's Manager under guidelines established by such Fund's Board of Trustees, to be of comparable quality to instruments that are rated high quality. A rating may be relied upon only if it is provided by a nationally recognized statistical rating organization that is not affiliated with the issuer or guarantor of the instruments. Escrow Secured Bonds or Defeased Bonds Escrow secured bonds or defeased bonds are created when an issuer refunds in advance of maturity (or pre-refunds) some of its outstanding bonds and it becomes necessary or desirable to set aside funds for redemption or payment of the bonds at a future date or dates. In an advance refunding, the issuer will use the proceeds of a new bond issue to purchase high grade interest bearing debt securities which are then deposited in an irrevocable escrow account held by an escrow agent to secure all future payments of principal and interest of the advance refunded bond. Escrow secured bonds will often receive a triple A rating from S&P, Moody's and Fitch. The Tax-Free Insured Funds will purchase escrow secured bonds without additional insurance only where the escrow is invested in securities of the U.S. government or agencies or instrumentalities of the U.S. government. -10- State or Municipal Lease Obligations Municipal leases may take the form of a lease with an option to purchase, an installment purchase contract, a conditional sales contract or a participation certificate in any of the foregoing. In determining leases in which the Funds will invest, the Manager will evaluate the credit rating of the lessee and the terms of the lease. Additionally, the Manager may require that certain municipal leases be secured by a letter of credit or put arrangement with an independent financial institution. State or municipal lease obligations frequently have the special risks described below which are not associated with general obligation or revenue bonds issued by public bodies. The statutes of many states contain requirements with which such states and municipalities must comply whenever incurring debt. These requirements may include approving voter referendums, debt limits, interest rate limits and public sale requirements. Leases have evolved as a means for public bodies to acquire property and equipment without needing to comply with all of the statutory requirements for the issuance of debt. The debt-issuance limitations may be inapplicable for one or more of the following reasons: (1) the inclusion in many leases or contracts of "nonappropriation" clauses that provide that the public body has no obligation to make future payments under the lease or contract unless money is appropriated for such purpose by the appropriate legislative body on a yearly or other periodic basis (the "nonappropriation" clause); (2) the exclusion of a lease or conditional sales contract from the definition of indebtedness under relevant state law; or (3) the lease provides for termination at the option of the public body at the end of each fiscal year for any reason or, in some cases, automatically if not affirmatively renewed. If the lease is terminated by the public body for nonappropriation or another reason not constituting a default under the lease, the rights of the lessor or holder of a participation interest therein are limited to repossession of the leased property without any recourse to the general credit of the public body. The disposition of the leased property by the lessor in the event of termination of the lease might, in many cases, prove difficult or result in loss. Concentration In applying a Fund's policy on concentration: (i) utility companies will be divided according to their services, for example, gas, gas transmission, electric and telephone will each be considered a separate industry; (ii) financial service companies will be classified according to the end users of their services, for example, automobile finance, bank finance and diversified finance will each be considered a separate industry; and (iii) asset backed securities will be classified according to the underlying assets securing such securities. Concentration Policy Except with respect to Minnesota High-Yield Fund, although each Fund may invest 25% or more of its total assets in limited obligation bonds, no Fund will invest 25% or more of its total assets in limited obligation bonds payable only from revenues derived from facilities or projects within a single industry, except that the Funds may invest without limitation, in circumstances in which other appropriate available investments may be in limited supply, in housing, health care and/or utility obligations. Tax-Free Arizona Fund, Tax-Free California Fund, Tax-Free Florida Fund, Tax-Free Idaho Fund and Tax-Free New York Fund also may, under such circumstances, invest in transportation, education and/or industrial obligations. Minnesota High-Yield Fund has a fundamental policy that restricts it from investing 25% or more of its total assets in the securities of any industry, although, for purposes of this limitation, tax-exempt securities and U.S. government obligations are not considered to be part of any industry. Minnesota High-Yield Fund may invest 25% -11- or more of its total assets in industrial development revenue bonds. In addition, it is possible that such Fund from time to time will invest 25% or more of its total assets in a particular segment of the municipal bond market, such as housing, health care, utility, transportation, education or industrial obligations. In such circumstances, economic, business, political or other changes affecting one bond (such as proposed legislation affecting the financing of a project; shortages or price increases of needed materials; or a declining market or need for the project) might also affect other bonds in the same segment, thereby potentially increasing market or credit risk. Appropriate available investments may be in limited supply, from time to time in the opinion of the Manager, due to, among other things, each Fund's investment policy of investing primarily in obligations of its state (and the state's municipalities, other political subdivisions and public authorities) and of investing primarily in investment grade (high grade, with respect to the Tax-Free Insured Funds) securities. Additionally, the insurance policies of the Tax-Free Insured Funds may affect the appropriate available investment supply from time to time in the opinion of the Manager. Certain of the risks set forth below may be reduced or eliminated to the extent a Fund invests in insured Tax Exempt Obligations. Housing Obligations. Each Fund may invest, from time to time, 25% or more of its total assets in obligations of public bodies, including state and municipal housing authorities, issued to finance the purchase of single-family mortgage loans or the construction of multifamily housing projects. Economic and political developments, including fluctuations in interest rates, increasing construction and operating costs and reductions in federal housing subsidy programs, may adversely impact on revenues of housing authorities. Furthermore, adverse economic conditions may result in an increasing rate of default of mortgagors on the underlying mortgage loans. In the case of some housing authorities, inability to obtain additional financing also could reduce revenues available to pay existing obligations. Single-family mortgage revenue bonds are subject to extraordinary mandatory redemption at par at any time in whole or in part from the proceeds derived from prepayments of underlying mortgage loans and also from the unused proceeds of the issue within a stated period which may be within a year from the date of issue. Health Care Obligations. Each Fund may invest, from time to time, 25% or more of its total assets in obligations issued by public bodies, including state and municipal authorities, to finance hospital or health care facilities or equipment. The ability of any health care entity or hospital to make payments in amounts sufficient to pay maturing principal and interest obligations is generally subject to, among other things, the capabilities of its management, the confidence of physicians in management, the availability of physicians and trained support staff, changes in the population or economic condition of the service area, the level of and restrictions on federal funding of Medicare and federal and state funding of Medicaid, the demand for services, competition, rates, 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 -12- significant variations in earnings and traffic, due to increased competition, excess capacity, increased costs, deregulation, traffic constraints and other factors, and several airlines are experiencing severe financial difficulties. The revenues of issuers which derive their payments from bridge, road or tunnel toll revenues could be adversely affected by competition from toll-free vehicular bridges and roads and alternative modes of transportation. Such revenues could also be adversely affected by a reduction in the availability of fuel to motorists or significant increases in the costs thereof. Education Obligations. Certain Funds may invest, from time to time, 25% or more of their total assets in obligations of issuers which are, or which govern the operation of, schools, colleges and universities and whose revenues are derived mainly from tuition, dormitory revenues, grants and endowments. General problems of such issuers include the prospect of a declining percentage of the population consisting of college aged individuals, possible inability to raise tuition and fees sufficiently to cover increased operating costs, the uncertainty of continued receipt of federal grants, state funding and alumni support, and government legislation or regulations which may adversely affect the revenues or costs of such issuers. Industrial Revenue Obligations. Certain Funds may invest, from time to time, 25% or more of their total assets in obligations issued by public bodies, including state and municipal authorities, to finance the cost of acquiring, constructing or improving various industrial projects. These projects are usually operated by corporate entities. Issuers are obligated only to pay amounts due on the bonds to the extent that funds are available from the unexpended proceeds of the bonds or receipts or revenues of the issuer under an arrangement between the issuer and the corporate operator of a project. The arrangement may be in the form of a lease, installment sale agreement, conditional sale agreement or loan agreement, but in each case the payments of the issuer are designed to be sufficient to meet the payments of amounts due on the bonds. Regardless of the structure, payment of bonds is solely dependent upon the creditworthiness of the corporate operator of the project and, if applicable, the corporate guarantor. Corporate operators or guarantors may be affected by many factors which may have an adverse impact on the credit quality of the particular company or industry. These include cyclicality of revenues and earnings, regulatory and environmental restrictions, litigation resulting from accidents or deterioration resulting from leveraged buy-outs or takeovers. The bonds may be subject to special or extraordinary redemption provisions which may provide for redemption at par or accredited value, plus, if applicable, a premium. In applying Tax-Free California Insured, Tax-Free Florida Insured, Tax-Free Florida, Tax-Free Kansas, Tax-Free Missouri Insured, Tax-Free New Mexico and Tax-Free Oregon Funds' policy on concentration: (i) utility companies will be divided according to their services, for example, gas, gas transmission, electric and telephone will each be considered a separate industry; (ii) financial service companies will be classified according to the end users of their services, for example, automobile finance, bank finance and diversified finance will each be considered a separate industry; and (iii) asset backed securities will be classified according to the underlying assets securing such securities. 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. -13- Zero Coupon Bonds and Pay-in-Kind Bonds The Funds may invest in zero-coupon and payment-in-kind Tax-Exempt Obligations. Zero-coupon securities are debt obligations that do not entitle the holder to any periodic payment of interest prior to maturity or a specified date when the securities begin paying current interest. They are issued and traded at discount from their face amounts or par value, which discount varies depending on the time remaining until cash payments begin, prevailing interest rates, liquidity of the security and the perceived credit quality of the issuer. The Code requires that regulated investment companies distribute at least 90% of their net investment income each year, including tax-exempt and non-cash income. Accordingly, although the Fund will receive no coupon payments on zero-coupon securities prior to their maturity, the Fund is required, in order to maintain its desired tax treatment, to include in its distributions to shareholders in each year any income attributable to zero-coupon securities that is in excess of 10% of the Fund's net investment income in that year. The Fund may be required to borrow or to liquidate portfolio securities at a time that it otherwise would not have done so in order to make such distributions. Payment-in-kind securities are securities that pay interest through the issuance of additional securities. Such securities generally are more volatile in response to changes in interest rates and are more speculative investments than are securities that pay interest periodically in cash. Taxable Obligations The Funds may invest to a limited extent in obligations and instruments, the interest on which is includable in gross income for purposes of federal and state income taxation. Government Obligations The Funds may invest in securities issued or guaranteed by the U.S. government or its agencies or instrumentalities. These securities include a variety of Treasury securities, which differ in their interest rates, maturities and times of issuance. Treasury Bills generally have maturities of one year or less; Treasury Notes generally have maturities of one to ten years; and Treasury Bonds generally have maturities of greater than ten years. Some obligations issued or guaranteed by U.S. government agencies and instrumentalities, such as Government National Mortgage Association pass-through certificates, are supported by the full faith and credit of the U.S. Treasury; other obligations, such as those of the Federal Home Loan Banks, are secured by the right of the issuer to borrow from the Treasury; other obligations, such as those issued by Fannie Mae, are supported by the discretionary authority of the U.S. government to purchase certain obligations of the agency or instrumentality; and other obligations, such as those issued by the Student Loan Marketing Association, are supported only by the credit of the instrumentality itself. Although the U.S. government provides financial support to such U.S. government-sponsored agencies or instrumentalities, no assurance can be given that it will always do so, since it is not so obligated by law. The Funds will invest in such securities only when the Manager is satisfied that the credit risk with respect to the issuer is minimal. Repurchase Agreements The Funds may invest in repurchase agreements. A repurchase agreement is a short-term investment by which the purchaser acquires ownership of a debt security and the seller agrees to repurchase the obligation at a future time and set price, thereby determining the yield during the purchaser's holding period. Should an issuer of a repurchase agreement fail to repurchase the underlying security, the loss to a Fund, if any, would be the difference between the repurchase price and the market value of the security. Each Fund will limit its investments in repurchase agreements to those which the Manager, under the guidelines of the Board of Trustees, determines to present minimal credit risks and which are of high quality. In addition, each Fund must have collateral of at least 102% of the repurchase price, including the portion representing a Fund's yield under such agreements which is monitored on a daily basis. The Funds' custodian will hold the securities underlying any repurchase agreement or such securities will be part of the Federal Reserve Book Entry System. The market value of the collateral underlying the repurchase agreement will be determined on each business day. If at any time the market value of the collateral falls below the repurchase price of the repurchase agreement (including any accrued interest), the obligor under the agreement will promptly furnish additional collateral to the Funds= custodian (so the total collateral is an amount at least equal to the repurchase price plus accrued interest). -14- The funds in the Delaware Investments family have obtained an exemption from the joint-transaction prohibitions of Section 17(d) of the 1940 Act to allow funds in the Delaware Investments family jointly to invest cash balances. The Funds may invest cash balances in a joint repurchase agreement in accordance with the terms of the Order and subject generally to the conditions described above. Reverse Repurchase Agreements Certain Funds (Tax-Free Arizona Fund, Tax-Free California Fund, Tax-Free Florida Fund, Tax-Free Idaho Fund, Minnesota High-Yield Fund and Tax-Free New York Fund) may engage in "reverse repurchase agreements" with banks and securities dealers with respect to not more than 10% of the Fund's total assets. Reverse repurchase agreements are ordinary repurchase agreements in which the Fund is the seller of, rather than the investor in, securities and agrees to repurchase them at an agreed upon time and price. Use of a reverse repurchase agreement may be preferable to a regular sale and later repurchase of the securities because it avoids certain market risks and transaction costs. Because certain of the incidents of ownership of the security are retained by the Fund, reverse repurchase agreements are considered a form of borrowing by the Fund from the buyer, collateralized by the security. At the time a Fund enters into a reverse repurchase agreement, cash or liquid having a value sufficient to make payments for the securities to be repurchased will be segregated, and will be marked to market daily and maintained throughout the period of the obligation. Reverse repurchase agreements may be used as a means of borrowing for investment purposes subject to the 10% limitation set forth above. This speculative technique is referred to as leveraging. Leveraging may exaggerate the effect on net asset value of any increase or decrease in the market value of the Fund's portfolio. Money borrowed for leveraging will be subject to interest costs which may or may not be recovered by income from or appreciation of the securities purchased. Because the Funds do not currently intend to utilize reverse repurchase agreements in excess of 10% of total assets, the Funds believe the risks of leveraging due to use of reverse repurchase agreements to principal are reduced. The Manager believes that the limited use of leverage may facilitate the Funds' ability to provide current income without adversely affecting the Funds' ability to preserve capital. 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 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 -15- writing put options are strategies whose returns tend to rise and fall together with securities prices and can causes losses if prices fall. If securities prices remain unchanged over time option writing strategies tend to be profitable, while option buying strategies tend to decline in value. The ability of Minnesota High-Yield Fund to engage in options is discussed separately, below. Writing Options. The Funds may write (i.e. sell) covered put and call options with respect to the securities in which they may invest. By writing a call option, a Fund becomes obligated during the term of the option to deliver the securities underlying the option upon payment of the exercise price if the option is exercised. The writer of an option may have no control over when the underlying securities must be sold, in the case of a call option, or purchased, in the case of a put option; the writer may be assigned an exercise notice at any time prior to the termination of the obligation. By writing a put option, a Fund becomes obligated during the term of the option to purchase the securities underlying the option at the exercise price if the option is exercised. With respect to put options written by any Fund, there will have been a predetermination that acquisition of the underlying security is in accordance with the investment objective of such Fund. "Covered options" means that so long as a Fund is obligated as the writer of a call option, it will own the underlying securities subject to the option (or comparable securities satisfying the cover requirements of securities exchanges). A Fund will be considered "covered" with respect to a put option it writes if, so long as it is obligated as the writer of a put option, it deposits and maintains with its custodian cash, U.S. government securities or other liquid high-grade debt obligations having a value equal to or greater than the exercise price of the option. Through the writing of call or put options, a Fund may obtain a greater current return than would be realized on the underlying securities alone. A Fund receives premiums from writing call or put options, which it retains whether or not the options are exercised. By writing a call option, a Fund might lose the potential for gain on the underlying security while the option is open, and by writing a put option, a Fund might become obligated to purchase the underlying security for more than its current market price upon exercise. Purchasing Options. The Funds may purchase put options in order to protect portfolio holdings in an underlying security against a decline in the market value of such holdings. Such protection is provided during the life of the put because a Fund may sell the underlying security at the put exercise price, regardless of a decline in the underlying security's market price. Any loss to a Fund is limited to the premium paid for, and transaction costs paid in connection with, the put plus the initial excess, if any, of the market price of the underlying security over the exercise price. However, if the market price of such security increases, the profit a Fund realizes on the sale of the security will be reduced by the premium paid for the put option less any amount for which the put is sold. A Fund may wish to protect certain portfolio securities against a decline in market value at a time when no put options on those particular securities are available for purchase. A Fund may therefore purchase a put option on securities other than those it wishes to protect even though it does not hold such other securities in its portfolio. Each of the Funds may also purchase call options. During the life of the call option, a Fund may buy the underlying security at the call exercise price regardless of any increase in the underlying security's market price. In order for a call option to be profitable, the market price of the underlying security must rise sufficiently above the exercise price to cover the premium and transaction costs. By using call options in this manner, a Fund will reduce any profit it might have realized had it bought the underlying security at the time it purchased the call option by the premium paid for the call option and by transaction costs. -16- Minnesota High-Yield Fund. Minnesota High-Yield Fund may purchase call options, write call options on a covered basis, write secured put options and purchase put options on a covered basis only, and will not engage in option writing strategies for speculative purposes. The Fund may invest in options that are either listed on a national securities exchange (an "Exchange") or traded over-the-counter. The Fund may write covered call options from time to time on such portion of its portfolio, without limit, as the Manager determines is appropriate in seeking to obtain the Fund's investment objective. The Fund may purchase call options to the extent that premiums paid by the Fund do not aggregate more than 2% of the Fund's total assets. The Fund may liquidate such a position by effecting a closing transaction. The Fund also may invest up to 2% of its total assets in the purchase of put options. The Fund will, at all times during which it holds a put option, own the security covered by such option. The Fund may sell a put option which it previously purchased prior to the sale of the underlying options. The Fund may sell a put option purchased on individual securities and may enter into closing transactions. Minnesota High-Yield Fund may also write put options on a secured basis which means that the Fund will maintain in a segregated account with its custodian, cash or U.S. government securities in an amount not less than the exercise price of the option at all times during the option period. The amount of cash or U.S. government securities held in the segregated account will be adjusted on a daily basis to reflect changes in the market value of the securities covered by the put option written by the Fund. Secured put options will generally be written in circumstances where the Manager wishes to purchase the underlying security for the Fund's portfolio at a price lower than the current market price of the security. In such event, the Fund would write a secured put option at an exercise price which, reduced by the premium received on the option, reflects the lower price it is willing to pay. The Fund may effect closing transactions with respect to put options it previously wrote. The risks associated with Minnesota High-Yield Fund's options transactions are the same as those discussed above for Tax-Free Funds, Insured Funds and Tax-Free Minnesota Intermediate Fund. Securities Index Option Trading. The Funds, other than Minnesota High-Yield Fund, may purchase and write put and call options on securities indexes. Options on securities indexes are similar to options on securities except that, rather than the right to take or make delivery of a security at a specified price, an option on an index gives the holder the right to receive, upon exercise of the option, an amount of cash if the closing level of the index upon which the option is based is greater than, in the case of a call, or less than, in the case of a put, the exercise price of the option. The writer of the option is obligated to make delivery of this amount. The effectiveness of purchasing or writing index options as a hedging technique depends upon the extent to which price movements in a Fund's portfolio correlate with price movements of the index selected. Because the value of an index option depends upon movements in the level of the index rather than the price of a particular security, whether a Fund will realize a gain or loss from the purchase or writing of options on an index depends upon movements in the level of prices in the relevant underlying securities markets generally or, in the case of certain indexes, in an industry market segment, rather than movements in the price of a particular security. Accordingly, successful use by a Fund of options on security indexes will be subject to the Manager's ability to predict correctly movements in the direction of the stock market or interest rates market generally or of a particular industry. This requires different skills and techniques than predicting changes in the price of individual securities. In the event the Manager is unsuccessful in predicting the movements of an index, a Fund could be in a worse position than had no hedge been attempted. Because exercises of index options are settled in cash, a Fund cannot determine the amount of its settlement obligations in advance and, with respect to call writing, cannot provide in advance for its potential settlement obligations by acquiring and holding the underlying securities. When a Fund -17- 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. Over the counter options are subject to each Fund's 15% illiquid investment limitation. 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 -18- 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. Although each Fund believes that the use of futures contracts and options thereon will benefit it, if the Manager's judgment about the general direction of securities prices or interest rates is incorrect, a Fund's overall performance may be poorer than if it had not entered into futures contracts or purchased or sold options thereon. For example, if a Fund seeks to hedge against the possibility of an increase in interest rates, which generally would adversely affect the price of fixed-income securities held in its portfolio, and interest rates decrease instead, such Fund will lose part or all of the benefit of the increased value of its assets which it has hedged due to the decrease in interest rates because it will have offsetting losses in its futures positions. In addition, particularly in such situations, a Fund may have to sell assets from its portfolio to meet daily margin requirements at a time when it may be disadvantageous to do so. Liquidity of Futures Contracts. A Fund may elect to close some or all of its contracts prior to expiration. The purpose of making such a move would be to reduce or eliminate the hedge position held by that Fund. A Fund may close its positions by taking opposite positions. Final determinations of variation margin are then made, additional cash as required is paid by or to a Fund, and that Fund realizes a loss or a gain. Positions in futures contracts may be closed only on an exchange or board of trade providing a secondary market for such futures contracts. Although the Funds intend to enter into futures contracts only on exchanges or boards of trade where there appears to be an active secondary market, there is no assurance that a liquid secondary market will exist for any particular contract at any particular time. In addition, most domestic futures exchanges and boards of trade limit the amount of fluctuation permitted in futures contract prices during a single trading day. The daily limit establishes the maximum amount that the price of a futures contract may vary either up or down from the previous day's settlement price at the end of a trading session. Once the daily limit has been reached in a particular contract, no trades may be made that day at a price beyond that limit. The daily limit governs only price movement during a particular trading day and therefore does not limit potential losses because the limit may prevent the liquidation of unfavorable positions. It is possible that futures contract prices could move to the daily limit for several consecutive trading days with little or no trading, thereby preventing prompt liquidation of futures positions and subjecting some futures traders to substantial losses. In such event, it will not be possible to close a futures position and, in the event of adverse price movements, a Fund would be required to make daily cash payments of variation margin. In such circumstances, an increase in the value of the portion of the portfolio being hedged, if any, may partially or completely offset losses -19- 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. 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 -20- 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. 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. -21- Illiquid Investments Each Fund is permitted to invest up to 15% of the value of its net assets in illiquid investments. For certain Funds, this policy is fundamental. See Investment Restrictions above. An investment is generally deemed to be "illiquid" if it cannot be disposed of within seven days in the ordinary course of business at approximately the amount at which the investment company is valuing the investment. "Restricted securities" are securities which were originally sold in private placements and which have not been registered under the Securities Act of 1933 (the A1933 Act@). Such securities generally have been considered illiquid by the staff of the Securities and Exchange Commission (the "SEC"), since such securities may be resold only subject to statutory restrictions and delays or if registered under the 1933 Act. However, the SEC has acknowledged that a market exists for certain restricted securities (for example, securities qualifying for resale to certain "qualified institutional buyers" pursuant to Rule 144A under the 1933 Act, certain forms of interest-only and principal-only, mortgaged-backed U.S. government securities and commercial paper issued pursuant to the private placement exemption of Section 4(2) of the 1933 Act). As a fundamental policy (nonfundamental with respect to Minnesota High-Yield Fund), the Funds may invest without limitation in these forms of restricted securities if such securities are deemed by the Manager to be liquid in accordance with standards established by the Funds= Board of Trustees. Minnesota High-Yield Fund, however, is subject to a 10% limit with respect to certain restricted floating or variable rate demand notes. Under these guidelines, the Manager must consider, among other things, (a) the frequency of trades and quotes for the security, (b) the number of dealers willing to purchase or sell the security and the number of other potential purchasers, (c) dealer undertakings to make a market in the security, and (d) the nature of the security and the nature of the marketplace trades (for example, the time needed to dispose of the security, the method of soliciting offers and the mechanics of transfer.) If the Manager determines that a Rule 144A Security that was previously determined to be liquid is no longer liquid and, as a result, a Fund's holdings of illiquid securities exceed such Fund's 15% limit on investment in such securities, the Manager will determine what action to take to ensure that such Fund continues to adhere to such limitation. At the present time, it is not possible to predict with accuracy how the markets for certain restricted securities will develop. Investing in restricted securities could have the effect of increasing the level of a Fund's illiquidity to the extent that qualified purchasers of the securities become, for a time, uninterested in purchasing these securities. As 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. 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. -22- Because Portfolio Insurance coverage terminates upon the sale of an insured security from a Fund's portfolio, such insurance does not have an effect on the resale value of the security. Therefore, unless a Fund elects to purchase Secondary Market Insurance with respect to such securities or such securities are already covered by Primary Insurance, it generally will retain any such securities insured by Portfolio Insurance which are in default or in significant risk of default, and will place a value on the insurance equal to the difference between the market value of the defaulted security and the market value of similar securities which are not in default. The Insured Funds are authorized to obtain Portfolio Insurance from insurers that have obtained a claims-paying ability rating of "AAA" from S&P or "Aaa" (or a short-term rating of "MIG-1") from Moody's, including AMBAC Indemnity Corporation ("AMBAC"), Municipal Bond Investors Assurance Corporation ("MBIA"), Financial Guaranty Insurance Company ("FGIC") and Financial Security Assurance, Inc. ("FSA"). A Moody's insurance claims-paying ability rating is an opinion of the ability of an insurance company to repay punctually senior policyholder obligations and claims. An insurer with an insurance claims-paying ability rating of Aaa is adjudged by Moody's to be of the best quality. In the opinion of Moody's, the policy obligations of an insurance company with an insurance claims-paying ability rating of Aaa carry the smallest degree of credit risk and, while the financial strength of these companies is likely to change, such changes as can be visualized are most unlikely to impair the company's fundamentally strong position. An S&P insurance claims-paying ability rating is an assessment of an operating insurance company's financial capacity to meet 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, 1996, AMBAC's total equity capital (GAAP) was $1,615,016,000, up 15% from December 31, 1995 and as of December 31, 1997, AMBAC's total equity capital (GAAP) was $1,872,000,000, up 16% from December 31, 1996. For the six months ended June 30, 1999, total equity capital (GAAP) amounted to $________________ (unaudited). -23- As of December 31, 1996, MBIA Inc. had total equity capital (GAAP) of $2,479,697,000, up 11% from December 31, 1995 and as of December 31, 1997, MBIA had total equity capital (GAAP) of $3,048,000,000 up 23% from December 31, 1996. For the six months ended June 30, 1999, total equity capital (GAAP) amounted to $________________ (unaudited). As of December 31, 1996, FGIC's total equity capital (GAAP) was $1,684,400,000, up 8.8% from December 31, 1995 and as of December 31, 1997, FGIC's total equity capital (GAAP) amounted to $1,953,000,000, up 12% from December 31, 1996. For the six months ended June 30, 1999, total equity capital (GAAP) amounted to $___________________ (unaudited). As of December 31, 1996, FSA's total equity capital (GAAP) was $801,260,000, up 3% from December 31, 1995 and as of December 31, 1997, FSA's total equity capital (GAAP) was $882,000,000, up 10% from December 31, 1996. For the six months ended June 30, 1999, total equity capital (GAAP) was $_______________ (unaudited). None of AMBAC, MBIA, FGIC and FSA or any associate thereof, has any material business relationship, direct or indirect, with the Funds. AMBAC, MBIA, FGIC and FSA are subject to regulation by the department of insurance in each state in which they are qualified to do business. Such regulation however, is not a guarantee that any of AMBAC, MBIA, FGIC and FSA will be able to perform on its contractual insurance in the event a claim should be made thereunder at some time in the future. 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. -24- PERFORMANCE INFORMATION From time to time, each Fund may state total return for its Classes in advertisements and other types of literature. Any statement of total return performance data for a Class will be accompanied by information on the average annual compounded rate of return for that Class over, as relevant, the most recent one-, five- and ten-year, or life of fund periods, as applicable. Each Fund may also advertise aggregate and average total return information for its Classes over additional periods of time. In presenting performance information for Class A Shares, the Limited CDSC or other CDSC, applicable only to certain redemptions of those shares will not be deducted from any computation of total return. See the Prospectus for the Classes for a description of the Limited CDSC and the limited instances in which it applies. All references to a CDSC in this Performance Information section will apply to Class B Shares or Class C Shares. The average annual total rate of return for a Class is based on a hypothetical $1,000 investment that includes capital appreciation and depreciation during the stated periods. The following formula will be used for the actual computations: n P(1+T) = ERV Where P = a hypothetical initial purchase order of $1,000 from which, in the case of Class A Shares only, the maximum front-end sales charge is deducted; T = average annual total return; n = number of years; and ERV = redeemable value of the hypothetical $1,000 purchase at the end of the period after the deduction of the applicable CDSC, if any, with respect to Class B Shares and Class C Shares. Aggregate or cumulative total return is calculated in a similar manner, except that the results are not annualized. Each calculation assumes the maximum front-end sales charge, if any, is deducted from the initial $1,000 investment at the time it is made and that all distributions are reinvested at net asset value, and with respect to Class B Shares and Class C Shares, reflects the deduction of the CDSC that would be applicable upon complete redemption of such shares. In addition, each Fund may present total return information that does not reflect the deduction of the maximum front-end sales charge or any applicable CDSC. -25- Each Fund may also state total return performance for its Classes in the form of an average annual return. This average annual return figure will be computed by taking the sum of a Class' annual returns, then dividing that figure by the number of years in the overall period indicated. The computation will reflect the impact of the maximum front-end sales charge or CDSC, if any, paid on the illustrated investment amount against the first year's return. From time to time, each Fund may quote actual total return performance for its Classes in advertising and other types of literature compared to indices or averages of alternative financial products available to prospective investors. For example, the performance comparisons may include the average return of various bank instruments, some of which may carry certain return guarantees offered by leading banks and thrifts as monitored by Bank Rate Monitor, and those of generally-accepted corporate bond and government security price indices of various durations prepared by Lehman Brothers and Salomon Brothers, Inc. These indices are not managed for any investment goal. The performance, as shown below, is the average annual total return quotations of each Class of each Fund through August 31, 1999, computed as described above. The average annual total return for Class A Shares at offer reflects the maximum front-end sales charge of 3.75% with respect to Tax-Free Funds and Insured Funds and 2.75% with respect to Tax-Free Minnesota Intermediate Fund paid on the purchase of shares. The average annual total return for Class A Shares at net asset value (NAV) does not reflect the payment of any front-end sales charge. The average annual return for Class B Shares and Class C Shares including deferred sales charge reflects the deduction of the applicable CDSC that would be paid if the shares were redeemed at August 31, 1999. The average annual total return for Class B Shares and Class C Shares excluding deferred sales charge assumes the shares were not redeemed at August 31, 1999 and therefore does not reflect the deduction of a CDSC. Securities prices fluctuated during the periods covered and past results should not be considered as representative of future performance. -26- Average Annual Total Return
- --------------------------------------------------------------------------------------------------------------------------- Class A Class A Class B Class B Class C Class C (at offer) (at NAV) (including (excluding (including (excluding CDSC)(2) CDSC) CDSC)(3) CDSC) - --------------------------------------------------------------------------------------------------------------------------- Tax-Free Arizona Fund (1) - --------------------------------------------------------------------------------------------------------------------------- 1 year ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 3 years ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- Life of Fund - --------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------- Tax-Free Arizona Insured Fund(1) - --------------------------------------------------------------------------------------------------------------------------- 1 year ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 3 years ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 5 years ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- Life of Fund - --------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------- Tax-Free California Fund - --------------------------------------------------------------------------------------------------------------------------- 1 year ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 3 years ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- Life of Fund - --------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------- Tax-Free California Insured Fund - --------------------------------------------------------------------------------------------------------------------------- 1 year ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 3 years ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 5 years ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- Life of Fund - ---------------------------------------------------------------------------------------------------------------------------
(1) 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 expense caps. (2) Effective June 9, 1997, the CDSC schedule for Class B Shares changed as follows: (i) 4% if shares are redeemed within two years of purchase; (ii) 3% if shares are redeemed during the third or fourth year following purchase; (iii) 2% if shares are redeemed during the fifth year following purchase; (iv) 1% if shares are redeemed during the sixth year following purchase; and (v) 0% thereafter. The above figures have been calculated using this new schedule. (3) Effective June 9, 1997, the CDSC applicable to Class C Shares is 1.00% if shares are redeemed within 12 months of purchase. The above figures have been calculated using this new schedule. -27- Average Annual Total Return
- --------------------------------------------------------------------------------------------------------------------------- Class A Class A Class B Class B Class C Class C (at offer) (at NAV) (including (excluding (including (excluding CDSC)(2) CDSC) CDSC)(3) CDSC) - --------------------------------------------------------------------------------------------------------------------------- Tax-Free Colorado Fund (1) - --------------------------------------------------------------------------------------------------------------------------- 1 year ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 3 years ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 5 years ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 10 years ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- Life of Fund - --------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------- Tax-Free Florida Fund(1) - --------------------------------------------------------------------------------------------------------------------------- 1 year ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 3 years ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- Life of Fund - --------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------- Tax-Free Florida Insured Fund (1) - --------------------------------------------------------------------------------------------------------------------------- 1 year ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 3 years ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 5 years ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- Life of Fund - --------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------- Tax-Free Idaho Fund (1) - --------------------------------------------------------------------------------------------------------------------------- 1 year ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 3 years ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- Life of Fund - ---------------------------------------------------------------------------------------------------------------------------
(1) 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 expense caps. (2) Effective June 9, 1997, the CDSC schedule for Class B Shares changed as follows: (i) 4% if shares are redeemed within two years of purchase; (ii) 3% if shares are redeemed during the third or fourth year following purchase; (iii) 2% if shares are redeemed during the fifth year following purchase; (iv) 1% if shares are redeemed during the sixth year following purchase; and (v) 0% thereafter. The above figures have been calculated using this new schedule. (3) Effective June 9, 1997, the CDSC applicable to Class C Shares is 1.00% if shares are redeemed within 12 months of purchase. The above figures have been calculated using this new schedule. -28- Average Annual Total Return
- --------------------------------------------------------------------------------------------------------------------------- Class A Class A Class B Class B Class C Class C (at offer) (at NAV) (including (excluding (including (excluding CDSC)(2) CDSC) CDSC)(3) CDSC) - --------------------------------------------------------------------------------------------------------------------------- Tax-Free Iowa Fund (1) - --------------------------------------------------------------------------------------------------------------------------- 1 year ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 3 years ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 5 years ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- Life of Fund - --------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------- Tax-Free Kansas Fund(1) - --------------------------------------------------------------------------------------------------------------------------- 1 year ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 3 years ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 5 years ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- Life of Fund - --------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------- Tax-Free Minnesota Fund(1) - --------------------------------------------------------------------------------------------------------------------------- 1 year ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 3 years ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 5 years ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 10 years ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 15 years ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- Life of Fund - ---------------------------------------------------------------------------------------------------------------------------
(1) 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 expense caps. (2) Effective June 9, 1997, the CDSC schedule for Class B Shares changed as follows: (i) 4% if shares are redeemed within two years of purchase; (ii) 3% if shares are redeemed during the third or fourth year following purchase; (iii) 2% if shares are redeemed during the fifth year following purchase; (iv) 1% if shares are redeemed during the sixth year following purchase; and (v) 0% thereafter. The above figures have been calculated using this new schedule. (3) Effective June 9, 1997, the CDSC applicable to Class C Shares is 1.00% if shares are redeemed within 12 months of purchase. The above figures have been calculated using this new schedule. -29- Average Annual Total Return
- --------------------------------------------------------------------------------------------------------------------------- Class A Class A Class B Class B Class C Class C (at offer) (at NAV) (including (excluding (including (excluding CDSC)(2) CDSC) CDSC)(3) CDSC) - --------------------------------------------------------------------------------------------------------------------------- Minnesota Insured Fund (1) - --------------------------------------------------------------------------------------------------------------------------- 1 year ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 3 years ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 5 years ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 10 years ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- Life of Fund - --------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------- Tax-Free Minnesota Intermediate Fund(1) - --------------------------------------------------------------------------------------------------------------------------- 1 year ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 3 years ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 5 years ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 10 years ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- Life of Fund - --------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------- Minnesota High-Yield Municipal Bond Fund(1) - --------------------------------------------------------------------------------------------------------------------------- 1 year ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 3 years ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 5 years ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 10 years ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 15 years ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- Life of Fund - ---------------------------------------------------------------------------------------------------------------------------
(1) 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 expense caps. (2) Effective June 9, 1997, the CDSC schedule for Class B Shares changed as follows: (i) 4% if shares are redeemed within two years of purchase; (ii) 3% if shares are redeemed during the third or fourth year following purchase; (iii) 2% if shares are redeemed during the fifth year following purchase; (iv) 1% if shares are redeemed during the sixth year following purchase; and (v) 0% thereafter. Effective June 9, 1997, the CDSC schedule for Class B Shares of Tax-Free Minnesota Intermediate Fund changed as follows: (i) 2% if shares are redeemed within two years of purchase; (ii) 1% if shares are redeemed during the third year following purchase; and (iii) 0% thereafter. 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. -30- Average Annual Total Return
- --------------------------------------------------------------------------------------------------------------------------- Class A Class A Class B Class B Class C Class C (at offer) (at NAV) (including (excluding (including (excluding CDSC)(2) CDSC) CDSC)(3) CDSC) - --------------------------------------------------------------------------------------------------------------------------- Tax-Free Missouri Insured Fund (1) - --------------------------------------------------------------------------------------------------------------------------- 1 year ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 3 years ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 5 years ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- Life of Fund - --------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------- Tax-Free New Mexico Fund(1) - --------------------------------------------------------------------------------------------------------------------------- 1 year ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 3 years ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 5 years ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- Life of Fund - --------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------- Tax-Free New York Fund(1) - --------------------------------------------------------------------------------------------------------------------------- 1 year ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 3 years ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 5 years ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 10 years ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- Life of Fund - ---------------------------------------------------------------------------------------------------------------------------
(1) 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 expense caps. (2) Effective June 9, 1997, the CDSC schedule for Class B Shares changed as follows: (i) 4% if shares are redeemed within two years of purchase; (ii) 3% if shares are redeemed during the third or fourth year following purchase; (iii) 2% if shares are redeemed during the fifth year following purchase; (iv) 1% if shares are redeemed during the sixth year following purchase; and (v) 0% thereafter. (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. -31- Average Annual Total Return
- --------------------------------------------------------------------------------------------------------------------------- Class A Class A Class B Class B Class C Class C (at offer) (at NAV) (including (excluding (including (excluding CDSC)(2) CDSC) CDSC)(3) CDSC) - --------------------------------------------------------------------------------------------------------------------------- Tax-Free North Dakota Fund (1) - --------------------------------------------------------------------------------------------------------------------------- 1 year ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 3 years ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 5 years ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- Life of Fund - --------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------- Tax-Free Oregon Insured Fund(1) - --------------------------------------------------------------------------------------------------------------------------- 1 year ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 3 years ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 5 years ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- Life of Fund - --------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------- Tax-Free Wisconsin Fund(1) - --------------------------------------------------------------------------------------------------------------------------- 1 year ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 3 years ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 5 years ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 10 years ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- Life of Fund - ---------------------------------------------------------------------------------------------------------------------------
(1) 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 expense caps. (2) Effective June 9, 1997, the CDSC schedule for Class B Shares changed as follows: (i) 4% if shares are redeemed within two years of purchase; (ii) 3% if shares are redeemed during the third or fourth year following purchase; (iii) 2% if shares are redeemed during the fifth year following purchase; (iv) 1% if shares are redeemed during the sixth year following purchase; and (v) 0% thereafter. (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. -32- Each Fund may also quote its respective Classes' current yield in advertisements and investor communications. The yield computation is determined by dividing the net investment income per share earned during the period by the maximum offering price per share on the last day of the period and annualizing the resulting figure, according to the following formula: a-b 6 YIELD = 2[(-------- + 1) -- 1] cd Where: a = dividends and interest earned during the period; b = expenses accrued for the period (net of payments); c = the average daily number of shares outstanding during the period that were entitled to receive dividends; and d = the maximum offering price per share on the last day of the period. The above formula will be used in calculating quotations of yield for each Class, based on specified 30-day periods identified in advertising by the Funds. Using this formula, the yields for the Funds for the 30-day period ended August 31, 1999 were as follows: 30-Day Yield at 8/31/99* ---------------------------- Tax-Free Arizona Insured Fund - Class A Tax-Free Arizona Insured Fund - Class B Tax-Free Arizona Insured Fund - Class C Tax-Free Arizona Fund - Class A Tax-Free Arizona Fund - Class B Tax-Free Arizona Fund - Class C Tax-Free California Insured Fund - Class A Tax-Free California Insured Fund - Class B Tax-Free California Insured Fund - Class C Tax-Free California Fund - Class A Tax-Free California Fund - Class B Tax-Free California Fund - Class C Tax-Free Colorado Fund - Class A Tax-Free Colorado Fund - Class B Tax-Free Colorado Fund - Class C * 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 fee waivers and expense payments. -33- 30-Day Yield at 8/31/99* ---------------------------- Tax-Free Florida Insured Fund - Class A Tax-Free Florida Insured Fund - Class B Tax-Free Florida Fund - Class A Tax-Free Florida Fund - Class B Tax-Free FloridaFund - Class C Tax-Free Idaho Fund - Class A Tax-Free Idaho Fund - Class B Tax-Free Idaho Fund - Class C Tax-Free Iowa Fund - Class A Tax-Free Iowa Fund - Class B Tax-Free Iowa Fund - Class C Tax-Free Kansas Fund - Class A Tax-Free Kansas Fund - Class B Tax-Free Kansas Fund - Class C Minnesota Insured Fund - Class A Minnesota Insured Fund - Class B Minnesota Insured Fund - Class C Tax-Free Minnesota Intermediate Fund - Class A Tax-Free Minnesota Intermediate Fund - Class B Tax-Free Minnesota Intermediate Fund - Class C Tax-Free Minnesota Fund - Class A Tax-Free Minnesota Fund - Class B Tax-Free Minnesota Fund - Class C Minnesota High-Yield Fund - Class A Minnesota High-Yield Fund - Class B Minnesota High-Yield Fund - Class C Tax-Free Missouri Insured Fund - Class A Tax-Free Missouri Insured Fund - Class B Tax-Free Missouri Insured Fund - Class C Tax-Free New Mexico Fund - Class A Tax-Free New Mexico Fund - Class B Tax-Free New Mexico Fund - Class C Tax-Free New York Fund - Class A Tax-Free New York Fund - Class B Tax-Free New York Fund - Class C Tax-Free North Dakota Fund - Class A Tax-Free North Dakota Fund - Class B Tax-Free North Dakota Fund - Class C * 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 fee waivers and expense payments. -34- 30-Day Yield at 8/31/99* ---------------------------- Tax-Free Oregon Insured Fund - Class A Tax-Free Oregon Insured Fund - Class B Tax-Free Oregon Insured Fund - Class C Tax-Free Wisconsin Fund - Class A Tax-Free Wisconsin Fund - Class B Tax-Free Wisconsin Fund - Class C * 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 fee waivers and expense payments. Yield calculations assume the maximum front-end sales charge, if any, and do not reflect the deduction of any CDSC or Limited CDSC. Actual yield on Class A Shares may be affected by variations in front-end sales charges on investments. Past performance, such as is reflected in quoted yields, should not be considered as a representation of the results which may be realized from an investment in any Class of a Fund in the future. The Funds may also publish a tax-equivalent yield for a Class based on federal tax rates and, if applicable, state tax rates, which demonstrates the taxable yield necessary to produce an after-tax yield equivalent to such Class' yield. Taxable equivalent yield is computed by dividing that portion of a Class' yield which is tax-exempt by one minus a stated marginal income tax rate and adding the product to that portion, if any, of the yield of that Fund that is not tax-exempt. The taxable equivalent yields for the Funds for the 30-day period ended August 31, 1999 are set forth below. These taxable equivalent yields are based on the Federal marginal income tax rates combined with state marginal income tax rates indicated in the footnotes following this table. Each combined marginal rate assumes a single taxpayer and that state income taxes paid are fully deductible for purposes of computing federal taxable income. The combined marginal rates do not reflect federal rules concerning the phase-out of personal exemptions and limitations on the allowance of itemized deductions for certain high-income taxpayers. In addition, the combined marginal rates do not reflect any state personal property taxes, such as the Florida intangible tax, or any local taxes that may apply. The highest state marginal tax rate was used for each Federal taxable income bracket.
ARIZONA(1)* ----------- 31.74% 34.59% 39.58% 42.98% ------ ------ ------ ------ Tax-Free Arizona Insured Fund - Class A Tax-Free Arizona Insured Fund - Class B Tax-Free Arizona Insured Fund - Class C Tax-Free Arizona Fund - Class A Tax-Free Arizona Fund - Class B Tax-Free Arizona Fund - Class C
CALIFORNIA(2)* -------------- 34.70% 37.42% 41.95% 45.22% ------ ------ ------ ------ Tax-Free California Insured Fund - Class A Tax-Free California Insured Fund - Class B Tax-Free California Insured Fund - Class C Tax-Free California Fund - Class A Tax-Free California Fund - Class B Tax-Free California Fund - Class C
-35-
COLORADO (3)* ------------- 31.60% 34.45% 39.20% 42.62% ------ ------ ------ ------ Tax-Free Colorado Fund - Class A Tax-Free Colorado Fund - Class B Tax-Free Colorado Fund - Class C FLORIDA* -------- 28.00% 31.00% 36.00% 39.60% ------ ------ ------ ------ Tax-Free Florida Insured Fund - Class A Tax-Free Florida Insured Fund - Class B Tax-Free Florida Fund - Class A Tax-Free Florida Fund - Class B Tax-Free Florida Fund - Class C IDAHO(4)* --------- 33.90% 36.66% 41.25% 44.55% ------ ------ ------ ------ Tax-Free Idaho Fund - Class A Tax-Free Idaho Fund - Class B Tax-Free Idaho Fund - Class C IOWA (5)* --------- 33.32% 35.90% 40.24% 43.39% ------ ------ ------ ------ Tax-Free Iowa Fund - Class A Tax-Free Iowa Fund - Class B Tax-Free Iowa Fund - Class C KANSAS (6)* ----------- 33.58% 36.35% 40.96% 44.28% ------ ------ ------ ------ Tax-Free Kansas Fund - Class A Tax-Free Kansas Fund - Class B Tax-Free Kansas Fund - Class C
-36-
MINNESOTA (7)* -------------- 34.12% 36.87% 41.44% 44.73% ------ ------ ------ ------ Minnesota Insured Fund - Class A Minnesota Insured Fund - Class B Minnesota Insured Fund - Class C Tax-Free Minnesota Intermediate Fund - Class A Tax-Free Minnesota Intermediate Fund - Class B Tax-Free Minnesota Intermediate Fund - Class C Tax-Free Minnesota Fund - Class A Tax-Free Minnesota Fund - Class B Tax-Free Minnesota Fund - Class C Minnesota High-Yield Fund - Class A Minnesota High-Yield Fund - Class B Minnesota High-Yield Fund - Class C MISSOURI(8)* ------------ 31.16% 33.91% 38.51% 41.84% Tax-Free Missouri Insured Fund - Class A Tax-Free Missouri Insured Fund - Class B Tax-Free Missouri Insured Fund - Class C NEW MEXICO(9)* -------------- 33.69% 36.87% 41.44% 44.73% ------ ------ ------ ------ Tax-Free New Mexico Fund - Class A Tax-Free New Mexico Fund - Class B Tax-Free New Mexico Fund - Class C NEW YORK(10)* ------------- 33.13% 35.92% 40.56% 43.90% ------ ------ ------ ------ Tax-Free New York Fund - Class A Tax-Free New York Fund - Class B Tax-Free New York Fund - Class C NORTH DAKOTA(11)* ----------------- 30.72% 33.87% 39.07% 42.77% ------ ------ ------ ------ Tax-Free North Dakota Fund - Class A Tax-Free North Dakota Fund - Class B Tax-Free North Dakota Fund - Class C OREGON(12)* ----------- 34.48% 37.21% 41.76% 45.04% ------ ------ ------ ------ Tax-Free Oregon Insured Fund - Class A Tax-Free Oregon Insured Fund - Class B Tax-Free Oregon Insured Fund - Class C
-37-
WISCONSIN(13)* -------------- 32.99% 35.78% 40.44% 43.79% ------ ------ ------ ------ Tax-Free Wisconsin Fund - Class A Tax-Free Wisconsin Fund - Class B Tax-Free Wisconsin Fund - Class C
* 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 fee waivers and expense payments. (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. (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 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. -38- Investors should note that the income earned and dividends paid by a Fund will vary with the fluctuation of interest rates and performance of the portfolio. The net asset value of a Fund may change. Unlike money market funds, each Fund invests in longer-term securities that fluctuate in value and do so in a manner inversely correlated with changing interest rates. Each Fund's net asset value will tend to rise when interest rates fall. Conversely, each Fund's net asset values will tend to fall as interest rates rise. Normally, fluctuations in interest rates have a greater effect on the prices of longer-term bonds. The value of the securities held in a Fund will vary from day to day and investors should consider the volatility of a Fund's net asset values as well as the yield before making a decision to invest. From time to time, the Funds may quote each Class' actual total return and/or yield performance in advertising and other types of literature. This information may be compared to that of other mutual funds with similar investment objectives and to stock, bond an other relevant indices or to rankings prepared by independent services or other financial or industry publications that monitor the performance of mutual funds. For example, the performance of a Fund (or Class) may be compared to data prepared by Lipper Analytical Services, Inc., Morningstar, Inc. or the performance of unmanaged indices compiled or maintained by statistical research firms such as Lehman Brothers or Salomon Brothers, Inc. Lipper Analytical Services, Inc. maintains statistical performance databases, as reported by a diverse universe of independently-managed mutual funds. Morningstar, Inc. is a mutual fund rating service that rates mutual funds on the basis of risk-adjusted performance. Rankings that compare the Fund's performance to another fund in appropriate categories over specific time periods also may be quoted in advertising and other types of literature. The total return performance reported for these indices will reflect the reinvestment of all distributions on a quarterly basis and market price fluctuations. The indices do not take into account any sales charge or other fees. A direct investment in an unmanaged index is not possible. Salomon Brothers and Lehman Brothers are statistical research firms that maintain databases of international market, bond market, corporate and government-issued securities of various maturities. This information, as well as unmanaged indices compiled and maintained by these firms, will be used in preparing comparative illustrations. In addition, the performance of multiple indices compiled and maintained by these firms may be combined to create a blended performance result for comparative purposes. Generally, the indices selected will be representative of the types of securities in which the Funds may invest and the assumptions that were used in calculating the blended performance will be described. The Funds may also promote each Class' yield and/or total return performance and use comparative performance information computed by and available from certain industry and general market research and publications, such as Lipper Analytical Services, Inc., IBC/Donoghue's Money Market Report and Morningstar, Inc. Comparative information on the Consumer Price Index may also be included in advertisements or other literature. The Consumer Price Index, as prepared by the U.S. Bureau of Labor Statistics, is the most commonly used measure of inflation. It indicates the cost fluctuations of a representative group of consumer goods. It does not represent a return from an investment. -39- The performance of multiple indices compiled and maintained by statistical research firms, such as Morgan Stanley, Salomon Brothers and Lehman Brothers, may be combined to create a blended performance result for comparative purposes. Generally, the indices selected will be representative of the types of securities in which the Funds may invest and the assumptions that were used in calculating the blended performance will be described. Ibbotson Associates of Chicago, Illinois ("Ibbotson") provides historical returns of the capital markets in the United States, including common stocks, small capitalization stocks, long-term corporate bonds, intermediate-term government bonds, long-term government bonds, Treasury bills, the U.S. rate of inflation (based on the Consumer Price Index), and combinations of various capital markets. The performance of these capital markets is based on the returns of different indices. The Funds may use the performance of these capital markets in order to demonstrate general risk-versus-reward investment scenarios. Performance comparisons may also include the value of a hypothetical investment in any of these capital markets. The risks associated with the security types in any capital market may or may not correspond directly to those of the Funds. The Funds may also compare performance to that of other compilations or indices that may be developed and made available in the future. -40- The Funds may include discussions or illustrations of the potential investment goals of a prospective investor (including materials that describe general principles of investing, such as asset allocation, diversification, risk tolerance, and goal setting, questionnaires designed to help create a personal financial profile, worksheets used to project savings needs based on assumed rates of inflation and hypothetical rates of return and action plans offering investment alternatives), investment management techniques, policies or investment suitability of the Funds (such as value investing, market timing, dollar cost averaging, asset allocation, constant ratio transfer, automatic account rebalancing, the advantages and disadvantages of investing in tax-deferred and taxable investments, or global or international investments), economic and political conditions, the relationship between sectors of the economy and the economy as a whole, the effects of inflation and historical performance of various asset classes, including but not limited to, stocks, bonds and Treasury bills. From time to time, advertisements, sales literature, communications to shareholders or other materials may summarize the substance of information contained in shareholder reports (including the investment composition of a Fund), as well as the views as to current market, economic, trade and interest rate trends, legislative, regulatory and monetary developments, investment strategies and related matters believed to be of relevance to the Funds. In addition, selected indices may be used to illustrate historic performance of selected asset classes. The Funds may also include in advertisements, sales literature, communications to shareholders or other materials, charts, graphs or drawings which illustrate the potential risks and rewards of investment in various investment vehicles, including but not limited to, domestic and international stocks, and/or bonds, treasury bills and shares of the Funds. In addition, advertisements, sales literature, communications to shareholders or other materials may include a discussion of certain attributes or benefits to be derived by an investment in the Funds and/or other mutual funds, shareholder profiles and hypothetical investor scenarios, timely information on financial management, tax planning and investment alternatives to certificates of deposit and other financial instruments. Such sales literature, communications to shareholders or other materials may include symbols, headlines or other material which highlight or summarize the information discussed in more detail therein. Materials may refer to the CUSIP numbers of the Funds and may illustrate how to find the listings of the Funds in newspapers and periodicals. Materials may also include discussions of other funds, products, and services. The Funds may quote various measures of volatility and benchmark correlation in advertising. In addition, the Funds may compare these measures to those of other funds. Measures of volatility seek to compare the historical share price fluctuations or total returns to those of a benchmark. Measures of benchmark correlation indicate how valid a comparative benchmark may be. Measures of volatility and correlation may be calculated using averages of historical data. The Funds may advertise its current interest rate sensitivity, duration, weighted average maturity or similar maturity characteristics. Advertisements and sales materials relating to the Funds may include information regarding the background and experience of its portfolio managers. 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. -41- The following tables present examples, for purposes of illustration only, of cumulative total return performance for each Class of each Fund through August 31, 1999. For these purposes, the calculations assume the reinvestment of any capital gains distributions, realized securities profits, distributions and income dividends paid during the indicated periods. The performance also reflects maximum sales charges, if any, but not any income taxes payable by shareholders on the reinvested distributions included in the calculations. The performance of Class A Shares reflects the maximum front-end sales charge paid on purchases of shares but may also be shown without reflecting the impact of any front-end sales charge. The performance of Class B Shares and Class C Shares is calculated both with the applicable CDSC included and excluded. The net asset value of a Class fluctuates so shares, when redeemed, may be worth more or less than the original investment, and past performance should not be considered as representative of future results. -42- Cumulative Total Return
- --------------------------------------------------------------------------------------------------------------------------- Class A Class A Class B Class B Class C Class C (at offer) (at NAV) (including (excluding (including (excluding CDSC)(2) CDSC) CDSC)(3) CDSC) - --------------------------------------------------------------------------------------------------------------------------- Tax-Free Arizona Fund (1) - --------------------------------------------------------------------------------------------------------------------------- 3 months ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 6 months ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 9 months ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 1 year ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 3 years ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- Life of Fund - --------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------- Tax-Free Arizona Insured Fund(1) - --------------------------------------------------------------------------------------------------------------------------- 3 months ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 6 months ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 9 months ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 1 year ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 3 years ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 5 years ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- Life of Fund - --------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------
(1) 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 expense caps. (2) Effective June 9, 1997, the CDSC schedule for Class B Shares changed as follows: (i) 4% if shares are redeemed within two years of purchase; (ii) 3% if shares are redeemed during the third or fourth year following purchase; (iii) 2% if shares are redeemed during the fifth year following purchase; (iv) 1% if shares are redeemed during the sixth year following purchase; and (v) 0% thereafter. The above figures have been calculated using this new schedule. (3) Effective June 9, 1997, the CDSC applicable to Class C Shares is 1.00% if shares are redeemed within 12 months of purchase. The above figures have been calculated using this new schedule. -43- Cumulative Total Return
- --------------------------------------------------------------------------------------------------------------------------- Class A Class A Class B Class B Class C Class C (at offer) (at NAV) (including (excluding (including (excluding CDSC)(2) CDSC) CDSC)(3) CDSC) - --------------------------------------------------------------------------------------------------------------------------- Tax-Free California Fund (1) - --------------------------------------------------------------------------------------------------------------------------- 3 months ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 6 months ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 9 months ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 1 year ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 3 years ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- Life of Fund - --------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------- Tax-Free California Insured Fund - --------------------------------------------------------------------------------------------------------------------------- 3 months ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 6 months ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 9 months ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 1 year ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 3 years ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 5 years ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- Life of Fund - ---------------------------------------------------------------------------------------------------------------------------
(1) 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 expense caps. (2) Effective June 9, 1997, the CDSC schedule for Class B Shares changed as follows: (i) 4% if shares are redeemed within two years of purchase; (ii) 3% if shares are redeemed during the third or fourth year following purchase; (iii) 2% if shares are redeemed during the fifth year following purchase; (iv) 1% if shares are redeemed during the sixth year following purchase; and (v) 0% thereafter. The above figures have been calculated using this new schedule. (3) Effective June 9, 1997, the CDSC applicable to Class C Shares is 1.00% if shares are redeemed within 12 months of purchase. The above figures have been calculated using this new schedule. -44- Cumulative Total Return
- --------------------------------------------------------------------------------------------------------------------------- Class A Class A Class B Class B Class C Class C (at offer) (at NAV) (including (excluding (including (excluding CDSC)(2) CDSC) CDSC)(3) CDSC) - --------------------------------------------------------------------------------------------------------------------------- Tax-Free Colorado Fund (1) - --------------------------------------------------------------------------------------------------------------------------- 3 months ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 6 months ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 9 months ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 1 year ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 3 years ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 5 years ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 10 years ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- Life of Fund - --------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------- Tax-Free Florida Fund(1) - --------------------------------------------------------------------------------------------------------------------------- 3 months ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 6 months ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 9 months ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 1 year ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 3 years ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- Life of Fund - ---------------------------------------------------------------------------------------------------------------------------
(1) 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 expense caps. (2) Effective June 9, 1997, the CDSC schedule for Class B Shares changed as follows: (i) 4% if shares are redeemed within two years of purchase; (ii) 3% if shares are redeemed during the third or fourth year following purchase; (iii) 2% if shares are redeemed during the fifth year following purchase; (iv) 1% if shares are redeemed during the sixth year following purchase; and (v) 0% thereafter. The above figures have been calculated using this new schedule. (3) Effective June 9, 1997, the CDSC applicable to Class C Shares is 1.00% if shares are redeemed within 12 months of purchase. The above figures have been calculated using this new schedule. -45- Cumulative Total Return
- --------------------------------------------------------------------------------------------------------------------------- Class A Class A Class B Class B Class C Class C (at offer) (at NAV) (including (excluding (including (excluding CDSC)(2) CDSC) CDSC)(3) CDSC) - --------------------------------------------------------------------------------------------------------------------------- Tax-Free Florida Insured Fund (1) - --------------------------------------------------------------------------------------------------------------------------- 3 months ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 6 months ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 9 months ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 1 year ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 3 years ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 5 years ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- Life of Fund - --------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------- Tax-Free Idaho Fund (1) - --------------------------------------------------------------------------------------------------------------------------- 3 months ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 6 months ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 9 months ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 1 year ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 3 years ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- Life of Fund - ---------------------------------------------------------------------------------------------------------------------------
(1) 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 expense caps. (2) Effective June 9, 1997, the CDSC schedule for Class B Shares changed as follows: (i) 4% if shares are redeemed within two years of purchase; (ii) 3% if shares are redeemed during the third or fourth year following purchase; (iii) 2% if shares are redeemed during the fifth year following purchase; (iv) 1% if shares are redeemed during the sixth year following purchase; and (v) 0% thereafter. The above figures have been calculated using this new schedule. (3) Effective June 9, 1997, the CDSC applicable to Class C Shares is 1.00% if shares are redeemed within 12 months of purchase. The above figures have been calculated using this new schedule. -46- Cumulative Total Return
- --------------------------------------------------------------------------------------------------------------------------- Class A Class A Class B Class B Class C Class C (at offer) (at NAV) (including (excluding (including (excluding CDSC)(2) CDSC) CDSC)(3) CDSC) - --------------------------------------------------------------------------------------------------------------------------- Tax-Free Iowa Fund (1) - --------------------------------------------------------------------------------------------------------------------------- 3 months ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 6 months ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 9 months ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 1 year ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 3 years ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 5 years ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- Life of Fund - --------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------- Tax-Free Kansas Fund(1) - --------------------------------------------------------------------------------------------------------------------------- 3 months ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 6 months ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 9 months ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 1 year ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 3 years ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 5 years ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- Life of Fund - ---------------------------------------------------------------------------------------------------------------------------
(1) 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 expense caps. (2) Effective June 9, 1997, the CDSC schedule for Class B Shares changed as follows: (i) 4% if shares are redeemed within two years of purchase; (ii) 3% if shares are redeemed during the third or fourth year following purchase; (iii) 2% if shares are redeemed during the fifth year following purchase; (iv) 1% if shares are redeemed during the sixth year following purchase; and (v) 0% thereafter. The above figures have been calculated using this new schedule. (3) Effective June 9, 1997, the CDSC applicable to Class C Shares is 1.00% if shares are redeemed within 12 months of purchase. The above figures have been calculated using this new schedule. -47- Cumulative Total Return
- --------------------------------------------------------------------------------------------------------------------------- Class A Class A Class B Class B Class C Class C (at offer) (at NAV) (including (excluding (including (excluding CDSC)(2) CDSC) CDSC)(3) CDSC) - --------------------------------------------------------------------------------------------------------------------------- Tax-Free Minnesota Fund(1) - --------------------------------------------------------------------------------------------------------------------------- 3 months ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 6 months ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 9 months ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 1 year ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 3 years ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 5 years ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 10 years ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 15 years ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- Life of Fund - --------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------- Minnesota Insured Fund (1) - --------------------------------------------------------------------------------------------------------------------------- 3 months ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 6 months ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 9 months ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 1 year ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 3 years ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 5 years ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 10 years ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- Life of Fund - ---------------------------------------------------------------------------------------------------------------------------
(1) 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 expense caps. (2) Effective June 9, 1997, the CDSC schedule for Class B Shares changed as follows: (i) 4% if shares are redeemed within two years of purchase; (ii) 3% if shares are redeemed during the third or fourth year following purchase; (iii) 2% if shares are redeemed during the fifth year following purchase; (iv) 1% if shares are redeemed during the sixth year following purchase; and (v) 0% thereafter. The above figures have been calculated using this new schedule. (3) Effective June 9, 1997, the CDSC applicable to Class C Shares is 1.00% if shares are redeemed within 12 months of purchase. The above figures have been calculated using this new schedule. -48- Cumulative Total Return
- --------------------------------------------------------------------------------------------------------------------------- Class A Class A Class B Class B Class C Class C (at offer) (at NAV) (including (excluding (including (excluding CDSC)(2) CDSC) CDSC)(3) CDSC) - --------------------------------------------------------------------------------------------------------------------------- Tax-Free Minnesota Intermediate Fund(1) - --------------------------------------------------------------------------------------------------------------------------- 3 months ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 6 months ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 9 months ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 1 year ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 3 years ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 5 years ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 10 years ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- Life of Fund - --------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------- Minnesota High-Yield Municipal Bond Fund(1) - --------------------------------------------------------------------------------------------------------------------------- 3 months ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 6 months ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 9 months ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 1 year ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 3 years ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 5 years ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 10 years ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 15 years ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- Life of Fund - ---------------------------------------------------------------------------------------------------------------------------
(1) 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 expense caps. (2) Effective June 9, 1997, the CDSC schedule for Class B Shares changed as follows: (i) 4% if shares are redeemed within two years of purchase; (ii) 3% if shares are redeemed during the third or fourth year following purchase; (iii) 2% if shares are redeemed during the fifth year following purchase; (iv) 1% if shares are redeemed during the sixth year following purchase; and (v) 0% thereafter. Effective June 9, 1997, the CDSC schedule for Class B Shares of Tax-Free Minnesota Intermediate Fund changed as follows: (i) 2% if shares are redeemed within two years of purchase; (ii) 1% if shares are redeemed during the third year following purchase; and (iii) 0% thereafter. 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. -49- Cumulative Total Return
- --------------------------------------------------------------------------------------------------------------------------- Class A Class A Class B Class B Class C Class C (at offer) (at NAV) (including (excluding (including (excluding CDSC)(2) CDSC) CDSC)(3) CDSC) - --------------------------------------------------------------------------------------------------------------------------- Tax-Free Missouri Insured Fund (1) - --------------------------------------------------------------------------------------------------------------------------- 3 months ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 6 months ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 9 months ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 1 year ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 3 years ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 5 years ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- Life of Fund - --------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------- Tax-Free New Mexico Fund(1) - --------------------------------------------------------------------------------------------------------------------------- 3 months ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 6 months ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 9 months ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 1 year ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 3 years ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 5 years ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- Life of Fund - ---------------------------------------------------------------------------------------------------------------------------
(1) 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 expense caps. (2) Effective June 9, 1997, the CDSC schedule for Class B Shares changed as follows: (i) 4% if shares are redeemed within two years of purchase; (ii) 3% if shares are redeemed during the third or fourth year following purchase; (iii) 2% if shares are redeemed during the fifth year following purchase; (iv) 1% if shares are redeemed during the sixth year following purchase; and (v) 0% thereafter. (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. -50- Cumulative Total Return
- --------------------------------------------------------------------------------------------------------------------------- Class A Class A Class B Class B Class C Class C (at offer) (at NAV) (including (excluding (including (excluding CDSC)(2) CDSC) CDSC)(3) CDSC) - --------------------------------------------------------------------------------------------------------------------------- Tax-Free New York Fund(1) - --------------------------------------------------------------------------------------------------------------------------- 3 months ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 6 months ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 9 months ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 1 year ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 3 years ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 5 years ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 10 years ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- Life of Fund - --------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------- Tax-Free North Dakota Fund (1) - --------------------------------------------------------------------------------------------------------------------------- 3 months ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 6 months ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 9 months ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 1 year ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 3 years ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 5 years ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- Life of Fund - ---------------------------------------------------------------------------------------------------------------------------
(1) 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 expense caps. (2) Effective June 9, 1997, the CDSC schedule for Class B Shares changed as follows: (i) 4% if shares are redeemed within two years of purchase; (ii) 3% if shares are redeemed during the third or fourth year following purchase; (iii) 2% if shares are redeemed during the fifth year following purchase; (iv) 1% if shares are redeemed during the sixth year following purchase; and (v) 0% thereafter. (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. -51- Cumulative Total Return
- --------------------------------------------------------------------------------------------------------------------------- Class A Class A Class B Class B Class C Class C (at offer) (at NAV) (including (excluding (including (excluding CDSC)(2) CDSC) CDSC)(3) CDSC) - --------------------------------------------------------------------------------------------------------------------------- Tax-Free Oregon Insured Fund(1) - --------------------------------------------------------------------------------------------------------------------------- 3 months ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 6 months ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 9 months ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 1 year ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 3 years ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 5 years ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- Life of Fund - --------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------- Tax-Free Wisconsin Fund(1) - --------------------------------------------------------------------------------------------------------------------------- 3 months ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 6 months ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 9 months ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 1 year ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 3 years ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 5 years ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- 10 years ended 8/31/99 - --------------------------------------------------------------------------------------------------------------------------- Life of Fund - ---------------------------------------------------------------------------------------------------------------------------
(1) 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 expense caps. (2) Effective June 9, 1997, the CDSC schedule for Class B Shares changed as follows: (i) 4% if shares are redeemed within two years of purchase; (ii) 3% if shares are redeemed during the third or fourth year following purchase; (iii) 2% if shares are redeemed during the fifth year following purchase; (iv) 1% if shares are redeemed during the sixth year following purchase; and (v) 0% thereafter. (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. -52- Because every investor's goals and risk threshold are different, the Distributor, as distributor for the Funds and other mutual funds in the Delaware Investments family, will provide general information about investment alternatives and scenarios that will allow investors to assess their personal goals. This information will include general material about investing as well as materials reinforcing various industry-accepted principles of prudent and responsible financial planning. One typical way of addressing these issues is to compare an individual's goals and the length of time the individual has to attain these goals to his or her risk threshold. In addition, the Distributor will provide information that discusses the Manager's overriding investment philosophy and how that philosophy impacts the Funds', and other funds in the Delaware Investments family, investment disciplines employed in seeking the objectives of the Funds and of the other funds in the Delaware Investments family. The Distributor may also from time to time cite general or specific information about the institutional clients of the Manager, including the number of such clients serviced by the Manager. Dollar-Cost Averaging For many people, deciding when to invest can be a difficult decision. Security prices tend to move up and down over various market cycles and logic says to invest when prices are low. However, even experts can't always pick the highs and the lows. By using a strategy known as dollar-cost averaging, you schedule your investments ahead of time. If you invest a set amount on a regular basis, that money will always buy more shares when the price is low and fewer when the price is high. You can choose to invest at any regular interval--for example, monthly or quarterly--as long as you stick to your regular schedule. Dollar-cost averaging looks simple and it is, but there are important things to remember. Dollar-cost averaging works best over longer time periods, and it doesn't guarantee a profit or protect against losses in declining markets. If you need to sell your investment when prices are low, you may not realize a profit no matter what investment strategy you utilize. That's why dollar-cost averaging can make sense for long-term goals. Since the potential success of a dollar-cost averaging program depends on continuous investing, even through periods of fluctuating prices, you should consider your dollar-cost averaging program a long-term commitment and invest an amount you can afford and probably won't need to withdraw. Investors also should consider their financial ability to continue to purchase shares during periods of high fund share prices. Delaware Investments offers three services -- Automatic Investing Plan, Direct Deposit Purchase Plan and the Wealth Builder Option -- that can help to keep your regular investment program on track. See Investing by Electronic Fund Transfer - Direct Deposit Purchase Plan, Investing by Electronic Fund Transfer - Automatic Investing Plan and Wealth Builder Option under Investment Plans for a complete description of these services, including restrictions or limitations. -53- The example below illustrates how dollar-cost averaging can work. In a fluctuating market, the average cost per share of a stock or bond fund over a period of time will be lower than the average price per share of the same time period. Number Investment Price Per of Shares Amount Share Purchased Month 1 $100 $10.00 10 Month 2 $100 $12.50 8 Month 3 $100 $ 5.00 20 Month 4 $100 $10.00 10 -------------------------------------------------------------- $400 $37.50 48 Total Amount Invested: $400 Total Number of Shares Purchased: 48 Average Price Per Share: $9.38 ($37.50/4) Average Cost Per Share: $8.33 ($400/48 shares) This example is for illustration purposes only. It is not intended to represent the actual performance of any stock or bond fund in the Delaware Investments family. Dollar-cost averaging can be appropriate for investments in shares of funds that tend to fluctuate in value. Please obtain the prospectus of any fund in the Delaware Investments family in which you plan to invest through a dollar-cost averaging program. The prospectus contains additional information, including charges and expenses. Please read it carefully before you invest or send money. THE POWER OF COMPOUNDING When you opt to reinvest your current income for additional Fund shares, your investment is given yet another opportunity to grow. It's called the Power of Compounding. Each Fund may include illustrations showing the power of compounding in advertisements and other types of literature. -54- TRADING PRACTICES AND BROKERAGE The Funds select brokers, dealers and banks to execute transactions on behalf of a Fund for the purchase or sale of portfolio securities on the basis of the Manager's judgment of their professional capability to provide the service. The primary consideration is to have banks, brokers or dealers execute transactions at best execution. Best execution refers to many factors, including the price paid or received for a security, the commission charged, the promptness and reliability of execution, the confidentiality and placement accorded the order and other factors affecting the overall benefit obtained by the account on the transaction. When a commission is paid, a Fund pays reasonably competitive brokerage commission rates based upon the professional knowledge of the Manager's trading department as to rates paid and charged for similar transactions throughout the securities industry. In some instances, a Fund pays a minimal share transaction cost when the transaction presents no difficulty. Trades generally are made on a net basis where a Fund either buys or sells the securities directly from or to a broker, dealer or bank. In these instances, there is no direct commission charged but there is a spread (the difference between the ask and bid price) which is the equivalent of a commission. During the fiscal years ended December 31, 1997, the fiscal period ended August 31, 1998 and the fiscal year ended August 31, 1999, 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 August 31, 1999, there were no portfolio transactions of any Fund resulting in brokerage commissions directed to brokers for brokerage and research services. As provided in the Securities Exchange Act of 1934 (the "1934 Act") and the Investment Management Agreement for each Fund, higher commissions are permitted to be paid to broker/dealers who provide brokerage and research services than to broker/dealers who do not provide such services if such higher commissions are deemed reasonable in relation to the value of the brokerage and research services provided. Although transactions are directed to broker/dealers who provide such brokerage and research services, the Funds believe that the commissions paid to such broker/dealers are not, in general, higher than commissions that would be paid to broker/dealers not providing such services and that such commissions are reasonable in relation to the value of the brokerage and research services provided. In some instances, services may be provided to the Manager which constitute in some part brokerage and research services used by the Manager in connection with its investment decision-making process and constitute in some part services used by the Manager in connection with administrative or other functions not related to its investment decision-making process. In such cases, the Manager will make a good faith allocation of brokerage and research services and will pay out of its own resources for services used by the Manager in connection with administrative or other functions not related to its investment decision-making process. In addition, so long as no fund is disadvantaged, portfolio transactions which generate commissions or their equivalent are allocated to broker/dealers who provide daily portfolio pricing services to the Funds and to other funds in the Delaware Investments family. Subject to best execution, commissions allocated to brokers providing such pricing services may or may not be generated by the funds receiving the pricing service. -55- The Manager may place a combined order for two or more accounts or funds engaged in the purchase or sale of the same security if, in its judgment, joint execution is in the best interest of each participant and will result in best execution. Transactions involving commingled orders are allocated in a manner deemed equitable to each account or fund. When a combined order is executed in a series of transactions at different prices, each account participating in the order may be allocated an average price obtained from the executing broker. It is believed that the ability of the accounts to participate in volume transactions will generally be beneficial to the accounts and funds. Although it is recognized that, in some cases, the joint execution of orders could adversely affect the price or volume of the security that a particular account or fund may obtain, it is the opinion of the Manager and the Board of Trustees that the advantages of combined orders outweigh the possible disadvantages of separate transactions. Consistent with the Conduct Rules of the National Association of Securities Dealers, Inc. (the "NASD"), and subject to seeking best execution, the Funds may place orders with broker/dealers that have agreed to defray certain expenses of the funds in the Delaware Investments family such as custodian fees, and may, at the request of the Distributor, give consideration to sales of shares of the funds in the Delaware Investments family as a factor in the selection of brokers and dealers to execute Fund portfolio transactions. Portfolio Turnover Each Fund anticipates that its portfolio turnover rate will generally be less than 100%. However, a Fund will not attempt to achieve or be limited to a predetermined rate of portfolio turnover for a Fund, such a turnover always being incidental to transactions undertaken with a view to achieving each Fund's investment objective in relation to anticipated movements in the general level of interest rates. In investing for liberal current income, a Fund may hold securities for any period of time or dispose of securities at any time, subject to complying with the Code and the 1940 Act, when changes in circumstances or conditions make such a move desirable in light of the investment objective. To that extent, the Funds may realize gains or losses. See Taxes. The turnover rate also may be affected by cash requirements for redemptions and repurchases of Fund shares. The portfolio turnover rate of each Fund is calculated by dividing the lesser of purchases or sales of portfolio securities for the particular fiscal year by the monthly average of the value of the portfolio securities owned by that Fund, during the particular fiscal year, exclusive of securities whose maturities at the time of acquisition are one year or less. The degree of portfolio activity may affect brokerage costs of a Fund and taxes payable by such Fund's shareholders to the extent of any net realized capital gains. Each Fund's portfolio turnover rate is not expected to exceed 100%; however, under certain market conditions a Fund may experience a rate of portfolio turnover which could exceed 100%. A turnover rate of 100% would occur, for example, if all the investments in a Fund's portfolio at the beginning of the year were replaced by the end of the year. -56- A Fund's portfolio turnover will be increased if that Fund writes a large number of call options which are subsequently exercised. The portfolio turnover rate also may be affected by cash requirements from redemptions and repurchases of Fund shares. Total brokerage costs generally increase with higher portfolio turnover rates. The portfolio turnover rates for each Fund for the past two fiscal periods were as follows: Fund 1998 1999 Tax-Free Arizona Insured Fund 21% Tax-Free Arizona Fund 96 Tax-Free California Insured Fund 44 Tax-Free California Fund 62 Tax-Free Colorado Fund 36 Tax-Free Florida Insured Fund 13 Tax-Free Florida Fund 20 Tax-Free Idaho Fund 8 Tax-Free Iowa Fund 13 Tax-Free Kansas Fund 40 Tax-Free Minnesota Intermediate Fund 14 Minnesota Insured Fund 6 Tax-Free Minnesota Fund 13 Minnesota High-Yield Fund 7 Tax-Free Missouri Insured Fund 18 Tax-Free New Mexico Fund 20 Tax-Free New York Fund 21 Tax-Free North Dakota Fund 23 Tax-Free Oregon Insured Fund 5 Tax-Free Wisconsin Fund 16 -57- PURCHASING SHARES The Distributor serves as the national distributor for each Fund's shares and has agreed to use its best efforts to sell shares of each Fund. See the Prospectus for additional information on how to invest. Shares of each Fund are offered on a continuous basis and may be purchased through authorized investment dealers or directly by contacting a Fund or the Distributor. The minimum initial investment generally is $1,000 for each Class of each Fund. Subsequent purchases generally must be at least $100. The initial and subsequent minimum investments for Class A Shares will be waived for purchases by officers, directors or trustees and employees of any fund in the Delaware Investments family, the Manager or any of the Manager's affiliates if the purchases are made pursuant to a payroll deduction program. Shares purchased pursuant to the Uniform Gifts to Minors Act or Uniform Transfers to Minors Act and shares purchased in connection with an Automatic Investing Plan are subject to a minimum initial purchase of $250 and a minimum subsequent purchase of $25. Accounts opened under the Asset Planner service are subject to a minimum initial investment of $2,000 per Asset Planner strategy selected. Each purchase of Class B Shares is subject to a maximum purchase limitation of $250,000. For Class C Shares, each purchase must be in an amount that is less than $1,000,000. A Fund will reject any purchase order of more than $250,000 of Class B Shares and $1,000,000 or more for Class C Shares. An investor may exceed these limitations by making cumulative purchases over a period of time. An investor should keep in mind, however, that reduced front-end sales charges apply to investments of $100,000 or more of Class A Shares which are subject to lower annual 12b-1 Plan expenses than Class B Shares and Class C Shares and generally are not subject to a CDSC. Selling dealers have the responsibility of transmitting orders promptly. Each Fund reserves the right to reject any order for the purchase of its shares if in the opinion of management such rejection is in such Fund's best interest. If a purchase is canceled because your check is returned unpaid, you are responsible for any loss incurred. A Fund can redeem shares from your account(s) to reimburse itself for any loss, and you may be restricted from making future purchases in any of the funds in the Delaware Investments family. Each Fund reserves the right to reject purchase orders paid by third-party checks or checks that are not drawn on a domestic branch of a United States financial institution. If a check drawn on a foreign financial institution is accepted, you may be subject to additional bank charges for clearance and currency conversion. Each Fund also reserves the right, following shareholder notification, to charge a service fee on accounts that, as a result of redemption, have remained below the minimum stated account balance for a period of three or more consecutive months. Holders of such accounts may be notified of their insufficient account balance and advised that they have until the end of the current calendar quarter to raise their balance to the stated minimum. If the account has not reached the minimum balance requirement by that time, the Fund will charge a $9 fee for that quarter and each subsequent calendar quarter until the account is brought up to the minimum balance. The service fee will be deducted from the account during the first week of each calendar quarter for the previous quarter, and will be used to help defray the cost of maintaining low-balance accounts. No fees will be charged without proper notice, and no CDSC will apply to such assessments. Each Fund also reserves the right, upon 60 days' written notice, to involuntarily redeem accounts that remain under the minimum initial purchase amount as a result of redemptions. An investor making the minimum initial investment may be subject to involuntary redemption without the imposition of a CDSC or Limited CDSC if he or she redeems any portion of his or her account. -58- The NASD has adopted amendments to its Conduct Rules relating to investment company sales charges. The Funds and the Distributor intend to operate in compliance with these rules. Class A Shares of Tax-Free Funds, Insured Funds and Minnesota High-Yield Fund are purchased at the offering price which reflects a maximum front-end sales charge of 3.75%. Class A Shares of Tax-Free Minnesota Intermediate Fund is 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 in the Prospectus. Class A Shares are also subject to annual 12b-1 Plan expenses for the life of the investment. Class B Shares of Tax-Free Funds, Insured Funds and Minnesota High-Yield Fund are purchased at net asset value and are subject to a CDSC of: (i) 4% if shares are redeemed within two years of purchase; (ii) 3% if shares are redeemed during the third or fourth year following purchase; (iii) 2% if shares are redeemed during the fifth year following purchase; (iv) 1% if shares are redeemed during the sixth year following purchase; and (v) 0% thereafter. Shares of such Funds are also subject to annual 12b-1 Plan expenses which are higher than those to which Class A Shares are subject and are assessed against Class B Shares for approximately eight years after purchase. Class B Shares of Tax-Free Funds, Insured Funds and Minnesota High-Yield Fund will automatically convert to Class A Shares at the end of approximately eight years after purchase and, thereafter, be subject to annual 12b-1 Plan expenses of up to a maximum of 0.25% of average daily net assets of such shares. See Automatic Conversion of Class B Shares, below. Class B Shares of Tax-Free Minnesota Intermediate Fund is purchased at net asset value and are subject to a CDSC of: (i) 2% if shares are redeemed within two years of purchase; (ii) 1% if shares are redeemed during the third year following purchase; and (iii) 0% thereafter. Shares of such Funds are also subject to annual 12b-1 Plan expenses which are higher than those to which Class A Shares are subject and are assessed against Class B Shares for approximately five years after purchase. Class B Shares of Tax-Free Minnesota Intermediate Fund will automatically convert to Class A Shares at the end of approximately five years after purchase and, thereafter, be subject to annual 12b-1 Plan expenses of up to a maximum of 0.25% of average daily net assets of such shares. See Automatic Conversion of Class B Shares, below. Class C Shares of each Fund are purchased at net asset value and are subject to a CDSC of 1% if shares are redeemed within 12 months following purchase. Class C Shares are also subject to annual 12b-1 Plan expenses for the life of the investment which are equal to those to which Class B Shares are subject. Unlike Class B Shares, Class C Shares do not convert to another class. Class A Shares, Class B Shares and Class C Shares represent a proportionate interest in a Fund's assets and will receive a proportionate interest in that Fund's income, before application, as to Class A Shares, Class B Shares and Class C Shares, of any expenses under the Fund's 12b-1 Plans. See Determining Offering Price and Net Asset Value and Plans Under Rule 12b-1 in this Part B. Certificates representing shares purchased are not ordinarily issued unless, in the case of Class A Shares, a shareholder submits a specific request. Certificates are not issued in the case of Class B Shares or Class C Shares. However, purchases not involving the issuance of certificates are confirmed to the investor and credited to the shareholder's account on the books maintained by Delaware Service Company, Inc. (the "Transfer Agent"). The investor will have the same rights of ownership with respect to such shares as if certificates had been issued. An investor may receive a certificate representing full share denominations purchased by sending a letter signed by each owner of the account to the Transfer Agent requesting the certificate. No charge is assessed by the Funds for any certificate issued. A shareholder may be subject to fees for replacement of a lost or stolen certificate under certain conditions, including the cost of obtaining a bond covering the lost or stolen certificate. Please contact the Funds for further information. Investors who hold certificates representing their shares may only redeem those shares by written request. The investor's certificate(s) must accompany such request. -59- 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. The higher 12b-1 Plan expenses on Class B Shares and Class C Shares will be offset to the extent a return is realized on the additional money initially invested upon the purchase of such shares. However, there can be no assurance as to the return, if any, that will be realized on such additional money. In addition, the effect of any return earned on such additional money will diminish over time. In comparing Class B Shares to Class C Shares, investors should also consider the duration of the annual 12b-1 Plan expenses to which each of the classes is subject and the desirability of an automatic conversion feature, which is available only for Class B Shares. For the distribution and related services provided to, and the expenses borne on behalf of, the Funds, the Distributor and others will be paid, in the case of Class A Shares, from the proceeds of the front-end sales charge and 12b-1 Plan fees and, in the case of Class B Shares and Class C Shares, from the proceeds of the 12b-1 Plan fees and, if applicable, the CDSC incurred upon redemption. Financial advisers may receive different compensation for selling Class A Shares, Class B Shares and Class C Shares. Investors should understand that the purpose and function of the respective 12b-1 Plans and the CDSCs applicable to Class B Shares and Class C Shares are the same as those of the 12b-1 Plan and the front-end sales charge applicable to Class A Shares in that such fees and charges are used to finance the distribution of the respective Classes. See Plans under Rule 12b-1. Dividends, if any, paid on Class A Shares, Class B Shares and Class C Shares will be calculated in the same manner, at the same time and on the same day and will be in the same amount, except that the additional amount of 12b-1 Plan expenses relating to Class B Shares and Class C Shares will be borne exclusively by such shares. See Determining Offering Price and Net Asset Value. -60- Class A Shares Purchases of $100,000 or more of Class A Shares at the offering price carry reduced front-end sales charges as shown in the tables in the Prospectus, and may include a series of purchases over a 13-month period under a Letter of Intention signed by the purchaser. See Special Purchase Features - Class A Shares, below for more information on ways in which investors can avail themselves of reduced front-end sales charges and other purchase features. From time to time, upon written notice to all of its dealers, the Distributor may hold special promotions for specified periods during which the Distributor may reallow to dealers up to the full amount of the front-end sales. In addition, certain dealers who enter into an agreement to provide extra training and information on Delaware Investments products and services and who increase sales of 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 in the Prospectus, for initial purchases of Class A Shares of $1,000,000 or more, a dealer's commission may be paid by the Distributor to financial advisers through whom such purchases are effected. For accounts with assets over $1 million, the dealer commission resets annually to the highest incremental commission rate on the anniversary of the first purchase. In determining a financial adviser's eligibility for the dealer's commission, purchases of Class A Shares of other Delaware Investments funds as to which a Limited CDSC applies (see Contingent Deferred Sales Charge for Certain Redemptions of Class A Shares Purchased at Net Asset Value under Redemption and Exchange) may be aggregated with those of the Class A Shares of a Fund. Financial advisers also may be eligible for a dealer's commission in connection with certain purchases made under a Letter of Intention or pursuant to an investor's Right of Accumulation. Financial advisers should contact the Distributor concerning the applicability and calculation of the dealer's commission in the case of combined purchases. An exchange from other Delaware Investments funds will not qualify for payment of the dealer's commission, unless a dealer's commission or similar payment has not been previously paid on the assets being exchanged. The schedule and program for payment of the dealer's commission are subject to change or termination at any time by the Distributor at its discretion. Contingent Deferred Sales Charge - Class B Shares and Class C Shares Class B Shares and Class C Shares are purchased without a front-end sales charge. Class B Shares redeemed within prescribed periods after purchase may be subject to a CDSC imposed at the rates and within the time periods set forth 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. For purposes of this formula, the "net asset value at the time of purchase" will be the net asset value at purchase of Class B Shares or Class C Shares of a Fund, even if those shares are later exchanged for shares of another Delaware Investments fund. In the event of an exchange of the shares, the "net asset value of such shares at the time of redemption" will be the net asset value of the shares that were acquired in the exchange. See Waiver of Contingent Deferred Sales Charge--Class B Shares and Class C Shares under Redemption and Exchange for the Fund Classes for a list of the instances in which the CDSC is waived. -61- During the seventh year after purchase and, thereafter, until converted automatically into Class A Shares, Class B Shares of Tax-Free Funds, Insured Funds and Minnesota High-Yield Fund will still be subject to the annual 12b-1 Plan expenses of up to 1% of average daily net assets of those shares. See Automatic Conversion of Class B Shares, above. Investors are reminded that the Class A Shares into which Class B Shares will convert are subject to ongoing annual 12b-1 Plan expenses of up to a maximum of 0.25% of average daily net assets of such shares. During the fourth year after purchase and, thereafter, until converted automatically into Class A Shares, Class B Shares of Tax-Free Minnesota Intermediate Fund will still be subject to the annual 12b-1 Plan expenses of up to 1% of average daily net assets of those shares. See Automatic Conversion of Class B Shares, above. Investors are reminded that the Class A Shares into which Class B Shares will convert are subject to ongoing annual 12b-1 Plan expenses of up to a maximum of 0.25% of average daily net assets representing such shares. In determining whether a CDSC applies to a redemption of Class B Shares, it will be assumed that Class B Shares of Tax-Free Funds, Insured Funds and Minnesota High-Yield Fund held for more than six years and Class B Shares of Tax-Free Minnesota Intermediate Fund held for more than three years are redeemed first, followed by shares acquired through the reinvestment of dividends or distributions, and finally by shares held longest during the six-year or three-year period, as applicable. With respect to Class C Shares, it will be assumed that shares held for more than 12 months are redeemed first followed by shares acquired through the reinvestment of dividends or distributions, and finally by shares held for 12 months or less. All investments made during a calendar month, regardless of what day of the month the investment occurred, will age one month on the last day of that month and each subsequent month. The CDSC is waived on certain redemptions of Class B Shares and Class C Shares. See Waiver of Contingent Deferred Sales Charge - Class B Shares and Class C Shares under Redemption and Exchange. Deferred Sales Charge Alternative - Class B Shares Class B Shares may be purchased at net asset value without a front-end sales charge and, as a result, the full amount of the investor's purchase payment will be invested in Fund shares. The Distributor currently compensates dealers or brokers for selling Class B Shares of Tax-Free Funds, Insured Funds and Minnesota High-Yield Fund at the time of purchase from its own assets in an amount equal to no more than 4% of the dollar amount purchased. Such payments for Class B Shares of Tax-Free Minnesota Intermediate Fund is currently in an amount equal to no more than 2%. In addition, from time to time, upon written notice to all of its dealers, the Distributor may hold special promotions for specified periods during which the Distributor may pay additional compensation to dealers or brokers for selling Class B Shares at the time of purchase. As discussed below, however, Class B Shares are subject to annual 12b-1 Plan expenses of up to a maximum of 1% for approximately eight years after purchase for Tax-Free Funds, Insured Funds and Minnesota High-Yield Fund and approximately five years after purchase for Tax-Free Minnesota Intermediate Fund and, if Class B Shares of Tax-Free Funds, Insured Funds and Minnesota High-Yield Fund are redeemed within six years of purchase and Class B Shares of Tax-Free Minnesota Intermediate Fund are redeemed within three years of purchase, a CDSC. -62- Proceeds from the CDSC and the annual 12b-1 Plan fees, if any, are paid to the Distributor and others for providing distribution and related services, and bearing related expenses, in connection with the sale of Class B Shares. These payments support the compensation paid to dealers or brokers for selling Class B Shares. Payments to the Distributor and others under the Class B 12b-1 Plan may be in an amount equal to no more than 1% annually. The combination of the CDSC and the proceeds of the 12b-1 Plan fees makes it possible for a Fund to sell Class B Shares without deducting a front-end sales charge at the time of purchase. Holders of Class B Shares who exercise the exchange privilege described below will continue to be subject to the CDSC schedule for Class B Shares described in this Part B, even after the exchange. Tax-Free Funds' Class B Shares, Insured Funds' Class B Shares and Minnesota High-Yield Fund's Class C Shares CDSC schedule may be higher than the CDSC schedule for Class B Shares acquired as a result of the exchange. See Redemption and Exchange. Automatic Conversion of Class B Shares Class B Shares of Tax-Free Funds, Insured Funds and Minnesota High-Yield Fund, other than shares acquired through reinvestment of dividends, held for eight years after purchase are eligible for automatic conversion into Class A Shares. Class B Shares of Tax-Free Minnesota Intermediate Fund, other than shares acquired through reinvestment of dividends, held for five years after purchase are eligible for automatic conversion into Class A Shares. Conversions of Class B Shares into Class A Shares will occur only four times in any calendar year, on the 18th business day or next business day of March, June, September and December (each, a "Conversion Date"). If, as applicable, the eighth or fifth anniversary after a purchase of Class B Shares falls on a Conversion Date, an investor's Class B Shares will be converted on that date. If such anniversary occurs between Conversion Dates, an investor's Class B Shares will be converted on the next Conversion Date after the anniversary. Consequently, if a shareholder's anniversary falls on the day after a Conversion Date, that shareholder will have to hold Class B Shares for as long as three additional months after, as applicable, the eighth or fifth anniversary of purchase before the shares will automatically convert into Class A Shares. Investors are reminded that the Class A Shares into which Class B Shares will convert are subject to ongoing annual 12b-1 Plan expenses of up to a maximum of 0.25% of average daily net assets representing such 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 compensates dealers or brokers for selling Class C Shares at the time of purchase from its own assets in an amount equal to no more than 1% of the dollar amount purchased. As discussed below, Class C Shares are subject to annual 12b-1 Plan expenses and, if redeemed within 12 months of purchase, a CDSC. Proceeds from the CDSC and the annual 12b-1 Plan fees are paid to the Distributor and others for providing distribution and related services, and bearing related expenses, in connection with the sale of Class C Shares. These payments support the compensation paid to dealers or brokers for selling Class C Shares. Payments to the Distributor and others under the Class C 12b-1 Plan may be in an amount equal to no more than 1% annually. -63- Holders of Class C Shares who exercise the exchange privilege described below will continue to be subject to the CDSC schedule for Class C Shares as described in this Part B. See Redemption and Exchange. Plans Under Rule 12b-1 Pursuant to Rule 12b-1 under the 1940 Act, each of the Class A Shares, Class B Shares and Class C Shares of the Funds have a separate distribution plan under Rule 12b-1 (the "Plans"). Each Plan permits the particular Fund to pay for certain distribution, promotional and related expenses involved in the marketing of only the Class to which the Plan applies. Such shares are not included in calculating the Plans' fees. The Plans permit the Funds, pursuant to its Distribution Agreement, to pay out of the assets of the respective Class A Shares, Class B Shares and Class C Shares monthly fees to the Distributor for its services 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 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 execution, a Fund may, from time to time, buy or sell portfolio securities from or to firms which receive payments under the Plans. From time to time, the Distributor may pay additional amounts from its own resources to dealers for aid in distribution or for aid in providing administrative services to shareholders. The Plans and the Distribution Agreements, as amended, have been approved by the Board of Trustees of the Funds, including a majority of the trustees who are not "interested persons" (as defined in the 1940 Act) and who have no direct or indirect financial interest in the Plans, by vote cast in person at a meeting duly called for the purpose of voting on the Plans and such Distribution Agreements. Continuation of the Plans and the Distribution Agreements, as amended, must be approved annually by the Board of Trustees in the same manner as specified above. Each year, the trustees must determine whether continuation of the Plans is in the best interest of shareholders of, respectively, Class A Shares, Class B Shares and Class C Shares of each Fund and that there is a reasonable likelihood of the Plan relating to a Class providing a benefit to that Class. The Plans and the Distribution Agreements, as amended, may be terminated at any time without penalty by a majority of those trustees who are not "interested persons" or by a majority vote of the relevant Fund Class' outstanding voting securities. Any amendment materially increasing the percentage payable under the Plans must likewise be approved by a majority vote of the relevant Fund Class' outstanding voting securities, as well as by a majority vote of those trustees who are not "interested persons." With respect to each Class A Shares' Plan, any material increase in the maximum percentage payable thereunder must also be approved by a majority of the outstanding voting securities of the respective Fund's B Class. Also, any other material amendment to the Plans must be approved by a majority vote of the trustees including a majority of the noninterested trustees of the Funds having no interest in the Plans. In addition, in order for the Plans to remain effective, the selection and nomination of trustees who are not "interested persons" of the Funds must be effected by the trustees who themselves are not "interested persons" and who have no direct or indirect financial interest in the Plans. Persons authorized to make payments under the Plans must provide written reports at least quarterly to the Board of Trustees for their review. -64-
- ----------------------------------------------------------------------------------------------------------- Advertis Annual/ Broker Broker Dealer Interest Commission -ing Semi- Trails Sales Service on Broker to Annual Charges Expenses Sales Wholesalers Reports Charges - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- Tax-Free Arizona Insured - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- Class A - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- Class B - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- Class C - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- Tax-Free Arizona - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- Class A - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- Class B - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- Class C - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- Tax-Free California Insured - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- Class A - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- Class B - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- Class C - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- Tax-Free California - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- Class A - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- Class B - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- Class C - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- Tax-Free Colorado - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- Class A - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- Class B - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- Class C - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- Tax-Free Florida Insured - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- Class A - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- Class B - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- Class C - --------------------------- ----------- --------- ------- --------- ----------- ----------- --------------
- ----------------------------------------------------------------------------------------------------------- Advertis Annual/ Broker Broker Dealer Interest Commission -ing Semi- Trails Sales Service on Broker to Annual Charges Expenses Sales Wholesalers Reports Charges - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- Tax-Free Florida - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- Class A - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- Class B - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- Class C - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- Tax-Free Idaho - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- Class A - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- Class B - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- Class C - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- - --------------------------- ----------- --------- ------- --------- ----------- ----------- --------------
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- -------------------------------------------------------------------------------------------------------------- Promotional Promotional Prospectus Telephone Wholesaler Other Total Broker Other Printing Expenses Meetings - --------------------------- ------------ ------------ ----------- ----------- ------------ --------- -------- Tax-Free Arizona Insured - --------------------------- ------------ ------------ ----------- ----------- ------------ --------- -------- Class A - --------------------------- ------------ ------------ ----------- ----------- ------------ --------- -------- Class B - --------------------------- ------------ ------------ ----------- ----------- ------------ --------- -------- Class C - --------------------------- ------------ ------------ ----------- ----------- ------------ --------- -------- - --------------------------- ------------ ------------ ----------- ----------- ------------ --------- -------- Tax-Free Arizona - --------------------------- ------------ ------------ ----------- ----------- ------------ --------- -------- Class A - --------------------------- ------------ ------------ ----------- ----------- ------------ --------- -------- Class B - --------------------------- ------------ ------------ ----------- ----------- ------------ --------- -------- Class C - --------------------------- ------------ ------------ ----------- ----------- ------------ --------- -------- - --------------------------- ------------ ------------ ----------- ----------- ------------ --------- -------- Tax-Free California Insured - --------------------------- ------------ ------------ ----------- ----------- ------------ --------- -------- Class A - --------------------------- ------------ ------------ ----------- ----------- ------------ --------- -------- Class B - --------------------------- ------------ ------------ ----------- ----------- ------------ --------- -------- Class C - --------------------------- ------------ ------------ ----------- ----------- ------------ --------- -------- - --------------------------- ------------ ------------ ----------- ----------- ------------ --------- -------- Tax-Free California - --------------------------- ------------ ------------ ----------- ----------- ------------ --------- -------- Class A - --------------------------- ------------ ------------ ----------- ----------- ------------ --------- -------- Class B - --------------------------- ------------ ------------ ----------- ----------- ------------ --------- -------- Class C - --------------------------- ------------ ------------ ----------- ----------- ------------ --------- -------- - --------------------------- ------------ ------------ ----------- ----------- ------------ --------- -------- Tax-Free Colorado - --------------------------- ------------ ------------ ----------- ----------- ------------ --------- -------- Class A - --------------------------- ------------ ------------ ----------- ----------- ------------ --------- -------- Class B - --------------------------- ------------ ------------ ----------- ----------- ------------ --------- -------- Class C - --------------------------- ------------ ------------ ----------- ----------- ------------ --------- -------- - --------------------------- ------------ ------------ ----------- ----------- ------------ --------- -------- Tax-Free Florida Insured - --------------------------- ------------ ------------ ----------- ----------- ------------ --------- -------- Class A - --------------------------- ------------ ------------ ----------- ----------- ------------ --------- -------- Class B - --------------------------- ------------ ------------ ----------- ----------- ------------ --------- -------- Class C - --------------------------- ------------ ------------ ----------- ----------- ------------ --------- --------
- -------------------------------------------------------------------------------------------------------------- Promotional Promotional Prospectus Telephone Wholesaler Other Total Broker Other Printing Expenses Meetings - --------------------------- ------------ ------------ ----------- ----------- ------------ --------- -------- Tax-Free Florida - --------------------------- ------------ ------------ ----------- ----------- ------------ --------- -------- Class A - --------------------------- ------------ ------------ ----------- ----------- ------------ --------- -------- Class B - --------------------------- ------------ ------------ ----------- ----------- ------------ --------- -------- Class C - --------------------------- ------------ ------------ ----------- ----------- ------------ --------- -------- - --------------------------- ------------ ------------ ----------- ----------- ------------ --------- -------- Tax-Free Idaho - --------------------------- ------------ ------------ ----------- ----------- ------------ --------- -------- Class A - --------------------------- ------------ ------------ ----------- ----------- ------------ --------- -------- Class B - --------------------------- ------------ ------------ ----------- ----------- ------------ --------- -------- Class C - --------------------------- ------------ ------------ ----------- ----------- ------------ --------- -------- - --------------------------- ------------ ------------ ----------- ----------- ------------ --------- -------- - --------------------------- ------------ ------------ ----------- ----------- ------------ --------- --------
-65-
- --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- Advertis Annual/ Broker Broker Dealer Interest Commission -ing Semi- Trails Sales Service on Broker to Annual Charges Expenses Sales Wholesalers Reports Charges - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- Tax-Free Iowa - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- Class A - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- Class B - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- Class C - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- Tax-Free Kansas - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- Class A - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- Class B - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- Class C - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- Tax-Free Minnesota Intermediate - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- Class A - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- Class B - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- Class C - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- Minnesota Insured - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- Class A - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- Class B - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- Class C - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- Tax-Free Minnesota - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- Class A - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- Class B - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- Class C - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- Minnesota High-Yield - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- Class A - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- Class B - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- Class C - --------------------------- ----------- --------- ------- --------- ----------- ----------- --------------
- --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- Advertis Annual/ Broker Broker Dealer Interest Commission -ing Semi- Trails Sales Service on Broker to Annual Charges Expenses Sales Wholesalers Reports Charges - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- Tax-Free Missouri Insured - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- Class A - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- Class B - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- Class C - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- Tax-Free New Mexico - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- Class A - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- Class B - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- Class C - --------------------------- ----------- --------- ------- --------- ----------- ----------- --------------
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- --------------------------- ------------ ------------ ----------- ----------- ------------ --------- -------- Promotional Promotional Prospectus Telephone Wholesaler Other Total Broker Other Printing Expenses Meetings - --------------------------- ------------ ------------ ----------- ----------- ------------ --------- -------- Tax-Free Iowa - --------------------------- ------------ ------------ ----------- ----------- ------------ --------- -------- Class A - --------------------------- ------------ ------------ ----------- ----------- ------------ --------- -------- Class B - --------------------------- ------------ ------------ ----------- ----------- ------------ --------- -------- Class C - --------------------------- ------------ ------------ ----------- ----------- ------------ --------- -------- - --------------------------- ------------ ------------ ----------- ----------- ------------ --------- -------- Tax-Free Kansas - --------------------------- ------------ ------------ ----------- ----------- ------------ --------- -------- Class A - --------------------------- ------------ ------------ ----------- ----------- ------------ --------- -------- Class B - --------------------------- ------------ ------------ ----------- ----------- ------------ --------- -------- Class C - --------------------------- ------------ ------------ ----------- ----------- ------------ --------- -------- - --------------------------- ------------ ------------ ----------- ----------- ------------ --------- -------- Tax-Free Minnesota Intermediate - --------------------------- ------------ ------------ ----------- ----------- ------------ --------- -------- Class A - --------------------------- ------------ ------------ ----------- ----------- ------------ --------- -------- Class B - --------------------------- ------------ ------------ ----------- ----------- ------------ --------- -------- Class C - --------------------------- ------------ ------------ ----------- ----------- ------------ --------- -------- - --------------------------- ------------ ------------ ----------- ----------- ------------ --------- -------- Minnesota Insured - --------------------------- ------------ ------------ ----------- ----------- ------------ --------- -------- Class A - --------------------------- ------------ ------------ ----------- ----------- ------------ --------- -------- Class B - --------------------------- ------------ ------------ ----------- ----------- ------------ --------- -------- Class C - --------------------------- ------------ ------------ ----------- ----------- ------------ --------- -------- - --------------------------- ------------ ------------ ----------- ----------- ------------ --------- -------- Tax-Free Minnesota - --------------------------- ------------ ------------ ----------- ----------- ------------ --------- -------- Class A - --------------------------- ------------ ------------ ----------- ----------- ------------ --------- -------- Class B - --------------------------- ------------ ------------ ----------- ----------- ------------ --------- -------- Class C - --------------------------- ------------ ------------ ----------- ----------- ------------ --------- -------- - --------------------------- ------------ ------------ ----------- ----------- ------------ --------- -------- Minnesota High-Yield - --------------------------- ------------ ------------ ----------- ----------- ------------ --------- -------- Class A - --------------------------- ------------ ------------ ----------- ----------- ------------ --------- -------- Class B - --------------------------- ------------ ------------ ----------- ----------- ------------ --------- -------- Class C - --------------------------- ------------ ------------ ----------- ----------- ------------ --------- --------
- --------------------------- ------------ ------------ ----------- ----------- ------------ --------- -------- Promotional Promotional Prospectus Telephone Wholesaler Other Total Broker Other Printing Expenses Meetings - --------------------------- ------------ ------------ ----------- ----------- ------------ --------- -------- Tax-Free Missouri Insured - --------------------------- ------------ ------------ ----------- ----------- ------------ --------- -------- Class A - --------------------------- ------------ ------------ ----------- ----------- ------------ --------- -------- Class B - --------------------------- ------------ ------------ ----------- ----------- ------------ --------- -------- Class C - --------------------------- ------------ ------------ ----------- ----------- ------------ --------- -------- - --------------------------- ------------ ------------ ----------- ----------- ------------ --------- -------- Tax-Free New Mexico - --------------------------- ------------ ------------ ----------- ----------- ------------ --------- -------- Class A - --------------------------- ------------ ------------ ----------- ----------- ------------ --------- -------- Class B - --------------------------- ------------ ------------ ----------- ----------- ------------ --------- -------- Class C - --------------------------- ------------ ------------ ----------- ----------- ------------ --------- --------
-67-
- --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- ------------ Advertis Annual/ Broker Broker Dealer Interest Commission Promotional -ing Semi- Trails Sales Service on Broker to Broker Annual Charges Expenses Sales Wholesalers Meetings Reports Charges - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- ------------ Tax-Free New York - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- ------------ Class A - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- ------------ Class B - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- ------------ Class C - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- ------------ - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- ------------ Tax-Free North Dakota - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- ------------ Class A - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- ------------ Class B - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- ------------ Class C - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- ------------ - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- ------------ Tax-Free Oregon Insured - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- ------------ Class A - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- ------------ Class B - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- ------------ Class C - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- ------------ - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- ------------ Tax-Free Wisconsin - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- ------------ Class A - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- ------------ Class B - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- ------------ Class C - --------------------------- ----------- --------- ------- --------- ----------- ----------- -------------- ------------
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- --------------------------- ------------ ----------- ----------- ------------ --------- -------- Promotional Prospectus Telephone Wholesaler Other Total Other Printing Expenses - --------------------------- ------------ ----------- ----------- ------------ --------- -------- Tax-Free New York - --------------------------- ------------ ----------- ----------- ------------ --------- -------- Class A - --------------------------- ------------ ----------- ----------- ------------ --------- -------- Class B - --------------------------- ------------ ----------- ----------- ------------ --------- -------- Class C - --------------------------- ------------ ----------- ----------- ------------ --------- -------- - --------------------------- ------------ ----------- ----------- ------------ --------- -------- Tax-Free North Dakota - --------------------------- ------------ ----------- ----------- ------------ --------- -------- Class A - --------------------------- ------------ ----------- ----------- ------------ --------- -------- Class B - --------------------------- ------------ ----------- ----------- ------------ --------- -------- Class C - --------------------------- ------------ ----------- ----------- ------------ --------- -------- - --------------------------- ------------ ----------- ----------- ------------ --------- -------- Tax-Free Oregon Insured - --------------------------- ------------ ----------- ----------- ------------ --------- -------- Class A - --------------------------- ------------ ----------- ----------- ------------ --------- -------- Class B - --------------------------- ------------ ----------- ----------- ------------ --------- -------- Class C - --------------------------- ------------ ----------- ----------- ------------ --------- -------- - --------------------------- ------------ ----------- ----------- ------------ --------- -------- Tax-Free Wisconsin - --------------------------- ------------ ----------- ----------- ------------ --------- -------- Class A - --------------------------- ------------ ----------- ----------- ------------ --------- -------- Class B - --------------------------- ------------ ----------- ----------- ------------ --------- -------- Class C - --------------------------- ------------ ----------- ----------- ------------ --------- --------
-68- 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, trustees and employees of each Fund, any other fund in the Delaware Investments family, the Manager or any of the Manager's current affiliates and those that may in the future be created, legal counsel to the funds and registered representatives, and employees of broker/dealers who have entered into Dealer's Agreements with the Distributor may purchase Class A Shares of a Fund and shares of any of the funds in the Delaware Investments family, including any fund that may be created at net asset value. Family members (regardless of age) of such persons at their direction, and any employee benefit plan established by any of the foregoing funds, corporations, counsel or broker/dealers may also purchase shares at net asset value. Class A Shares may also be purchased at net asset value by current and former officers, directors and employees (and members of their families) of the Dougherty Financial Group LLC. Purchases of Class A Shares may also be made by clients of registered representatives of an authorized investment dealer at net asset value within 12 months of a change of the registered representative's employment, if the purchase is funded by proceeds from an investment where a front-end sales charge, contingent deferred sales charge or other sales charge has been assessed. Purchases of Class A Shares may also be made at net asset value by bank employees who provide services in connection with agreements between the bank and unaffiliated brokers or dealers concerning sales of shares of funds in the Delaware Investments family. Officers, directors and key employees of institutional clients of the Manager or any of its affiliates may purchase Class A Shares at net asset value. Moreover, purchases may be effected at net asset value for the benefit of the clients of brokers, dealers and registered investment advisers affiliated with a broker or dealer, if such broker, dealer or investment adviser has entered into an agreement with the Distributor providing specifically for the purchase of Class A Shares in connection with special investment products, such as wrap accounts or similar fee based programs. Such purchasers are required to sign a letter stating that the purchase is for investment only and that the securities may not be resold except to the issuer. Such purchasers may also be required to sign or deliver such other documents as the Funds may reasonably require to establish eligibility for purchase at net asset value. Each Fund must be notified in advance that the trade qualifies for purchase at net asset value. -69- Letter of Intention The reduced front-end sales charges described above with respect to Class A Shares are also applicable to the aggregate amount of purchases made within a 13-month period pursuant to a written Letter of Intention provided by the Distributor and signed by the purchaser, and not legally binding on the signer or the Funds, which provides for the holding in escrow by the Transfer Agent, of 5% of the total amount of Class A Shares intended to be purchased until such purchase is completed within the 13-month period. A Letter of Intention may be dated to include shares purchased up to 90 days prior to the date the Letter is signed. The 13-month period begins on the date of the earliest purchase. If the intended investment is not completed, except as noted below, the purchaser will be asked to pay an amount equal to the difference between the front-end sales charge on Class A Shares purchased at the reduced rate and the front-end sales charge otherwise applicable to the total shares purchased. If such payment is not made within 20 days following the expiration of the 13-month period, the Transfer Agent will surrender an appropriate number of the escrowed shares for redemption in order to realize the difference. Such purchasers may include the value (at offering price at the level designated in their Letter of Intention) of all their shares of the Funds and of any class of any of the other mutual funds in the Delaware Investments family (except shares of any fund in the Delaware Investments family which do not carry a front-end sales charge, CDSC or Limited CDSC, other than shares of Delaware Group Premium Fund, Inc. beneficially owned in connection with the ownership of variable insurance products, unless they were acquired through an exchange from a fund in the Delaware Investments family which carried a front-end sales charge, CDSC or Limited CDSC) previously purchased and still held as of the date of their Letter of Intention toward the completion of such Letter. For purposes of satisfying an investor's obligation under a Letter of Intention, Class B Shares and Class C Shares of each Fund and the corresponding classes of shares of other funds in the Delaware Investments family which offer such shares may be aggregated with Class A Shares of a Fund and the corresponding class of shares of the other funds in the Delaware Investments family. Combined Purchases Privilege In determining the availability of the reduced front-end sales charge previously set forth with respect to Class A Shares, purchasers may combine the total amount of any combination of the Class A Shares, Class B Shares and/or Class C Shares of the Funds, as well as any other class of any of the other funds available from the Delaware Investments family (except shares of any funds in the Delaware Investments family which do not carry a front-end sales charge, CDSC or Limited CDSC, other than shares of Delaware Group Premium Fund, Inc. beneficially owned in connection with the ownership of variable insurance products, unless they were acquired through an exchange from a fund in the Delaware Investments family which carried a front-end sales charge, CDSC or Limited CDSC). In addition, assets held by investment advisory clients of the Manager or its affiliates in a stable value account may be combined with other Delaware Investments family holdings. The privilege also extends to all purchases made at one time by an individual; or an individual, his or her spouse and their children under 21; or a trustee or other fiduciary of trust estates or fiduciary accounts for the benefit of such family members (including certain employee benefit programs). -70- 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. 12-Month Reinvestment Privilege Holders of Class A Shares and Class B Shares of a Fund who redeem such shares have one year from the date of redemption to reinvest all or part of their redemption proceeds in the same Class of the Fund or in the same Class of any of the other funds in the Delaware Investments family. In the case of Class A Shares, the reinvestment will not be assessed a front-end sales charge and in the case of Class B Shares, the amount of the CDSC previously charged on the redemption will be reimbursed by the Fund. The reinvestment will be subject to applicable eligibility and minimum purchase requirements and must be in states where shares of such other funds may be sold. This reinvestment privilege does not extend to Class A Shares where the redemption of the shares triggered the payment of a Limited CDSC. Persons investing redemption proceeds from direct investments in mutual funds in the Delaware Investments family, offered without a front-end sales charge will be required to pay the applicable sales charge when purchasing Class A Shares. The reinvestment privilege does not extend to a redemption of Class C Shares. Any such reinvestment cannot exceed the redemption proceeds (plus any amount necessary to purchase a full share). The reinvestment will be made at the net asset value next determined after receipt of remittance. In the case of Class B Shares, the time that the previous investment was held will be included in determining any applicable CDSC due upon redemptions as well as the automatic conversion into Class A Shares. A redemption and reinvestment of Class B Shares could have income tax consequences. Shareholders will receive from the Fund the amount of the CDSC paid at the time of redemption as part of the reinvested shares, which may be treated as a capital gain to the shareholder for tax purposes. It is recommended that a tax adviser be consulted with respect to such transactions. Any reinvestment directed to a fund in which the investor does not then have an account will be treated like all other initial purchases of the fund's shares. Consequently, an investor should obtain and read carefully the prospectus for the fund in which the investment is intended to be made before investing or sending money. The prospectus contains more complete information about the fund, including charges and expenses. Investors should consult their financial advisers or the Transfer Agent, which also serves as the Fund's shareholder servicing agent, about the applicability of the Class A Limited CDSC in connection with the features described above. -71- INVESTMENT PLANS Reinvestment Plan/Open Account Unless otherwise designated by shareholders in writing, dividends from net investment income and distributions from realized securities profits, if any, will be automatically reinvested in additional shares of the respective Classes in which an investor has an account (based on the net asset value of that Fund in effect on the reinvestment date) and will be credited to the shareholder's account on that date. A confirmation of each dividend payment from net investment income will be mailed to shareholders quarterly. A confirmation of each distribution from realized securities profits, if any, will be mailed to shareholders in the first quarter of the fiscal year. Under the Reinvestment Plan/Open Account, shareholders may purchase and add full and fractional shares to their plan accounts at any time either through their investment dealers or by sending a check or money order to the specific Fund and Class in which shares are being purchased. Such purchases, which must meet the minimum subsequent purchase requirements set forth in the Prospectus and this Part B, are made for Class A Shares at the public offering price and for Class B Shares and Class C Shares at the net asset value, at the end of the day of receipt. A reinvestment plan may be terminated at any time. This plan does not assure a profit nor protect against depreciation in a declining market. Reinvestment of Dividends in Other Funds in the Delaware Investments Family Subject to applicable eligibility and minimum initial purchase requirements, and the limitations set forth below, holders of Class A Shares, Class B Shares and Class C Shares may automatically reinvest dividends and/or distributions from a Fund in any of the other mutual funds in the Delaware Investments family, including the Funds, in states where their shares may be sold. Such investments will be made at net asset value per share at the close of business on the reinvestment date without any front-end sales charge, service fee, CDSC or Limited CDSC. The shareholder must notify the Transfer Agent in writing and must have established an account in the fund into which the dividends and/or distributions are to be invested. Any reinvestment directed to a fund in which the investor does not then have an account will be treated like all other initial purchases of a fund's shares. Consequently, an investor should obtain and read carefully the prospectus for the fund in which the investment is intended to be made before investing or sending money. The prospectus contains more complete information about the fund, including charges and expenses. See also Additional Methods of Adding to Your Investment - Dividend Reinvestment Plan under How to Buy Shares in the Prospectus. Subject to the following limitations, dividends and/or distributions from other funds in the Delaware Investments family may be invested in shares of the Funds at net asset value, provided an account has been established. Dividends from Class A Shares may not be directed to Class B Shares or Class C Shares. Dividends from Class B Shares may only be directed to other Class B Shares, and dividends from Class C Shares may only be directed to other Class C Shares. Investing by Exchange If you have an investment in another mutual fund in the Delaware Investments family, you may write and authorize an exchange of part or all of your investment into shares of a Fund. If you wish to open an account by exchange, call the Shareholder Service Center for more information. All exchanges are subject to the eligibility and minimum purchase requirements set forth in each fund's prospectus. See Redemption and Exchange for more complete information concerning your exchange privileges. Holders of Class A Shares of a Fund may exchange all or part of their shares for certain of the shares of other funds in the Delaware Investments family, including other Class A Shares, but may not exchange their Class A Shares for Class B Shares or Class C Shares of the Fund or of any other fund in the Delaware Investments family. Holders of Class B Shares of a Fund are permitted to exchange all or part of their Class B Shares only into Class B Shares of other Delaware Investments funds. Similarly, holders of Class C Shares of a Fund are permitted to exchange all or part of their Class C Shares only into Class C Shares of other Delaware Investments funds. Class B Shares of a Fund and Class C Shares of a Fund acquired by exchange will continue to carry the CDSC and, in the case of Class B Shares, the automatic conversion schedule of the fund from which the exchange is made. The holding period of Class B Shares of a Fund acquired by exchange will be added to that of the shares that were exchanged for purposes of determining the time of the automatic conversion into Class A Shares of that Fund. -72- Permissible exchanges into Class A Shares of a Fund will be made without a front-end sales charge, except for exchanges of shares that were not previously subject to a front-end sales charge (unless such shares were acquired through the reinvestment of dividends). Permissible exchanges into Class B Shares or Class C Shares of a Fund will be made without the imposition of a CDSC by the fund from which the exchange is being made at the time of the exchange. Investing by Electronic Fund Transfer Direct Deposit Purchase Plan--Investors may arrange for a Fund to accept for investment, through an agent bank, preauthorized government or private recurring payments. This method of investment assures the timely credit to the shareholder's account of payments such as social security, veterans' pension or compensation benefits, federal salaries, Railroad Retirement benefits, private payroll checks, dividends, and disability or pension fund benefits. It also eliminates lost, stolen and delayed checks. -73- Automatic Investing Plan--The Automatic Investing Plan enables shareholders to make regular monthly investments without writing checks. Shareholders may authorize, in advance, to make arrangements for their bank to withdraw a designated amount monthly directly from their checking account for deposit into a Class. This type of investment will be handled in either of the following ways. (1) If the shareholder's bank is a member of the National Automated Clearing House Association ("NACHA"), the amount of the investment will be electronically deducted from his or her account by Electronic Fund Transfer ("EFT"). The shareholder's checking account will reflect a debit each month at a specified date, although no check is required to initiate the transaction. (2) If the shareholder's bank is not a member of NACHA, deductions will be made by preauthorized checks, known as Depository Transfer Checks. Should the shareholder's bank become a member of NACHA in the future, his or her investments would be handled electronically through EFT. * * * Initial investments under the Direct Deposit Purchase Plan and the Automatic Investing Plan must be for $250 or more and subsequent investments under such Plans must be for $25 or more. An investor wishing to take advantage of either service must complete an authorization form. Either service can be discontinued by the shareholder at any time without penalty by giving written notice. Payments to a Fund from the federal government or its agencies on behalf of a shareholder may be credited to the shareholder's account after such payments should have been terminated by reason of death or otherwise. Any such payments are subject to reclamation by the federal government or its agencies. Similarly, under certain circumstances, investments from private sources may be subject to reclamation by the transmitting bank. In the event of a reclamation, a Fund may liquidate sufficient shares from a shareholder's account to reimburse the government or the private source. In the event there are insufficient shares in the shareholder's account, the shareholder is expected to reimburse such Fund. Direct Deposit Purchases by Mail Shareholders may authorize a third party, such as a bank or employer, to make investments directly to their Fund accounts. A Fund will accept these investments, such as bank-by-phone, annuity payments and payroll allotments, by mail directly from the third party. Investors should contact their employers or financial institutions who in turn should contact the Funds for proper instructions. Wealth Builder Option Shareholders can use the Wealth Builder Option to invest in the Fund Classes through regular liquidations of shares in their accounts in other mutual funds in the Delaware Investments family. Shareholders of the Fund Classes may elect to invest in one or more of the other mutual funds in Delaware Investments family through the Wealth Builder Option. If in connection with the election of the Wealth Builder Option, you wish to open a new account to receive the automatic investment, such new account must meet the minimum initial purchase requirements described in the prospectus of the fund that you select. All investments under this option are exchanges and are therefore subject to the same conditions and limitations as other exchanges noted above. Under this automatic exchange program, shareholders can authorize regular monthly investments (minimum of $100 per fund) to be liquidated from their account and invested automatically into other mutual funds in the Delaware Investments family, subject to the conditions and limitations set forth in the Fund Classes' Prospectus. The investment will be made on the 20th day of each month (or, if the fund selected is not open that day, the next business day) at the public offering price or net asset value, as applicable, of the fund selected on the date of investment. No investment will be made for any month if the value of the shareholder's account is less than the amount specified for investment. -74- Periodic investment through the Wealth Builder Option does not insure profits or protect against losses in a declining market. The price of the fund into which investments are made could fluctuate. Since this program involves continuous investment regardless of such fluctuating value, investors selecting this option should consider their financial ability to continue to participate in the program through periods of low fund share prices. This program involves automatic exchanges between two or more fund accounts and is treated as a purchase of shares of the fund into which investments are made through the program. See Exchange Privilege for a brief summary of the tax consequences of exchanges. Shareholders can terminate their participation in Wealth Builder at any time by giving written notice to the fund from which exchanges are made. Asset Planner To invest in Delaware Investments funds using the Asset Planner asset allocation service, you should complete an Asset Planner Account Registration Form, which is available only from a financial adviser or investment dealer. Effective September 1, 1997, the Asset Planner Service is only available to financial advisers or investment dealers who have previously used this service. The Asset Planner service offers a choice of four predesigned asset allocation strategies (each with a different risk/reward profile) in predetermined percentages in Delaware Investments funds. With the help of a financial adviser, you may also design a customized asset allocation strategy. The sales charge on an investment through the Asset Planner service is determined by the individual sales charges of the underlying funds and their percentage allocation in the selected Strategy. Exchanges from existing Delaware Investments accounts into the Asset Planner service may be made at net asset value under the circumstances described under Investing by Exchange. Also see Buying Class A Shares at Net Asset Value. The minimum initial investment per Strategy is $2,000; subsequent investments must be at least $100. Individual fund minimums do not apply to investments made using the Asset Planner service. Class A, Class B and Class C Shares are available through the Asset Planner service. Generally, only shares within the same class may be used within the same Strategy. However, Class A Shares of a Fund and of other funds in the Delaware Investments family may be used in the same Strategy with consultant class shares that are offered by certain other Delaware Investments funds. An annual maintenance fee, currently $35 per Strategy, is due at the time of initial investment and by September 30 of each subsequent year. The fee, payable to Delaware Service Company, Inc. to defray extra costs associated with administering the Asset Planner service, will be deducted automatically from one of the funds within your Asset Planner account if not paid by September 30. However, effective November 1, 1996, the annual maintenance fee is waived until further notice. Investors will receive a customized quarterly Strategy Report summarizing all Asset Planner investment performance and account activity during the prior period. Confirmation statements will be sent following all transactions other than those involving a reinvestment of distributions. Certain shareholder services are not available to investors using the Asset Planner service, due to its special design. These include Delaphone, Checkwriting, Wealth Builder Option and Letter of Intention. Systematic Withdrawal Plans are available after the account has been open for two years. DETERMINING OFFERING PRICE AND NET ASSET VALUE Orders for purchases of Class A Shares are effected at the offering price next calculated by the Fund in which shares are being purchased after receipt of the order by that Fund, its agent or certain other authorized persons. Orders for purchases of Class B Shares and Class C Shares of each Fund are effected at the net asset value per share next calculated by the Fund in which shares are being purchased after receipt of the order by that Fund or its agent. See Distribution and Service under Investment Management Agreements. Selling dealers have the responsibility of transmitting orders promptly. -75- The offering price of Class A Shares consists of the net asset value per share, plus any applicable front-end sales charges. Offering price and net asset value are computed as of the close of regular trading on the New York Stock Exchange (ordinarily, 4 p.m. Eastern time) on days when the Exchange is open. The New York Stock Exchange is scheduled to be open Monday through Friday throughout the year except for days on which the following holidays are observed: New Year's Day, Martin Luther King, Jr.'s Birthday, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas. When the New York Stock Exchange is closed, the Funds will generally be closed, pricing calculations will not be made and purchase and redemption orders will not be processed. An example showing how to calculate the net asset value per share and, in the case of Class A Shares, the offering price per share, is included in each Fund's financial statements which are incorporated by reference into this Part B. Each Fund's net asset value per share is computed by adding the value of all securities and other assets in the portfolio of that Fund, deducting any liabilities and dividing by the number of shares outstanding. Expenses and income are accrued daily. In determining a Fund's total net assets, certain portfolio securities are valued at fair value, using methods determined in good faith by the Board of Trustees. This method utilizes the services of an independent pricing organization which employs a combination of methods including, among others, the obtaining of market valuations from dealers who make markets and deal in such securities, and by comparing valuations with those of other comparable securities in a matrix of such securities. A pricing service's activities and results are reviewed by the officers of the Funds. In addition, money market instruments having a maturity of less than 60 days are valued at amortized cost. In addition, when determining a Fund's total net assets, certain portfolio securities, except for bonds, which are primarily listed or traded on a national or foreign securities exchange are valued at the last sale price on that exchange. Options are valued at the last reported sales price or, if no sales are reported, at the mean between bid and asked prices. Securities not traded on a particular day, over-the-counter securities and government and agency securities are valued at the mean value between bid and asked prices. Money market instruments having a maturity of less than 60 days are valued at amortized cost. Debt securities (other than short-term obligations) are valued on the basis of valuations provided by a pricing service when such prices are believed to reflect the fair value of such securities. Use of a pricing service has been approved by the Board of Trustees. 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. -76- REDEMPTION AND EXCHANGE You can redeem or exchange your shares in a number of different ways. Exchanges are subject to the requirements of each fund and all exchanges of shares constitute taxable events. Further, in order for an exchange to be processed, shares of the fund being acquired must be registered in the state where the acquiring shareholder resides. You may want to consult your financial adviser or investment dealer to discuss which funds in Delaware Investments will best meet your changing objectives, and the consequences of any exchange transaction. You may also call the Delaware Investments directly for fund information. Your shares will be redeemed or exchanged at a price based on the net asset value next determined after a Fund receives your request in good order, subject, in the case of a redemption, to any applicable CDSC or Limited CDSC. For example, redemption or exchange requests received in good order after the time the offering price and net asset value of shares are determined will be processed on the next business day. A shareholder submitting a redemption request may indicate that he or she wishes to receive redemption proceeds of a specific dollar amount. In the case of such a request, a Fund will redeem the number of shares necessary to deduct the applicable CDSC in the case of Class B Shares and Class C Shares, and, if applicable, the Limited CDSC in the case of Class A Shares and tender to the shareholder the requested amount, assuming the shareholder holds enough shares in his or her account for the redemption to be processed in this manner. Otherwise, the amount tendered to the shareholder upon redemption will be reduced by the amount of the applicable CDSC or Limited CDSC. Redemption proceeds will be distributed promptly, as described below, but not later than seven days after receipt of a redemption request. Except as noted below, for a redemption request to be in "good order," you must provide your account number, account registration, and the total number of shares or dollar amount of the transaction. For exchange requests, you must also provide the name of the fund in which you want to invest the proceeds. Exchange instructions and redemption requests must be signed by the record owner(s) exactly as the shares are registered. You may request a redemption or an exchange by calling the Shareholder Service Center at 800-523-1918. Each Fund may suspend, terminate, or amend the terms of the exchange privilege upon 60 days' written notice to shareholders. In addition to redemption of Fund shares, the Distributor, acting as agent of the Funds, offers to repurchase Fund shares from broker/dealers acting on behalf of shareholders. The redemption or repurchase price, which may be more or less than the shareholder's cost, is the net asset value per share next determined after receipt of the request in good order by the respective Fund, its agent, or certain other authorized persons 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. -77- Payment for shares redeemed will ordinarily be mailed the next business day, but in no case later than seven days, after receipt of a redemption request in good order by the Fund or certain other authorized persons (see Distribution and Service under Investment Management Agreements); provided, however, that each commitment to mail or wire redemption proceeds by a certain time, as described below, is modified by the qualifications described in the next paragraph. Each Fund will process written and telephone redemption requests to the extent that the purchase orders for the shares being redeemed have already settled. Each Fund will honor redemption requests as to shares for which a check was tendered as payment, but a Fund will not mail or wire the proceeds until it is reasonably satisfied that the purchase check has cleared, which may take up to 15 days from the purchase date. You can avoid this potential delay if you purchase shares by wiring Federal Funds. Each Fund reserves the right to reject a written or telephone redemption request or delay payment of redemption proceeds if there has been a recent change to the shareholder's address of record. If a shareholder has been credited with a purchase by a check which is subsequently returned unpaid for insufficient funds or for any other reason, the Fund involved will automatically redeem from the shareholder's account the shares purchased by the check plus any dividends earned thereon. Shareholders may be responsible for any losses to a Fund or to the Distributor. In case of a suspension of the determination of the net asset value because the New York Stock Exchange is closed for other than weekends or holidays, or trading thereon is restricted or an emergency exists as a result of which disposal by a Fund of securities owned by it is not reasonably practical, or it is not reasonably practical for a Fund fairly to value its assets, or in the event that the SEC has provided for such suspension for the protection of shareholders, a Fund may postpone payment or suspend the right of redemption or repurchase. In such case, 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, the Trust has elected to be governed by Rule 18f-1 under the 1940 Act pursuant to which each Fund is obligated to redeem shares solely in cash up to the lesser of $250,000 or 1% of the net asset value of such Fund during any 90-day period for any one shareholder. The value of a Fund's investments is subject to changing market prices. Thus, a shareholder reselling shares to a Fund may sustain either a gain or loss, depending upon the price paid and the price received for such shares. Certain redemptions of Class A Shares purchased at net asset value may result in the imposition of a Limited CDSC. See Contingent Deferred Sales Charge for Certain Redemptions of Class A Shares Purchased at Net Asset Value under Redemption and Exchange. Class B Shares of Tax-Free Funds, Insured Funds and Minnesota High-Yield Fund are subject to a CDSC of: (i) 4% if shares are redeemed within two years of purchase; (ii) 3% if shares are redeemed during the third or fourth year following purchase; (iii) 2% if shares are redeemed during the fifth year following purchase; (iv) 1% if shares are redeemed during the sixth year following purchase; and (v) 0% thereafter. Class B Shares of Tax-Free Minnesota Intermediate Fund are subject to a CDSC of: (i) 2% if shares are redeemed within two years of purchase; (ii) 1% if shares are redeemed during the third year following purchase; and (iii) 0% thereafter. See Contingent Deferred Sales Charge - Class B Shares and Class C Shares under Purchasing 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, neither the Funds nor the Distributor charges a fee for redemptions or repurchases, but such fees could be charged at any time in the future. -78- Holders of Class B Shares or Class C Shares that exchange their shares ("Original Shares") for shares of the other funds in the Delaware Investments family (in each case, "New Shares") in a permitted exchange, will not be subject to a CDSC that might otherwise be due upon redemption of Original Shares. However, such shareholders will continue to be subject to the CDSC and, in the case of Class B Shares, the automatic conversion schedule of Original Shares as described in this Part B and any CDSC assessed upon redemption will be charged by the fund from which the Original Shares were exchanged. In an exchange of shares from Tax-Free Funds B Class, Insured Funds B Class or Minnesota High-Yield Fund B Class, the CDSC schedule for such Class may be higher than the CDSC schedule relating to New Shares acquired as a result of the exchange. For purposes of computing the CDSC that may be payable upon a disposition of the New Shares, the period of time that an investor held Original Shares is added to the period of time that an investor held New Shares. The automatic conversion schedule of Original Shares of Class B Shares of Tax-Free Funds, Insured Funds and Minnesota High-Yield Fund may be longer than that of the New Shares. Consequently, an investment in New Shares by exchange may subject an investor to the higher 12b-1 fees applicable to Class B Shares of Tax-Free Funds, Insured Funds and Minnesota High-Yield Fund shares for a longer period of time than if the investment in New Shares were made directly. Small Accounts Before a Fund involuntarily redeems shares from an account that, under the circumstances noted in the relevant Prospectus, has remained below the minimum amounts required by the Prospectus and sends the proceeds to the shareholder, the shareholder will be notified in writing that the value of the shares in the account is less than the minimum required by the Prospectus and will be allowed 60 days from the date of notice to make an additional investment to meet the required minimum. Any redemption in an inactive account established with a minimum investment may trigger mandatory redemption. No CDSC or Limited CDSC will apply to the redemptions described in this paragraph. * * * Each Fund has made available certain redemption privileges, as described below. The Funds reserve the right to suspend or terminate these expedited payment procedures upon 60 days written notice to shareholders. Written Redemption You can write to each Fund at 1818 Market Street, Philadelphia, PA 19103 to redeem some or all of your shares. The request must be signed by all owners of the account or your investment dealer of record. For redemptions of more than $50,000, or when the proceeds are not sent to the shareholder(s) at the address of record, the Funds require a signature by all owners of the account and a signature guarantee for each owner. A signature guarantee can be obtained from a commercial bank, a trust company or a member of a Securities Transfer Association Medallion Program ("STAMP"). Each Fund reserves the right to reject a signature guarantee supplied by an eligible institution based on its creditworthiness. The Funds may require further documentation from corporations, executors, retirement plans, administrators, trustees or guardians. Payment is normally mailed the next business day after receipt of your redemption request. If your Class A Shares are in certificate form, the certificate(s) must accompany your request and also be in good order. Certificates are issued for Class A Shares only if a shareholder submits a specific request. Certificates are not issued for Class B Shares or Class C Shares. Written Exchange You may also write to each Fund (at 1818 Market Street, Philadelphia, PA 19103) to request an exchange of any or all of your shares into another mutual fund in Delaware Investments, subject to the same conditions and limitations as other exchanges noted above. -79- Telephone Redemption and Exchange To get the added convenience of the telephone redemption and exchange methods, you must have the Transfer Agent hold your shares (without charge) for you. If you choose to have your Class A Shares in certificate form, you may redeem or exchange only by written request and you must return your certificates. The Telephone Redemption - Check to Your Address of Record service and the Telephone Exchange service, both of which are described below, are automatically provided unless you notify the Fund in which you have your account in writing that you do not wish to have such services available with respect to your account. Each Fund reserves the right to modify, terminate or suspend these procedures upon 60 days' written notice to shareholders. It may be difficult to reach the Funds by telephone during periods when market or economic conditions lead to an unusually large volume of telephone requests. Neither the Funds nor their Transfer Agent is responsible for any shareholder loss incurred in acting upon written or telephone instructions for redemption or exchange of Fund shares which are reasonably believed to be genuine. With respect to such telephone transactions, each Fund will follow reasonable procedures to confirm that instructions communicated by telephone are genuine (including verification of a form of personal identification) as, if it does not, such Fund or the Transfer Agent may be liable for any losses due to unauthorized or fraudulent transactions. Telephone instructions received by the Fund Classes are generally tape recorded, and a written confirmation will be provided for all purchase, exchange and redemption transactions initiated by telephone. By exchanging shares by telephone, you are acknowledging prior receipt of a prospectus for the fund into which your shares are being exchanged. Telephone Redemption--Check to Your Address of Record The Telephone Redemption feature is a quick and easy method to redeem shares. You or your investment dealer of record can have redemption proceeds of $50,000 or less mailed to you at your address of record. Checks will be payable to the shareholder(s) of record. Payment is normally mailed the next business day after receipt of the redemption request. This service is only available to individual, joint and individual fiduciary-type accounts. Telephone Redemption--Proceeds to Your Bank Redemption proceeds of $1,000 or more can be transferred to your predesignated bank account by wire or by check. You should authorize this service when you open your account. If you change your predesignated bank account, you must complete an Authorization Form and have your signature guaranteed. For your protection, your authorization must be on file. If you request a wire, your funds will normally be sent the next business day. If the proceeds are wired to the shareholder's account at a bank which is not a member of the Federal Reserve System, there could be a delay in the crediting of the funds to the shareholder's bank account. First Union National Bank's fee (currently $7.50) will be deducted from redemption proceeds. If you ask for a check, it will normally be mailed the next business day after receipt of your redemption request to your predesignated bank account. There are no separate fees for this redemption method, but the mail time may delay getting funds into your bank account. Simply call the Shareholder Service Center prior to the time the offering price and net asset value are determined, as noted above. -80- Telephone Exchange The Telephone Exchange feature is a convenient and efficient way to adjust your investment holdings as your liquidity requirements and investment objectives change. You or your investment dealer of record can exchange your shares into other funds in Delaware Investments under the same registration, subject to the same conditions and limitations as other exchanges noted above. As with the written exchange service, telephone exchanges are subject to the requirements of each fund, as described above. Telephone exchanges may be subject to limitations as to amounts or frequency. The telephone exchange privilege is intended as a convenience to shareholders and is not intended to be a vehicle to speculate on short-term swings in the securities market through frequent transactions in and out of the funds in the Delaware Investments family. Telephone exchanges may be subject to limitations as to amounts or frequency. The Transfer Agent and each Fund reserve the right to record exchange instructions received by telephone and to reject exchange requests at any time in the future. MoneyLine (SM) On Demand You or your investment dealer may request redemptions of Fund shares by phone using MoneyLine (SM) On Demand. When you authorize a Fund to accept such requests from you or your investment dealer, funds will be deposited to (for share redemptions) your predesignated bank account. Your request will be processed the same day if you call prior to 4 p.m., Eastern time. There is a $25 minimum and $50,000 maximum limit for MoneyLine (SM) On Demand transactions. See MoneyLine (SM) On Demand under Investment Plans. Right to Refuse Timing Accounts With regard to accounts that are administered by market timing services ("Timing Firms") to purchase or redeem shares based on changing economic and market conditions ("Timing Accounts"), the Funds will refuse any new timing arrangements, as well as any new purchases (as opposed to exchanges) in Delaware Investments funds from Timing Firms. A Fund reserves the right to temporarily or permanently terminate the exchange privilege or reject any specific purchase order for any person whose transactions seem to follow a timing pattern who: (i) makes an exchange request out of the Fund within two weeks of an earlier exchange request out of the Fund, or (ii) makes more than two exchanges out of the Fund per calendar quarter, or (iii) exchanges shares equal in value to at least $5 million, or more than 1/4 of 1% of the Fund's net assets. Accounts under common ownership or control, including accounts administered so as to redeem or purchase shares based upon certain predetermined market indicators, will be aggregated for purposes of the exchange limits. Restrictions on Timed Exchanges Timing Accounts operating under existing timing agreements may only execute exchanges between the following eight Delaware Investments funds: (1) Decatur Income Fund, (2) Decatur Total Return Fund, (3) Delaware Balanced Fund, (4) Limited-Term Government Fund, (5) USA Fund, (6) Delaware Cash Reserve, (7) Delchester Fund and (8) Tax-Free Pennsylvania Fund. No other Delaware Investments funds are available for timed exchanges. Assets redeemed or exchanged out of Timing Accounts in Delaware Investments funds not listed above may not be reinvested back into that Timing Account. Each Fund reserves the right to apply these same restrictions to the account(s) of any person whose transactions seem to follow a time pattern (as described above). -81- Each Fund also reserves the right to refuse the purchase side of an exchange request by any Timing Account, person, or group if, in the Manager's judgment, the Fund would be unable to invest effectively in accordance with its investment objectives and policies, or would otherwise potentially be adversely affected. A shareholder's purchase exchanges may be restricted or refused if a Fund receives or anticipates simultaneous orders affecting significant portions of the Fund's assets. In particular, a pattern of exchanges that coincide with a "market timing" strategy may be disruptive to a Fund and therefore may be refused. Except as noted above, only shareholders and their authorized brokers of record will be permitted to make exchanges or redemptions. Systematic Withdrawal Plans Shareholders of Class A Shares, Class B Shares and Class C Shares who own or purchase $5,000 or more of shares at the offering price, or net asset value, as applicable, for which certificates have not been issued may establish a Systematic Withdrawal Plan for monthly withdrawals of $25 or more, or quarterly withdrawals of $75 or more, although the Funds do not recommend any specific amount of withdrawal. This is particularly useful to shareholders living on fixed incomes, since it can provide them with a stable supplemental amount. Shares purchased with the initial investment and through reinvestment of cash dividends and realized securities profits distributions will be credited to the shareholder's account and sufficient full and fractional shares will be redeemed at the net asset value calculated on the third business day preceding the mailing date. Checks are dated either the 1st or the 15th of the month, as selected by the shareholder (unless such date falls on a holiday or a weekend), and are normally mailed within two business days. Both ordinary income dividends and realized securities profits distributions will be automatically reinvested in additional shares of the Class at net asset value. This plan is not recommended for all investors and should be started only after careful consideration of its operation and effect upon the investor's savings and investment program. To the extent that withdrawal payments from the plan exceed any dividends and/or realized securities profits distributions paid on shares held under the plan, the withdrawal payments will represent a return of capital, and the share balance may in time be depleted, particularly in a declining market. Shareholders should not purchase additional shares while participating in a Systematic Withdrawal Plan. The sale of shares for withdrawal payments constitutes a taxable event and a shareholder may incur a capital gain or loss for federal income tax purposes. This gain or loss may be long-term or short-term depending on the holding period for the specific shares liquidated. Withdrawals under this plan made concurrently with the purchases of additional shares may be disadvantageous to the shareholder. Purchases of Class A Shares through a periodic investment program in a fund managed by the Manager must be terminated before a Systematic Withdrawal Plan with respect to such shares can take effect, except if the shareholder is Delaware Investments funds which do not carry a sales charge. Redemptions of Class A Shares pursuant to a Systematic Withdrawal Plan may be subject to a Limited CDSC if the purchase was made at net asset value and a dealer's commission has been paid on that purchase. The applicable Limited CDSC for Class A Shares and CDSC for Class B and C Shares redeemed via a Systematic Withdrawal Plan will be waived if the annual amount withdrawn in each year is less than 12% of the account balance on the date that the Plan is established. If the annual amount withdrawn in any year exceeds 12% of the account balance on the date that the Systematic Withdrawal Plan is established, all redemptions under the Plan will be subjected to the applicable contingent deferred sales charge, including an assessment for previously redeemed amounts under the Plan. Whether a waiver of the contingent deferred sales charge is available or not, the first shares to be redeemed for each Systematic Withdrawal Plan payment will be those not subject to a contingent deferred sales charge because they have either satisfied the required holding period or were acquired through the reinvestment of distributions. -82- See Waivers of Contingent Deferred Sales Charges, below. An investor wishing to start a Systematic Withdrawal Plan must complete an authorization form. If the recipient of Systematic Withdrawal Plan payments is other than the registered shareholder, the shareholder's signature on this authorization must be guaranteed. Each signature guarantee must be supplied by an eligible guarantor institution. The Funds reserve the right to reject a signature guarantee supplied by an eligible institution based on its creditworthiness. This plan may be terminated by the shareholder or the Transfer Agent at any time by giving written notice. Systematic Withdrawal Plan payments are normally made by check. In the alternative, you may elect to have your payments transferred from your Fund account to your predesignated bank account through the MoneyLine (SM) Direct Deposit Service. Your funds will normally be credited to your bank account up to four business days after the payment date. There are no separate fees for this redemption method. It may take up to four business days for the transactions to be completed. You can initiate this service by completing an Account Services form. If your name and address are not identical to the name and address on your Fund account, you must have your signature guaranteed. The Funds do not charge a fee for any this service; however, your bank may charge a fee. Shareholders should consult with their financial advisers to determine whether a Systematic Withdrawal Plan would be suitable for them. Contingent Deferred Sales Charge for Certain Redemptions of Class A Shares Purchased at Net Asset Value For purchases of $1,000,000 or more made on or after July 1, 1998, a Limited CDSC will be imposed on certain redemptions of Class A Shares (or shares into which such Class A Shares are exchanged) according to the following schedule: (1) 1.00% if shares are redeemed during the first year after the purchase; and (2) 0.50% if such shares are redeemed during the second year after the purchase, if such purchases were made at net asset value and triggered the payment by the Distributor of the dealer's commission described above. The Limited CDSC will be paid to the Distributor and will be assessed on an amount equal to the lesser of: (1) the net asset value at the time of purchase of the Class A Shares being redeemed or (2) the net asset value of such Class A Shares at the time of redemption. For purposes of this formula, the "net asset value at the time of purchase" will be the net asset value at purchase of the Class A Shares even if those shares are later exchanged for shares of another Delaware Investments fund and, in the event of an exchange of Class A Shares, the "net asset value of such shares at the time of redemption" will be the net asset value of the shares acquired in the exchange. Redemptions of such Class A Shares held for more than two years will not be subjected to the Limited CDSC and an exchange of such Class A Shares into another Delaware Investments fund will not trigger the imposition of the Limited CDSC at the time of such exchange. The period a shareholder owns shares into which Class A Shares are exchanged will count towards satisfying the two-year holding period. The Limited CDSC is assessed if such two year period is not satisfied irrespective of whether the redemption triggering its payment is of Class A Shares of a Fund or Class A Shares acquired in the exchange. In determining whether a Limited CDSC is payable, it will be assumed that shares not subject to the Limited CDSC are the first redeemed followed by other shares held for the longest period of time. The Limited CDSC will not be imposed upon shares representing reinvested dividends or capital gains 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. -83- Waivers of Contingent Deferred Sales Charges Waiver of Limited Contingent Deferred Sales Charge -- Class A Shares - --The Limited CDSC for Class A Shares on which a dealer's commission has been paid will be waived in the following instances: (i) redemptions that result from a Fund's right to liquidate a shareholder's account if the aggregate net asset value of the shares held in the account is less than the then-effective minimum account size; (ii) distributions from an account if the redemption results from the death of the registered owner, or a registered joint owner, of the account (in the case of accounts established under the Uniform Gifts to Minors or Uniform Transfers to Minors Acts or trust accounts, the waiver applies upon the death of all beneficial owners) or a total and permanent disability (as defined in Section 72 of the Code) of all registered owners occurring after the purchase of the shares being redeemed; and (ii) redemptions by the classes of shareholders who are permitted to purchase shares at net asset value, regardless of the size of the purchase (see Buying Class A Shares at Net Asset Value under Purchasing Shares). Waiver of Contingent Deferred Sales Charge -- Class B Shares and Class C Shares -- The CDSC is waived on certain redemptions of Class B Shares in connection with the following redemptions: (i) redemptions that result from a Fund's right to liquidate a shareholder's account if the aggregate net asset value of the shares held in the account is less than the then-effective minimum account size; and (ii) distributions from an account if the redemption results from the death of the registered owner, or a registered joint owner, of the account (in the case of accounts established under the Uniform Gifts to Minors or Uniform Transfers to Minors Acts or trust accounts, the waiver applies upon the death of all beneficial owners) or a total and permanent disability (as defined in Section 72 of the Code) of all registered owners occurring after the purchase of the shares being redeemed. The CDSC of Class C Shares is waived in connection with the following redemptions: (i) redemptions that result from a Fund's right to liquidate a shareholder's account if the aggregate net asset value of the shares held in the account is less than the then-effective minimum account size; and (ii) distributions from an account if the redemption results from the death of the registered owner, or a registered joint owner, of the account (in the case of accounts established under the Uniform Gifts to Minors or Uniform Transfers to Minors Acts or trust accounts, the waiver applies upon the death of all beneficial owners) or a total and permanent disability (as defined in Section 72 of the Code) of all registered owners occurring after the purchase of the shares being redeemed. In addition, the Limited CDSC will be waived on Class A Shares and the CDSC will be waived on Class B Shares and Class C Shares redeemed in accordance with a Systematic Withdrawal Plan if the annual amount withdrawn under the Plan does not exceed 12% of the value of the account on the date that the Systematic Withdrawal Plan was established. -84- DISTRIBUTIONS Each Fund declares a dividend to shareholders of that Fund's net investment income on a daily basis. Dividends are declared each day the Funds are open and cash dividends are paid monthly. Net investment income earned on days when each Fund is not open will be declared as a dividend on the next business day. Payment by check of cash dividends will ordinarily be mailed within three business days after the payable date. In determining daily dividends, the amount of net investment income for each Fund will be determined at the time the offering price and net asset value are determined (see Determining Offering Price and Net Asset Value) and shall include investment income accrued by the respective Fund, less the estimated expenses of that Fund incurred since the last determination of net asset value. Gross investment income consists principally of interest accrued and, where applicable, net pro-rata amortization of premiums and discounts since the last determination. The dividend declared, as noted above, will be deducted immediately before the net asset value calculation is made. Purchases of Fund shares by wire begin earning dividends when converted into Federal Funds and available for investment, normally the next business day after receipt. However, if a Fund is given prior notice of Federal Funds wire and an acceptable written guarantee of timely receipt from an investor satisfying such Fund's credit policies, the purchase will start earning dividends on the date the wire is received. Investors desiring to guarantee wire payments must have an acceptable financial condition and credit history in the sole discretion of that Fund. The Funds reserve the right to terminate this option at any time. Purchases by check earn dividends upon conversion to Federal Funds, normally one business day after receipt. Each Class will share proportionately in the investment income and expenses of its respective Fund, except that Class A Shares, Class B Shares and Class C Shares alone will incur distribution fees under their respective 12b-1 Plan. Dividends are automatically reinvested in additional shares of the paying Fund at net asset value, unless an election to receive dividends in cash has been made. Dividend payments of $1.00 or less will be automatically reinvested, notwithstanding a shareholder's election to receive dividends in cash. If such a shareholder's dividends increase to greater than $1.00, the shareholder would have to file a new election in order to begin receiving dividends in cash again. If a shareholder redeems an entire account, all dividends accrued to the time of the withdrawal will be paid by separate check at the end of that particular monthly dividend period, consistent with the payment and mailing schedule described above. Any distributions from net realized securities profits will be made annually during the quarter following the close of the fiscal year. Such distributions will be reinvested in shares, unless the shareholder elects to receive them in cash. Shareholders will receive a quarterly statement showing a Class' dividends paid and all the transactions made during the period. Any check in payment of dividends or other distributions which cannot be delivered by the United States Post Office or which remains uncashed for a period of more than one year may be reinvested in the shareholder's account at the then-current net asset value and the dividend option may be changed from cash to reinvest. A Fund may deduct from a shareholder's account the costs of such Fund's effort to locate a shareholder if a shareholder's mail is returned by the United States Post Office or such Fund is otherwise unable to locate the shareholder or verify the shareholder's mailing address. These costs may include a percentage of the account when a search company charges a percentage fee in exchange for their location services. -85- Each Fund anticipates that most of its dividends paid to shareholders will be exempt from federal income taxes. Under the 1997 Act, as revised by the 1998 Act and the Omnibus Consolidated and Emergency Supplemental Appropriations Act, a Fund is required to track its sales of portfolio securities and to report its capital gain distributions to you according to the following categories of holding periods: "Mid-term capital gains" or "28 percent rate gain": securities sold by a Fund after July 28, 1997 that were held more than one year but not more than 18 months. These gains will be taxable to individual investors at a maximum rate of 28%. This category of gains applied only to gains and distributions in 1997. "1997 Act long-term capital gains" or "20 percent rate gain": securities sold between May 7, 1997 and July 28, 1997 that were held for more than 12 months, and securities sold by the Fund after July 28, 1997 that were held for more than 18 months. As revised by the 1998 Act, this rate applies to securities held for more than 12 months and sold in tax years beginning after December 1, 1997. These gains will be taxable to individual investors at a maximum rate of 20% for investors in the 28% or higher federal income tax brackets, and at a maximum rate of 10% for investors in the 15% federal income tax bracket. The Omnibus Consolidated and Emergency Supplemental Appropriations Act passed in October of 1998 included technical corrections to the 1998 Act. The effect of this correction is that essentially all capital gain distributions paid to shareholders during 1998 will be taxed at a maximum rate of 20%. "Qualified 5-year gains": For individuals in the 15% bracket, qualified five-year gains are net gains on securities held for more than 5 years which are sold after December 31, 2000. For individual who are subject to tax at higher rate brackets, qualified five-year gains are net gains on securities which are purchased after December 31, 2000 and are held for more than five years. Taxpayers subject to tax at a higher rate brackets may also make an election for shares held on January 1, 2001 to recognize gain on their shares in order to qualify such shares as qualified five-year property. These gains will be taxable to individual investors at a maximum rate of 18% for investors in the 28% or higher federal income tax brackets, and at a maximum rate of 8% for investors in the 15% federal income tax bracket when sold after the five-year holding period. 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. -86- 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. 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." 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. -87- 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. 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. -88- 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. Kansas State Taxation Exempt interest dividends from the Kansas Fund that are excluded from gross income for federal income tax purposes and that are attributable to interest on (i) obligations of the State of Kansas or its political subdivisions issued after December 31, 1987, (ii) obligations of the State of Kansas or its political subdivisions issued prior to January 1, 1988, the interest on which is expressly exempt from income tax under Kansas law and (iii) obligations of possessions of the United States that are exempt from state taxation under federal law, are excluded from taxable income for purposes of the income tax imposed by the State of Kansas on individuals, fiduciaries and corporations (other than insurance companies, banks, trust companies and savings and loan associations). Distributions from the Kansas Fund, including exempt interest dividends, may be subject to the taxes imposed by the State of Kansas on insurance companies and on banks, trust companies and savings and loan associations, when received by shareholders subject to such taxes. Minnesota State Taxation Minnesota taxable net income is based generally on federal taxable income. The portion of exempt-interest dividends that is derived from interest income on Minnesota Tax-Exempt Obligations is excluded from the Minnesota taxable net income of individuals, estates and trusts, provided that the portion of the exempt-interest dividends from such Minnesota sources paid to all shareholders represents 95 percent or more of the exempt-interest dividends paid by all Minnesota Funds. Exempt interest dividends that are treated as an item of tax preference for purposes of the federal alternative minimum tax are also subject to the Minnesota alternative minimum tax on individuals, estates and trusts. Distributions from the Minnesota Funds, including exempt interest dividends, may be subject to the Minnesota income tax imposed on corporations when received by shareholders subject to such tax. In 1995, the Minnesota Legislature enacted a statement of intent that interest on obligations of Minnesota governmental units and Indian tribes be included in net income of individuals, estates and trusts for Minnesota income tax purposes if a court determines that Minnesota's exemption of such interest unlawfully discriminates against interstate commerce because interest on obligations of governmental issuers located in other states is subject to tax. This provision applies to taxable years that begin during or after the calendar year in which any such court decision becomes final, irrespective of the date on which the obligations were issued. The Minnesota Funds are not aware of any decision in which a court has held that a state's exemption of interest on its own bonds or those of its political subdivisions or Indian tribes, but not of interest on the bonds of other states or their political subdivisions or Indian tribes, unlawfully discriminates against interstate commerce or otherwise contravenes the United States Constitution. Nevertheless, the Minnesota Funds cannot predict the likelihood that interest on the Minnesota obligations held by the Minnesota Funds would become taxable under this Minnesota statutory provision. -89- Missouri State Taxation Exempt interest dividends from the Missouri Fund that are excluded from gross income for federal income tax purposes and that are derived from interest on (i) obligations of the State of Missouri or any of its political subdivisions or authorities or (ii) obligations of territories and possessions of the United States that are exempt from state taxation under federal law, as designated by the Missouri Fund in an annual notice mailed to shareholders, are not included in taxable income for purposes of the Missouri income tax imposed on individuals, trusts, estates and certain corporations (not including banking institutions, credit institutions, credit unions and savings and loan associations.) Distributions from the Missouri Fund, including exempt interest dividends, may be subject to the franchise taxes imposed on banking institutions, credit institutions, credit unions and savings and loan associations when received by shareholders subject to such taxes. New York State and City Taxation Exempt interest dividends from the New York Fund that are excluded from gross income for federal income tax purposes and that are derived from interest on (i) obligations of the State of New York or its political subdivisions and (ii) obligations of possessions of the United States that are exempt from state taxation under 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. -90- 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 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. -91- 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 Trustees. The Manager and its predecessors have been managing the funds in the Delaware Investments family since 1938. On August 31, 1999, the Manager and its affiliates within Delaware Investments, including Delaware International Advisers Ltd., were managing in the aggregate more than $00 billion in assets in the various institutional or separately managed (approximately $00,000,000,000) and investment company (approximately $000,000,000,000) 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 Trustees. Voyageur was an indirect, wholly owned subsidiary of Dougherty Financial Group, Inc. ("DFG"). After the close of business on April 30, 1997, Voyageur became an indirect, wholly owned subsidiary of Lincoln National Corporation ("Lincoln National") as a result of Lincoln National's acquisition of DFG. Lincoln National, headquartered in Fort Wayne, Indiana, owns and operates insurance and investment management businesses, including Delaware Management Holding, Inc. ("DMH"). Affiliates of DMH serve as adviser, distributor and transfer agent for the Delaware Investments family. Because Lincoln National's acquisition of DFG resulted in a change of control of Voyageur, the Funds' previous investment advisory agreements with Voyageur were "assigned", as that term is defined by the 1940 Act, and the previous agreements therefore terminated upon the completion of the acquisition. On February 14, 1997, new advisory agreements with the Manager on behalf of the the Florida Funds and Tax-Free New York Fund and with Voyageur on behalf of the other Funds were unanimously approved by each Fund's respective board at a meeting held in person, and each such board called a shareholder meeting to approve these agreements. At a meeting held on April 11, 1997, the shareholders of each Fund approved its respective investment management agreement to become effective after the close of business on April 30, 1997, the date the acquisition was completed. On May 30, 1997, Voyageur was merged into the Manager and the Manager became the investment manager for these other Funds. Beginning May 1, 1997, the Manager, an indirect, wholly owned subsidiary of LNC, was retained as investment manager of the Florida Funds and Tax-Free New York Fund and Voyageur was retained as investment manager for the other Funds. The Manager is a series of Delaware Management Business Trust. The Manager changed its form of organization from a corporation to a business trust on March 1, 1998. -92- The current Investment Management Agreement for each Fund is dated as follows.
Agreement Date Approved by Agreement Date Approved by Shareholders Shareholders -------------- ------------ -------------- ------------ Tax-Free Arizona Insured April 1, 1999 March 17, 1999 Minnesota Insured April 1, 1999 March 17, 1999 Fund Fund Tax-Free Arizona Fund April 1, 1999 March 17, 1999 Tax-Free Minnesota April 15, 1999 April 13, 1999 Fund Tax-Free California January 1, 1999 Dec , 1998 Minnesota April 1, 1999 March 17, 1999 Insured Fund High-Yield Fund Tax-Free California Fund April 15, 1999 April 13, 1999 Tax-Free Missouri January 1, 1999 Dec , 1998 Insured Fund Tax-Free Colorado Fund April 15, 1999 April 13, 1999 Tax-Free Montana November 1, 1999 Fund Tax-Free Florida Fund January 1, 1999 Dec , 1998 Tax-Free New January 1, 1999 Dec , 1998 Mexico Fund Tax-Free Florida Insured January 1, 1999 Dec , 1998 Tax-Free New York April 15, 1999 April 13, 1999 Fund Fund Tax-Free Kansas Fund January 1, 1999 Dec , 1998 Tax-Free North April 15, 1999 April 13, 1999 Dakota Fund Tax-Free Idaho Fund April 15, 1999 April 13, 1999 Tax-Free Oregon January 1, 1999 Dec , 1998 Insured Fund Tax-Free Iowa Fund April 15, 1999 April 13, 1999 Tax-Free Wisconsin April 15, 1999 April 13, 1999 Fund Tax-Free Minnesota April 15, 1999 April 13, 1999 Intermediate Fund
Each Agreement 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 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 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 trustees of the Funds or by the Manager. Each Agreement will terminate automatically in the event of its assignment. Under each Fund's current Investment Management Agreement, each Fund pays the Manager a monthly investment advisory and management fee equivalent on an annual basis, of its average daily net assets, to the rates set forth below. ---------------------------------- ----------------------------------- Minnesota Insured Fund 0.50% on the first $500 million; Tax-Free Arizona Insured Fund 0.475% on the next $500 million; Tax-Free California Insured Fund 0.45% on the next $1.5 billion; Tax-Free Florida Insured Fund 0.425% on assets in excess of $2.5 Tax-Free Minnesota Intermediate billion Fund Tax-Free Missouri Insured Fund Tax-Free Oregon Insured Fund ---------------------------------- ----------------------------------- Minnesota High-Yield Fund 0.55% on the first $500 million; Tax-Free Arizona Fund 0.50% on the next $500 million; Tax-Free California Fund 0.45% on the next $1.5 billion; Tax-Free Colorado Fund 0.425% on assets in excess of $2.5 Tax-Free Florida Fund billion Tax-Free Idaho Fund Tax-Free Iowa Fund Tax-Free Kansas Fund Tax-Free Minnesota Fund Tax-Free New Mexico Fund Tax-Free New York Fund Tax-Free North Dakota Fund Tax-Free Wisconsin Fund ---------------------------------- ----------------------------------- -93- In connection with the merger transaction described above, the Manager agreed for a period of two years ending on April 30, 1999, to voluntarily waive that portion, if any, of the annual management fees payable by each Fund and to pay that Fund's expenses to the extent necessary to ensure that such Fund's total operating expenses (excluding 12b-1 Plan fees, interest expense, taxes, brokerage fees and commissions) did not exceed, on an annual basis, 1.00% of the average daily net assets of each Class of that Fund. This agreement replaced 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 replaced a similar provision in the Fund's investment advisory contracts with the Fund's predecessor investment adviser. The Manager has voluntarily agreed to waive that portion, if any, of the annual management fees payable by a Fund and to pay that Fund's expenses to the extent necessary to ensure that 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, the amounts noted below as a percentage of the average daily net assets of that Fund through December 31, 1999. ------------------------------------------- ----------- Minnesota High-Yield Fund ------------------------------------------- ----------- Minnesota Insured Fund ------------------------------------------- ----------- Tax-Free Arizona Insured Fund ------------------------------------------- ----------- Tax-Free California Fund ------------------------------------------- ----------- Tax-Free California Insured Fund ------------------------------------------- ----------- Tax-Free Colorado Fund ------------------------------------------- ----------- Tax-Free Florida Fund ------------------------------------------- ----------- Tax-Free Florida Insured Fund ------------------------------------------- ----------- Tax-Free Idaho Fund ------------------------------------------- ----------- Tax-Free Iowa Fund ------------------------------------------- ----------- Tax-Free Kansas Fund ------------------------------------------- ----------- Tax-Free Minnesota Fund ------------------------------------------- ----------- Tax-Free Minnesota Intermediate Fund ------------------------------------------- ----------- Tax-Free Missouri Insured Fund ------------------------------------------- ----------- Tax-Free New Mexico Fund ------------------------------------------- ----------- Tax-Free New York Fund ------------------------------------------- ----------- Tax-Free North Dakota Fund ------------------------------------------- ----------- Tax-Free Oregon Insured Fund ------------------------------------------- ----------- Tax-Free Wisconsin Fund ------------------------------------------- ----------- The Manager has contracted to waive that portion, if any, of the annual management fees payable by a Tax-Free Arizona 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, 0.50% of the average daily net assets of that Fund through June 30, 2000. -94- On August 31, 1999, the total net assets of each Fund were as follows: ------------------------------------------- ----------- Minnesota High-Yield Fund ------------------------------------------- ----------- Minnesota Insured Fund ------------------------------------------- ----------- Tax-Free Arizona Fund ------------------------------------------- ----------- Tax-Free Arizona Insured Fund ------------------------------------------- ----------- Tax-Free California Fund ------------------------------------------- ----------- Tax-Free California Insured Fund ------------------------------------------- ----------- Tax-Free Colorado Fund ------------------------------------------- ----------- Tax-Free Florida Fund ------------------------------------------- ----------- Tax-Free Florida Insured Fund ------------------------------------------- ----------- Tax-Free Idaho Fund ------------------------------------------- ----------- Tax-Free Iowa Fund ------------------------------------------- ----------- Tax-Free Kansas Fund ------------------------------------------- ----------- Tax-Free Minnesota Fund ------------------------------------------- ----------- Tax-Free Minnesota Intermediate Fund ------------------------------------------- ----------- Tax-Free Missouri Insured Fund ------------------------------------------- ----------- Tax-Free New Mexico Fund ------------------------------------------- ----------- Tax-Free New York Fund ------------------------------------------- ----------- Tax-Free North Dakota Fund ------------------------------------------- ----------- Tax-Free Oregon Insured Fund ------------------------------------------- ----------- Tax-Free Wisconsin Fund ------------------------------------------- ----------- -95- 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.
Investment Investment Fees Waived Advisory Fees Advisory Fees and Expenses Incurred Paid Paid Tax-Free Arizona Insured Fund 9/1/98-8/31/99 $000,000 $000,000 $00,000 1/1/98-8/31/98 $619,756 $535,646 $84,110 5/1/97-12/31/97 $652,289 $584,130 $68,159 1/1/97-4/30/97 $341,216 $311,799 $29,417 1/1/96-12/31/96 $1,119,609 $1,119,609 None Tax-Free Arizona Fund 9/1/98-8/31/99 $000,000 $000,000 $00,000 1/1/98-8/31/98 $53,250 None $61,174 5/1/97-12/31/97 $48,532 None $49,907 1/1/97-4/30/97 $21,995 None $34,425 1/1/96-12/31/96 $55,464 None $90,000 Tax-Free California Insured Fund 9/1/98-8/31/99 $000,000 $000,000 $00,000 1/1/98-8/31/98 $109,350 $108,264 $1,086 5/1/97-12/31/97 $114,802 $113,884 $918 1/1/97-4/30/97 $60,088 $51,460 $8,628 1/1/96-12/31/96 $192,101 $117,101 $75,000 Tax-Free California Fund 9/1/98-8/31/99 $000,000 $000,000 $00,000 1/1/98-8/31/98 $44,783 None $76,468 5/1/97-12/31/97 $21,305 None $43,102 1/1/97-4/30/97 $3,980 None $10,565 1/1/96-12/31/96 $7,369 None $40,001 Tax-Free Colorado Fund 9/1/98-8/31/99 $000,000 $000,000 $00,000 1/1/98-8/31/98 $1,229,144 $1,003,319 $225,825 5/1/97-12/31/97 $1,199,154 $1,020,963 $178,191 1/1/97-4/30/97 $588,023 $588,023 None 1/1/96-12/31/96 $1,865,515 $1,865,515 None
-96-
Investment Investment Fees Waived Advisory Fees Advisory Fees and Expenses Incurred Paid Paid Tax-Free Florida Insured Fund 9/1/98-8/31/99 $ 000,000 $ 000,000 $ 00,000 1/1/98-8/31/98 $ 529,873 $ 340,976 $ 188,897 5/1/97-12/31/97 $ 571,547 $ 461,777 $ 109,770 1/1/97-4/30/97 $ 305,198 $ 305,198 None 1/1/96-12/31/96 $1,074,026 $1,049,026 $ 25,000 Tax-Free Florida Fund 9/1/98-8/31/99 $ 000,000 $ 000,000 $ 00,000 1/1/98-8/31/98 $ 39,404 None $ 43,020 5/1/97-12/31/97 $ 27,555 None $ 28,543 1/1/97-4/30/97 $ 12,388 None $ 15,447 1/1/96-12/31/96 $ 29,915 None $ 60,727 Tax-Free Idaho Fund 9/1/98-8/31/99 $ 000,000 $ 000,000 $ 00,000 1/1/98-8/31/98 $ 152,524 $ 132,155 $ 20,369 5/1/97-12/31/97 $ 130,918 $ 76,955 $ 26,963 1/1/97-4/30/97 $ 57,986 $ 27,984 $ 30,002 1/1/96-12/31/96 $ 131,410 $ 1,410 $ 130,000 Tax-Free Iowa Fund 9/1/98-8/31/99 $ 000,000 $ 000,000 $ 00,000 1/1/98-8/31/98 $ 143,522 $ 115,543 $ 27,979 5/1/97-12/31/97 $ 139,262 $ 122,155 $ 17,107 1/1/97-4/30/97 $ 68,692 $ 62,756 $ 5,936 1/1/96-12/31/96 $ 217,160 $ 212,160 $ 5,000 Tax-Free Kansas Fund 9/1/98-8/31/99 $ 000,000 $ 000,000 $ 00,000 1/1/98-8/31/98 $ 51,288 $ 41,153 $ 10,135 5/1/97-12/31/97 $ 44,934 $ 22,579 $ 22,355 1/1/97-4/30/97 $ 21,163 $ 18,426 $ 2,737 1/1/96-12/31/96 $ 60,154 $ 30,154 $ 30,000 Tax-Free Minnesota Intermediate Fund 9/1/98-8/31/99 $ 000,000 $ 000,000 $ 00,000 1/1/98-8/31/98 $ 157,232 $ 157,232 None 5/1/97-12/31/97 $ 162,269 $ 162,269 None 1/1/97-4/30/97 $ 84,555 $ 59,658 $ 24,897 1/1/96-12/31/96 $ 281,038 $ 281,038 None Minnesota Insured Fund 9/1/98-8/31/99 $ 000,000 $ 000,000 $ 00,000 1/1/98-8/31/98 $ 990,662 $ 951,207 $ 39,455 5/1/97-12/31/97 $1,000,967 $ 968,290 $ 32,677 1/1/97-4/30/97 $ 502,457 $ 473,267 $ 29,190 1/1/96-12/31/96 $1,518,301 $1,518,301 None
-97-
Investment Investment Fees Waived Advisory Fees Advisory Fees and Expenses Incurred Paid Paid Tax-Free Minnesota Fund 9/1/98-8/31/99 $ 000,000 $ 000,000 $ 00,000 1/1/98-8/31/98 $1,427,564 $1,340,807 $ 86,757 5/1/97-12/31/97 $1,423,345 $1,353,410 $ 69,935 1/1/97-4/30/97 $ 706,459 $ 612,643 $ 93,816 1/1/96-12/31/96 $2,222,690 $2,222,690 None Minnesota High-Yield Fund 9/1/98-8/31/99 $ 000,000 $ 000,000 $ 00,000 1/1/98-8/31/98 $ 168, 083 None $ 204,795 1/1/97-12/31/97 $ 136,823 None $ 136,823 Tax-Free Missouri Insured Fund 9/1/98-8/31/99 $ 000,000 $ 000,000 $ 00,000 1/1/98-8/31/98 $ 196,563 $ 156,816 $ 39,747 5/1/97-12/31/97 $ 200,279 $ 185,491 $ 14,788 1/1/97-4/30/97 $ 97,877 $ 97,877 None 1/1/96-12/31/96 $ 290,247 $ 195,247 $ 95,000 Tax-Free New Mexico Fund 9/1/98-8/31/99 $ 000,000 $ 000,000 $ 00,000 1/1/98-8/31/98 $ 73,889 $ 53,004 $ 20,885 5/1/97-12/31/97 $ 68,560 $ 59,118 $ 9,442 1/1/97-4/30/97 $ 34,332 $ 34,332 None 1/1/96-12/31/96 $ 107,784 $ 107,784 None Tax-Free New York Fund 9/1/98-8/31/99 $ 000,000 $ 000,000 $ 00,000 1/1/98-8/31/98 $ 33,403 $ 25,972 $ 9,796 5/1/97-12/31/97 $ 30,450 $ 21,543 $ 8,907 1/1/97-4/30/97 $ 16,645 None $ 27,742 10/1/96-12/31/96(1) $ 17,615 None $ 23,062 10/1/95-9/30/96 $ 93,048 $ 68,468 $ 24,580 Tax-Free North Dakota Fund 9/1/98-8/31/99 $ 000,000 $ 000,000 $ 00,000 1/1/98-8/31/98 $ 105,393 $ 73,673 $ 31,720 5/1/97-12/31/97 $ 106,481 $ 93,426 $ 13,055 1/1/97-4/30/97 $ 54,890 $ 54,890 None 1/1/96-12/31/96 $ 175,239 $ 175,239 None Tax-Free Oregon Insured Fund 9/1/98-8/31/99 $ 000,000 $ 000,000 $ 00,000 1/1/98-8/31/98 $ 100,177 $ 36,024 $ 64,153 5/1/97-12/31/97 $ 92,073 $ 50,164 $ 41,909 1/1/97-4/30/97 $ 42,995 $ 23,231 $ 19,764 1/1/96-12/31/96 $ 124,769 $ 59,769 $ 65,000
-98-
Investment Investment Fees Waived Advisory Fees Advisory Fees and Expenses Incurred Paid Paid Tax-Free Wisconsin Fund 9/1/98-8/31/99 $000,000 $000,000 $ 00,000 1/1/98-8/31/98 $123,329 $113,696 $ 9,633 5/1/97-12/31/97 $100,882 $ 79,307 $ 21,575 1/1/97-4/30/97 $ 48,044 $ 46,138 $ 1,906 1/1/96-12/31/96 $141,262 $131,262 $ 10,000
(1) Effective December 31, 1996, Tax-Free New York Fund changed its fiscal year from September 30 to December 31. Set forth below is information regarding the amount of transfer agent fees and accounting services fee paid by each Fund to Delaware Service Company, Inc. during the fiscal period ended August 31,1999.
-------------------------------------------- ------------------- ----------------- Transfer Agent Accounting Fees Services Fees -------------------------------------------- ------------------- ----------------- Minnesota Insured Fund Tax-Free Arizona Fund Tax-Free Arizona Insured Fund Tax-Free California Fund Tax-Free California Insured Fund Tax-Free Colorado Fund Tax-Free Florida Fund Tax-Free Florida Insured Fund Tax-Free Idaho Fund Tax-Free Iowa Fund Tax-Free Kansas Fund Tax-Free Minnesota Fund Tax-Free Minnesota Intermediate Fund Tax-Free Missouri Insured Fund Tax-Free New Mexico Fund Tax-Free New York Fund Tax-Free North Dakota Fund Tax-Free Oregon Insured Fund Tax-Free Wisconsin Fund -------------------------------------------- ------------------- -----------------
-99- Except for those expenses borne by the Manager under the Investment Management Agreements and the Distributor under the Distribution Agreements, the Funds are responsible for all of their own expenses. Among others, these include the investment management fees; transfer and dividend disbursing agent fees and costs; custodian expenses; federal and state securities registration fees; proxy costs; and the costs of preparing prospectuses and reports sent to shareholders. Distribution and Service The Distributor, Delaware Distributors, L.P., located at 1818 Market Street, Philadelphia, PA 19103, serves as the national distributor of each Fund's shares under separate Distribution Agreements dated March 1, 1997. The Distributor is an affiliate of the Manager and bears all of the costs of promotion and distribution, except for payments by each Fund on behalf of its Class A Shares, Class B Shares and Class C Shares under the 12b-1 Plan for each such Class. Delaware Distributors, L.P. is an indirect, wholly owned subsidiary of Delaware Management Holdings, Inc. The Transfer Agent, Delaware Service Company, Inc., another affiliate of the Manager located at 1818 Market Street, Philadelphia, PA 19103, serves as each Fund's shareholder servicing, dividend disbursing and transfer agent pursuant to an Amended and Restated Shareholders Services Agreement dated April 30, 1997. The Transfer Agent also provides accounting services to the Funds pursuant to the terms of a separate Fund Accounting Agreement. The Transfer Agent is also an indirect, wholly owned subsidiary of Delaware Management Holdings, Inc. and, therefore, Lincoln National Corporation. The Funds have authorized one or more brokers to accept on its behalf purchase and redemption orders in addition to the Transfer Agent. Such brokers are authorized to designate other intermediaries to accept purchase and redemption orders on the behalf of the Funds. For purposes of pricing, the Funds will be deemed to have received a purchase or redemption order when an authorized broker or, if applicable, a broker's authorized designee, accepts the order. Investors may be charged a fee when effecting transactions through a broker or agent. -100- OFFICERS AND TRUSTEES The business and affairs of the Funds are managed under the direction of its Board of Trustees. Certain officers and trustees of the Funds hold identical positions in each of the other funds in the Delaware Investments family. As of September 30, 1999, the officers and trustees of each investment company, as a group, owned less than 1% of the of the outstanding shares of each class of the Funds. As of September 30, 1999, management believes the following accounts held 5% or more of a Class of shares of a Fund. With the exception of DMC Profit Sharing Plans, the Funds have no knowledge of beneficial ownership.
Class Name and Address of Account Share Amount Percentage - ----- --------------------------- ------------ ---------- Tax-Free Arizona Merrill Lynch, Pierce, Fenner & Smith Insured Fund Class A Shares For the Sole Benefit of its Customers Attn: Fund Administration 4800 Deer Lake Drive East, Second Floor Jacksonville, FL 32246 Tax-Free Arizona Robert D Wickwire TTEE Insured Fund Class B Shares Robert D. Wickwire Rev 6050 N. Camino Esplendora Tucson, AZ 85718 Southwest Securities, Inc. For the Benefit of John N. Booth P.O. Box 509002 Dallas, TX 75250 BA Investment Services, Inc. 185 Berry St., Third Floor, #2640 San Francisco, CA 94107 Tax-Free Arizona Dean Witter for the Benefit of the 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. 185 Berry St., Third Floor #2640 San Francisco, CA 94107 BT Alex Brown Incorporated P.O. Box 1346 Baltimore, MD 21203
-101-
Class Name and Address of Account Share Amount Percentage - ----- --------------------------- ------------ ---------- Tax-Free Arizona Harriet J. Welch TTEE Insured Fund Class C Shares The Welch Family Trust 15612 East Willis Gilbert, AZ 85296 Dean Witter For the Benefit of Paul A. Zucarelli and Mary Beth Zucarelli 5 World Trade Center - 6th Floor New York, NY 10048 Tax-Free Arizona Fund Dain Rauscher Incorporated. Class A Shares For the Benefit of Gaylord Rubin & Beverly Rubin CO-TTEES Gaylord & Beverly Rubin Family Trust 4712 East Palo Verde Drive Phoenix, AZ 85018 Dorothy H. Green TTEE Green Family Trust 5002 E. Mesquite Wood Court, Ste. 700 Phoenix, AZ 85044 Merrill Lynch, Pierce Fenner & Smith 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 Class B Shares FBO Gaylord Rubin & Beverly Rubin CO-TTEES Gaylord & Beverly Rubin Family Trust 4712 East Palo Verde Drive Phoenix, AZ 85018 Tax-Free Arizona Fund Margaret L. Minder Urban TTEE Class C Shares Margaret L. Minder Urban REV TRUST 6710 Mamaronick Drive Tucson, AZ 85718 BA Investments Services, Inc. For the Benefit of #428737371 185 Berry Street - 3rd Floor San Francisco, CA 94107 Mabel F. Peterson TTE Peterson Family Trust 9689 East Frito Avenue Mesa, AZ 85208
-102-
Class Name and Address of Account Share Amount Percentage - ----- --------------------------- ------------ ---------- Paine Webber FBO Carol J. Griffin and Dale Griffin JT/WROS 6738 North Shadow Run Drive Tucson, AZ 85704 BA Investments, Inc. For the Benefit of #428737291 185 Berry Street - 3rd Floor San Francisco, CA 94107 Tax-Free California Insured Margaret R. Peterson TTEE Fund Class A Shares The Peterson Family Trust 539 East Walnut Burbank, CA 91501 Tax-Free California Insured Dorothy L. Auger & Peter J. Bassing Fund Class B Shares Dorothy L. Auger Rev. Trust 17 St. Francis Lane San Rafael, CA 94901 Tax-Free California Insured Donaldson Lufkin Jenrette Fund Class C Shares Securities Corporation, Inc. P.O. Box 2052 Jersey City, NJ 07303 BT Alex Brown Incorporated P.O. Box 1346 Baltimore, MD 21203 Tax-Free California Fund U.S. Bancorp Class A Shares For the Benefit of #348872081 100 South Fifth Street, Ste. 1400 Minneapolis, MN 55402 Donaldson Lufkin Jenrette Securities Corporation, Inc. Jersey City, NJ 07303 Margaret R. Peterson TTEE The Peterson Family Trust 539 East Walnut Burbank, CA 91501 Tax-Free California Fund Merrill Lynch, Pierce, Fenner & Smith Class B Shares For the Sole Benefit of its Customers Attn: Fund Administration 4800 Deer Lake Drive East, Second Floor Jacksonville, FL 32246
-103-
Class Name and Address of Account Share Amount Percentage - ----- --------------------------- ------------ ---------- Tax-Free California Fund James Hitchin Trust Class C Shares James Hitchin TTEE 14074 Rue St. Raphael Del Mar, CA 92014 Merrill Lynch. Pierce, Fenner & Smith For the Sole Benefit of its Customers Attn: Fund Administration 4800 Deer Lake Drive East, Second Floor Jacksonville, FL 32246 Robert W. Oates and Cynthia S. Oates JT WROS 656 West School Street Cotati, CA 94931 Paine Webber For the Benefit of Sol Selik Trustee of The Selik Family Trust 23046 Eriel Avenue Torrance, CA 90505 Long Q. Nguyen Thoa K. Nguyen JT TEN 3229 Adelanto Lane San Jose, CA 95135 Tax-Free Colorado Fund Merrill Lynch, Pierce, Fenner & Smith Class C Shares For the Sole Benefit of its Customers Attn: Fund Administration 4800 Deer Lake Drive East, Second Floor Jacksonville, FL 32246 MBR Electric 7135 Newton Street Westminster, CO 80030 Marjorie J. Ottino TTEE Joseph W. Ottino TTEE Joseph W. & Marjorie J. Ottino Trust 4258 South Shore Court Fort Collins, CO 80524
-104-
Class Name and Address of Account Share Amount Percentage - ----- --------------------------- ------------ ---------- Tax-Free Florida Insured Merrill Lynch, Pierce, Fenner & Smith Fund Class A Shares For the Sole Benefit of its Customers Attn: Fund Administration 4800 Deer Lake Drive East, Second Floor Jacksonville, FL 32246 Tax-Free Florida Insured Merrill Lynch, Pierce, Fenner & Smith Fund Class B Shares For the Sole Benefit of its Customers Attn: Fund Administration 4800 Deer Lake Drive East, Second Floor Jacksonville, FL 32246 Tax-Free Florida Fund SunTrust Bank Tampa Bay Class A Shares FBO Ron Slivka Donna Slivka P.O. Box 105870 Atlanta, GA 30348 Advest, Inc. 90 State House Square Hartford, CT 06103 Tax-Free Florida Fund Merrill Lynch, Pierce, Fenner & Smith Class B Shares For the Sole Benefit of its Customers Attn: Fund Administration 4800 Deer Lake Drive East, Second Floor Jacksonville, FL 32246 June Canfield TTEE Bertha Deboor Char. Unitrust 5450 Northeast 22nd Avenue Fort Lauderdale, FL 33308 Tax-Free Florida Fund Jack C. Shaw and Lula A. Shaw TTEES Class C Shares BQK # 021083 2156 Northeast 24th Street Wilton Manors, FL 33305 Jack C. Shaw and Lula A. Shaw 2156 Northeast 24th Street Wilton Manors, FL 33305 Mary J. Manns 2628 Nantucket Lane Tallahassee, FL 32308
-105-
Class Name and Address of Account Share Amount Percentage - ----- --------------------------- ------------ ---------- Paine Webber For the Benefit of William H. Opalka and Lotte S. Opalka TTEES William H. Opalka Loving Trust 3825 Ming Tree Drive New Port Richey, FL 34652 Dorothy C. Fisher and Harry F. Fisher JT TTEES Dorothy Fisher Rev. Trust 1048 Main Street Sebastain, FL 32958 Tax-Free Idaho Fund Merrill Lynch, Pierce, Fenner & Smith Class A Shares For the Sole Benefit of its Customers Attn: Fund Administration 4800 Deer Lake Drive East, Second Floor Jacksonville, FL 32246 Tax-Free Idaho Fund Merrill Lynch, Pierce, Fenner & Smith Class B Shares For the Sole Benefit of its Customers Attn: Fund Administration 4800 Deer Lake Drive East, Second Floor Jacksonville, FL 32246 Tax-Free Idaho Fund Joseph Daltoso Class C Shares 1225 Warm Spring Ave. Boise, ID 83712 Merrill Lynch, Pierce, Fenner & Smith For the Sole Benefit of its Customers Attn: Fund Administration 4800 Deer Lake Drive East, Second Floor Jacksonville, FL 32246 Archie Lurus & Georgia Lurus JT/WROS 2391 North 55th East Idaho Falls, ID 83401 Key Clearing Corp. 4900 Tiedeman Road Brooklyn, OH 44144 Tax-Free Iowa Fund Alex P. Despenas Class B Shares Ethel Despenas TEN COM 960 Briarstone Mason City, IA 50401
-106-
Class Name and Address of Account Share Amount Percentage - ----- --------------------------- ------------ ---------- c/o Earl Van Zante Edith Roorda 2220 Adams Avenue Pella, IA 50219 Tax-Free Iowa Fund David W. Oberbroeckling and Class C Shares Julia A. Oberbroeckling JT WROS 3702 Wisconsin Avenue Davenport, IA 52806 c/o McCullough Law Firm Paine Webber For the Benefit of Erin McCullough 326 Fourth Street - P.O. Box 305 Lake View, IA 51450 Donald R. Kurtz Mildred Kurtz JT TEN 1010 Plane Street Burlington, IA 52601 Mary M. Phillips 1001 Gary Avenue Spirit Lake, IA 51360 Tax-Free Kansas Fund Alena M. Hess, Trustee Class A Shares Alena M. Hess Trust P.O. Box 53 Louisburg, KS 66053 Thomas B. Robinson TR Thomas B. Robinson Donor 6401 Norwood Drive Shawnee Mission, KS 66208 Tax-Free Kansas Fund Merrill Lynch, Pierce, Fenner & Smith Class B Shares For the Sole Benefit of its Customers Attn Fund Administration 4800 Deer Lake Drive East, Second Floor Jacksonville, FL 32246 Prudential Securities, Inc. FBO Frank F. Castellano and Patricia J. Castellano JT WROS 14032 Hayes Street Overland Park, KS 66221
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Class Name and Address of Account Share Amount Percentage - ----- --------------------------- ------------ ---------- William T. Martin TTEE William T. Martin TR 2652 West 118th Terrace Leawood, KS 66211 Tax-Free Kansas Fund Gilbert O. Sears Class C Shares TOD Megan R. Fishpool Lisa Papadopoulos Tricia R. Sears 213 East Parliament Smith Center, KS 66967 Harold L. Smith TOD Sheryl S. Olson David A. Smith Jayne A. Radley & Marcia L. Vaughn 1708 Arrowhead Derby, KS 67037 O.J. O'Connell, Jr. TEN O.J. O'Connell, Jr. REV LIV TR P.O. Box 6 El Dorado, KS 67042 Richard L. McClelland Nyllia Jo McClelland JT TEN 15405 West 144th Terrace Olathe, KS 66062 Tax-Free Minnesota Merrill Lynch, Pierce, Fenner & Smith Intermediate Fund For the Sole Benefit of its Customers Class A Shares Attn Fund Administration 4800 Deer Lake Drive East, Second Floor Jacksonville, FL 32246 Tax-Free Minnesota Shirley L. McClure Intermediate Fund 4749 Maryland Avenue, North Class B Shares Minneapolis, MN 55428 CIBC Oppenheimer Corp. P.O. Box 3484 Church Street Station New York, NY 10008 John E. Carlson 921 Western Avenue, North St. Paul, MN 55117
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Class Name and Address of Account Share Amount Percentage - ----- --------------------------- ------------ ---------- Larry C. Jordan 1633 Eustis St Paul, MN 55108 Band & Co. c/o Firststar Trust Co. TTEE P.O. Box 1787 Milwaukee, WI 53201 U.S. Bancorp Investments, Inc. 100 South Fifth Street, Ste. 1400 Minneapolis, MN 55402 Lois M. Hoffman TTEE Lois M. Hoffman Trust 2265 Youngman Avenue, #203E St. Paul, MN 55116 Tax-Free Minnesota Merrill Lynch, Pierce, Fenner & Smith Intermediate Fund For the Sole Benefit of its Customers Class C Shares Attn: Fund Administration 4800 Deer Lake Drive East, Second Floor Jacksonville, FL 32246 Emery Jahnke Ann Jahnke JT TEN 2402 Lilac Lane Fargo, ND 58102 Allen J. and Diane K. Volkenant TTEES Allen J. Volkenant Rev. Trust 808 Coventry Place Edina, MN 55435 Minnesota Insured Fund Merrill Lynch, Pierce, Fenner & Smith Class C Shares For the Sole Benefit of its Customers Attn: Fund Administration 4800 Deer Lake Drive East, Second Floor Jacksonville, FL 32246 Lucille P. Weimert 238 North Plainview Ave Mankato, MN 56001 Tax-Free Minnesota Merrill Lynch, Pierce, Fenner & Smith Fund Class A Shares For the Sole Benefit of its Customers Attn: Fund Administration 4800 Deer Lake Drive East, Second Floor Jacksonville, FL 32246
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Class Name and Address of Account Share Amount Percentage - ----- --------------------------- ------------ ---------- Tax-Free Minnesota Merrill Lynch, Pierce, Fenner & Smith Fund Class B Shares For the Sole Benefit of its Customers Attn: Fund Administration 4800 Deer Lake Drive East, Second Floor Jacksonville, FL 32246 Tax-Free Minnesota Donaldson Lufkin Jenrette Fund Class C Shares Securities Corporation, Inc. P.O. Box 2052 Jersey City, NJ 07303 Mark A. Hamre 130 Lake Park Place Fairmont, MN 56031 Merrill Lynch, Pierce, Fenner & Smith For the Sole Benefit of its Customers Attn: Fund Administration 4800 Deer Lake Drive East, Second Floor Jacksonville, FL 32246 Donald E. Horne Beatice Y. Horne JT TEN 4515 Merrywood Lane Excelsior, MN 55331 Minnesota High-Yield Woodland Development Corporation Municipal Bond Fund Attn: Larry Carlson Class A Shares 830 West Main Street Anoka, MN 55303 George A. Vitale & Ada A. Vitale George A & Ada A. Vitale Rev. Trust P.O. Box 628 Nisswa, MN 56468 Minnesota High-Yield Merrill Lynch, Pierce, Fenner & Smith Municipal Bond Fund For the Sole Benefit of its Customers Class B Shares Attn: Fund Administration 4800 Deer Lake Drive East, Second Floor Jacksonville, FL 32246 Minnesota High-Yield Merrill Lynch, Pierce, Fenner & Smith Municipal Bond Fund For the Sole Benefit of its Customers Class C Shares Attn: Fund Administration 4800 Deer Lake Drive East, Second Floor Jacksonville, FL 32246
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Class Name and Address of Account Share Amount Percentage - ----- --------------------------- ------------ ---------- Andrew Ellis Harriet A. Ellis JT TEN 5201 Belmont Minneapolis, MN 55419 Bonnie D. Kersting and Steven M. Kersting TTEES Bonnie D. Kersting Rev. Trust 17751 Layton Path Lakeville, MN 55044 Tax-Free Missouri Insured Merrill Lynch, Pierce, Fenner & Smith Fund Class A Shares For the Sole Benefit of its Customers Attn: Fund Administration 4800 Deer Lake Drive East, Second Floor Jacksonville, FL 32246 Tax-Free Missouri Insured George A. Rhodes Fund Class C Shares TOD Russell G. Rhodes 1359 East Stoneridge Dr. Springfield, MO 65803 Bryan E. Jaynes 6434 Alamo Avenue, Apt #2W St Louis, MO 63105 Maida Ann VanPelt Donald Lee VanPelt 2401 Still Meadows Lane Blue Springs, MO 64015 Norman R. Meier Norman R. & Martha Jean Meier 1569 Autumn Leaf Drive Ballwin, MO 60321 Tax-Free New Mexico Fund Merrill Lynch, Pierce, Fenner & Smith Class A Shares For the Sole Benefit of its Customers Attn: Fund Administration 4800 Deer Lake Drive East, Second Floor Jacksonville, FL 32246 Tax-Free New Mexico Fund Legg Mason Wood Walker, Inc. Class B Shares P.O. Box 1476 Baltimore, MD 21203
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Class Name and Address of Account Share Amount Percentage - ----- --------------------------- ------------ ---------- Arnold A. Elsbernd & Helen G. Elsbernd Elsbernd Family Trust 5525 Edwards Dr., NE Albuquerque, NM 87111 Jeanne Chintis and Nicholas Chintis TTEES For the Benefit of the Chintis Family Trust P.O. Box 2332 Silver City, NM 88062 Virginia Blakeslee 250 East Alameda Street Santa Fe, NM 87501 Norwest Investment Services, Inc. Northstar Building East - 9th Floor 608 Second Avenue South Minneapolis, MN 55402 J. Thomas Brewer Nona Brewer JT TEN 2102 Runyan Avenue Artesia, NM 88210 Byrd T. Mooney 610 East 16th Street Farmington, NM 87401 Adele A. Anderson TTEE For the Adele A. Anderson Rev. Living Trust 2916 Cutler Avenue NE Albuquerque, NM 87106 Tax-Free New Mexico Fund Title Services, Inc. Class C Shares Attn: Bob Harris P.O. Box 696 Raton, NM 87740 Donaldson Lufkin Jenrette Securities Corporation, Inc. P.O. Box 2052 Jersey City, NJ 07303 R. Harold Wingo Ethel J. Wingo JT TEN TOD David N. Wingo & Raymond M. Wingo 725 Collier Avenue Raton, NM 87740
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Class Name and Address of Account Share Amount Percentage - ----- --------------------------- ------------ ---------- Bob Harris Kathy R. Harris 712 South 5th Street Raton, NM 87740 Donaldson Lufkin Jenrette Securities Corporation, Inc. P.O. Box 2052 Jersey City, NJ 07303 Kathleen Porter Harris TOD Bob Harris 712 South 5th Street Raton, NM 87740 Michael D. Cox & Sharon A. Sivinski JT WROS 1336 Lobo Place, NE Albuquerque, NM 87106 Tax-Free New York Fund Merrill Lynch, Pierce, Fenner & Smith Class B Shares For the Sole Benefit of its Customers Attn: Fund Administration 4800 Deer Lake Drive East, Second Floor Jacksonville, Fl 32246 Charlotte A. Corbett 6211 Seneca Street P.O. Box 46 Springbrook, NY 14140 Robert J. Potts and Theodora M. Potts JT WROS 77 Steven Place Smithtown, NY 11787 Claudia Schellenberg 3243 90th Street, Apt. 202 Flushing, NY 11369 Ann Dexter Jones 279 Central Park West New York, NY 10024 Key Clearing Corp. 4900 Tiedeman Road Brooklyn, OH 44144
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Class Name and Address of Account Share Amount Percentage - ----- --------------------------- ------------ ---------- Tax-Free New York Fund Donaldson Lufkin Jenrette Class C Shares Securities Corporation, Inc. P.O. Box 2052 Jersey City, NJ 07303 Sarah R. Sealy 3244 Hone Avenue Bronx, NY 10469 Tax-Free North Dakota Wilkota and Company Fund Class A Shares 1st National Bank & Trust Co. of Williston P.O. Box 1827 Williston, ND 58802 Tax-Free North Dakota Merrill Lynch, Pierce, Fenner & Smith Attn: Fund Administration 4800 Deer Lake Drive East, Second Floor Jacksonville, FL 32246 Edward D Jones & Co F/A/O Arthur N. Lee P.O. Box 2500 Maryland Heights, MO 63043 Susan K Krueger P.O. Box 716 West Fargo, ND 58078 Wesley W. Weeding Geraldine M. Weeding JTTEN 331 West 6th Street West Fargo, ND 58078 Tax-Free North Dakota Jacob N. Gust Fund Class C Shares Barbara A. Olive JT TEN 4614 81st N Fargo, ND 58102 Tax-Free Oregon Insured Merrill Lynch, Pierce, Fenner & Smith Class A Shares For the Sole Benefit of its Customers Attn: Fund Administration 4800 Deer Lake Drive East, Second Floor Jacksonville, FL 32246
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Class Name and Address of Account Share Amount Percentage - ----- --------------------------- ------------ ---------- Tax-Free Oregon Insured Glenn F. Taylor & Class B Shares Opal E. Taylor JT WROS 3760 Highway 101 Florence, OR 97439 Ralph W. Sheffer & Marciel L. Sheffer TTEE Ralph W. & L. Marciel Sheffer Rev. Liv. Trust 2147 Madison Street SE Albany, OR 97321 PaineWebber For the Benefit of the Herbert L. Bodner Trust and The Bodner Family Trust 1419 NW 14th Portland, OR 97209 Donaldson Lufkin Jenrette Securities Corporation, Inc. P.O. Box 2052 Jersey City, NJ 07303 G. Collen Kinney & Dale G. Kinney JT WROS 2345 Salem Avenue SE Albany, OR 97321 Kenneth E. Hansen and Melanie L. Hansen JT WROS 1444 4th Street Astoria, OR 97103 Laveta Louise Bizon 17661 Boones Ferry Road NE Hubbard, OR 97032 Tax-Free Wisconsin Fund Salomon Smith Barney Class A Shares 388 Greenwich Street New York, NY 10013 Paine Webber For the Benefit of Bayban c/o First State Bank of Bayport Attn: Barb Monteith 950 North Highway 95 Bayport, MN 55003
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Class Name and Address of Account Share Amount Percentage - ----- --------------------------- ------------ ---------- Tax-Free Wisconsin Fund Merrill Lynch, Pierce, Fenner & Smith Class B Shares For the Sole Benefit of its Customers Attn: Fund Administration 4800 Deer Lake Drive East, Second Floor Jacksonville, FL 32246 Dean G. Thomas c/o Carl Pieper P.O. Box 177 Stoughton, WI 53589 Tax-Free Wisconsin Fund Everen Clearing Corp. Class C Shares Alan R. Hyman & Harriet S. Hyman 111 East Kilbourn Avenue Milwaukee, WI 53202 Everen Clearing Corp. Beverly Humleker Calhoun Trust 111 East Kilbourn Avenue Milwaukee, WI 53202 Dean Witter For the Benefit of Eugene Cudewicz 3856 East Somens Avenue Cudahy, WI 53110 Everen Clearing Corp. Robert P. Fahey 111 East Kilbourn Avenue Milwaukee, WI 53202 Merrill Lynch, Pierce, Fenner & Smith For the Sole Benefit of its Customers Attn: Fund Administration 4800 Deer Lake Drive East, Second Floor Jacksonville, FL 32246 Everen Clearing Corp. Harry A. Palmiter 111 East Kilbourn Avenue Milwaukee, WI 53202
-116- DMH Corp., Delvoy, Inc., Delaware Management Company, Inc., Delaware Management Business Trust, Delaware Management Company (a series of Delaware Management Business Trust), Delaware Investment Advisers (a series of Delaware Management Business Trust), Delaware Distributors, L.P., Delaware Distributors, Inc., Delaware Service Company, Inc., Delaware Management Trust Company, Delaware International Holdings Ltd., Founders Holdings, Inc., Delaware International Advisers Ltd., Delaware Capital Management, Inc. and Retirement Financial Services, Inc. are direct or indirect, wholly owned subsidiaries of Delaware Management Holdings, Inc. ("DMH"). On April 3, 1995, a merger between DMH and a wholly owned subsidiary of Lincoln National was completed. DMH and the Manager are indirect, wholly owned subsidiaries, and subject to the ultimate control, of Lincoln National. Lincoln National, with headquarters in Fort Wayne, Indiana, is a diversified organization with operations in many aspects of the financial services industry, including insurance and investment management. Certain officers and trustees of the Funds hold identical positions in each of the other funds in the Delaware Investments family. 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.
- ----------------------------------------------------------------------------------------------------------------------------------- Director/Officer Business Experience - ----------------------------------------------------------------------------------------------------------------------------------- *Wayne A. Stork (62) Chairman, Director and/or Trustee of each of the six investment companies and each of the other 27 investment companies in the Delaware Investments family. Chairman and Director of Delaware Management Holdings, Inc. Director of Delaware International Advisers Ltd. Prior to January 1, 1999, Mr. Stork was Director of Delaware Capital Management, Inc.; Chairman, President and Chief Executive Officer and Director/Trustee of DMH Corp., Delaware Distributors, Inc. and Founders Holdings, Inc.; Chairman, President, Chief Executive Officer, Chief Investment Officer and Director/Trustee of Delaware Management Company, Inc. and Delaware Management Business Trust; Chairman, President, Chief Executive Officer and Chief Investment Officer of Delaware Management Company (a series of Delaware Management Business Trust); Chairman, Chief Executive Officer and Chief Investment Officer of Delaware Investment Advisers (a series of Delaware Management Business Trust); Chairman and Chief Executive Officer of Delaware International Advisers Ltd.; Chairman, Chief Executive Officer and Director of Delaware International Holdings Ltd.; Chief Executive Officer of Delaware Management Holdings, Inc.; President and Chief Executive Officer of Delvoy, Inc.; Chairman of Delaware Distributors, L.P.; Director of Delaware Service Company, Inc. and Retirement Financial Services, Inc. In addition, during the five years prior to January 1, 1999, Mr. Stork has served in various executive capacities at different times within the Delaware organization. - ----------------------------------------------------------------------------------------------------------------------------------- - ---------------------- *Director affiliated with Mutual Funds III, Inc.'s investment manager and considered an "interested person" as defined in the 1940 Act. - -----------------------------------------------------------------------------------------------------------------------------------
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- ----------------------------------------------------------------------------------------------------------------------------------- *David K. Downes (59) President, Chief Executive Officer, Chief Operating Officer, Chief Financial Officer and Director and/or Trustee of each of the six investment companies and each of the other 27 investment companies in the Delaware Investments family. President and Director of Delaware Management Company, Inc. President of Delaware Management Company (a series of Delaware Management Business Trust) President, Chief Executive Officer and Director of Delaware Capital Management, Inc. Chairman, President, Chief Executive Officer and Director of Delaware Service Company, Inc. President, Chief Operating Officer, Chief Financial Officer and Director of Delaware International Holdings Ltd. Chairman and Director of Delaware Management Trust Company and Retirement Financial Services, Inc. Executive Vice President, Chief Operating Officer, Chief Financial Officer of Delaware Management Holdings, Inc., Founders CBO Corporation, Delaware Investment Advisers (a series of Delaware Management Business Trust) and Delaware Distributors, L.P. Executive Vice President, Chief Financial Officer, Chief Administrative Officer and Trustee of Delaware Management Business Trust Executive Vice President, Chief Operating Officer, Chief Financial Officer and Director of DMH Corp., Delaware Distributors, Inc., Founders Holdings, Inc. and Delvoy, Inc. Director of Delaware International Advisers Ltd. During the past five years, Mr. Downes has served in various executive capacities at different times within the Delaware organization. - ----------------------------------------------------------------------------------------------------------------------------------- - ---------------------- * Director affiliated with Mutual Funds III, Inc.'s investment manager and considered an "interested person" as defined in the 1940 Act. - -----------------------------------------------------------------------------------------------------------------------------------
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- ----------------------------------------------------------------------------------------------------------------------------------- Richard G. Unruh, Jr. (59) Executive Vice President and Chief Investment Officer, Equities of each of the six investment companies, each of the other 27 investment companies in the Delaware Investments family, Delaware Management Holdings, Inc., Delaware Management Company (a series of Delaware Management Business Trust) and Delaware Capital Management, Inc. Chief Executive Officer/Chief Investment Officer/DIA Equity of Delaware Investment Advisers (a series of Delaware Management Business Trust) Executive Vice President and Director/Trustee of Delaware Management Company, Inc. and Delaware Management Business Trust Director of Delaware International Advisers Ltd. During the past five years, Mr. Unruh has served in various executive capacities at different times within the Delaware organization. - ----------------------------------------------------------------------------------------------------------------------------------- Richard J. Flannery (41) Executive Vice President/General Counsel of each of the six investment companies and each of the other 27 investment companies in the Delaware Investments family, Delaware Management Holdings, Inc., Delaware Distributors, L.P., Delaware Management Company (a series of Delaware Management Business Trust), Delaware Investment Advisers (a series of Delaware Management Business Trust) and Founders CBO Corporation. Executive Vice President/General Counsel and Director of Delaware International Holdings Ltd., Founders Holdings, Inc., Delvoy, Inc., DMH Corp., Delaware Management Company, Inc., Delaware Service Company, Inc., Delaware Capital Management, Inc., Retirement Financial Services, Inc., Delaware Distributors, Inc. and Delaware Management Business Trust. Executive Vice President and Trustee of Delaware Management Business Trust. Director of Delaware International Advisers Ltd. Director of HYPPCO Finance Company Ltd. During the past five years, Mr. Flannery has served in various executive capacities at different times within the Delaware organization. - -----------------------------------------------------------------------------------------------------------------------------------
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- ----------------------------------------------------------------------------------------------------------------------------------- Walter P. Babich (71) Director and/or Trustee of each of the six investment companies and each of the other 27 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. - ----------------------------------------------------------------------------------------------------------------------------------- Anthony D. Knerr (60) Director and/or Trustee of each of the six investment companies and each of the other 27 investment companies in the Delaware Investments family. 500 Fifth Avenue, New York, NY 10110 Founder and Managing Director, Anthony Knerr & Associates From 1982 to 1988, Mr. Knerr was Executive Vice President/Finance and Treasurer of Columbia University, New York. From 1987 to 1989, he was also a lecturer in English at the University. In addition, Mr. Knerr was Chairman of The Publishing Group, Inc., New York, from 1988 to 1990. Mr. Knerr founded The Publishing Group, Inc. in 1988. - ----------------------------------------------------------------------------------------------------------------------------------- Ann R. Leven (58) Director and/or Trustee of each of the six investment companies and each of the other 27 investment companies in the Delaware Investments family. 785 Park Avenue, New York, NY 10021 Treasurer, National Gallery of Art From 1984 to 1990, Ms. Leven was Treasurer and Chief Fiscal Officer of the Smithsonian Institution, Washington, DC, and from 1975 to 1992, she was Adjunct Professor of Columbia Business School. - ----------------------------------------------------------------------------------------------------------------------------------- Thomas F. Madison (63) Director and/or Trustee of each of the six investment companies and each of the other 27 investment companies in the Delaware Investments family. 200 South Fifth Street, Suite 2100, Minneapolis, Minnesota 55402 President and Chief Executive Officer, MLM Partners, Inc. Mr. Madison has also been Chairman of the Board of Communications Holdings, Inc. since 1996. From February to September 1994, Mr. Madison served as Vice Chairman--Office of the CEO of The Minnesota Mutual Life Insurance Company and from 1988 to 1993, he was President of U.S. WEST Communications--Markets. - ----------------------------------------------------------------------------------------------------------------------------------- Charles E. Peck (73) Director and/or Trustee of each of the six investment companies and each of the other 27 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. - -----------------------------------------------------------------------------------------------------------------------------------
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- ----------------------------------------------------------------------------------------------------------------------------------- Jan L. Yeomans (50) Director and/or Trustee of each of the six investment companies and each of the other 27 investment companies in the Delaware Investments family. Building 220-13W-37, St. Paul, MN 55144 Vice President and Treasurer, 3M Corporation. From 1987-1994, Ms. Yeomans was Director of Benefit Funds and Financial Markets for the 3M Corporation; Manager of Benefit Fund Investments for the 3M Corporation, 1985-1987; Manager of Pension Funds for the 3M Corporation, 1983-1985; Consultant--Investment Technology Group of Chase Econometrics, 1982-1983; Consultant for Data Resources, 1980-1982; Programmer for the Federal Reserve Bank of Chicago, 1970-1974. - ----------------------------------------------------------------------------------------------------------------------------------- Joseph H. Hastings (49) Senior Vice President/Corporate Controller of each of the six investment companies and each of the other 27 investment companies in the Delaware Investments family. Senior Vice President/Corporate Controller and Treasurer of Delaware Management Holdings, Inc., DMH Corp., Delaware Management Company, Inc., Delaware Management Company (a series of Delaware Management Business Trust), Delaware Distributors, L.P., Delaware Distributors, Inc., Delaware Service Company, Inc., Delaware Capital Management, Inc., Delaware International Holdings Ltd., Delvoy, Inc., Retirement Financial Services, Inc., Founders Holdings, Inc. and Delaware Management Business Trust Executive Vice President/Chief Financial Officer/Treasurer of Delaware Management Trust Company Senior Vice President/Assistant Treasurer of Founders CBO Corporation During the past five years, Mr. Hastings has served in various executive capacities at different times within the Delaware organization. - -----------------------------------------------------------------------------------------------------------------------------------
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- ----------------------------------------------------------------------------------------------------------------------------------- Michael P. Bishof (36) Senior Vice President and Treasurer of each of the six investment companies and each of the other 27 investment companies in the Delaware Investments family. Senior Vice President/Investment Accounting of Delaware Service Company, Inc. and Delaware Capital Management, Inc. Senior Vice President and Treasurer/ Investment Accounting of Delaware Distributors, L.P. , Delaware Management Company (a series of Delaware Management Business Trust), Delaware Investment Advisers (a series of Delaware Management Business Trust) Delaware International Holdings, Inc. and Founders Holdings, Inc. Senior Vice President and Assistant Treasurer of Founders CBO Corporation Before joining Delaware Investments in 1995, Mr. Bishof was a Vice President for Bankers Trust, New York, NY from 1994 to 1995, a Vice President for CS First Boston Investment Management, New York, NY from 1993 to 1994 and an Assistant Vice President for Equitable Capital Management Corporation, New York, NY from 1987 to 1993. - ----------------------------------------------------------------------------------------------------------------------------------- Patrick P. Coyne (36) Vice President/Senior Portfolio Manager of each of the six investment companies and the other 27 investment companies in the Delaware Investments family, Delaware Capital Management, Inc., Delaware Management Company, Inc., Delaware Management Company (a series of Delaware Management Business Trust) and Delaware Investment Advisers (a series of Delaware Management Business Trust). During the past five years, Mr. Coyne has served in various capacities at different times within the Delaware organization. - ----------------------------------------------------------------------------------------------------------------------------------- Mitchell L. Conery (41) Vice President/Senior Portfolio Manager of each of the six investment companies and the other 27 investment companies in the Delaware Investments family, Delaware Capital Management, Inc., Delaware Management Company, Inc., Delaware Management Company (a series of Delaware Management Business Trust) and Delaware Investment Advisers (a series of Delaware Management Business Trust) Before joining the Delaware Investments in 1997, Mr. Conery was an investment officer with Travelers Insurance from 1995 through 1996 and a research analyst with CS First Boston from 1992 to 1995. - ----------------------------------------------------------------------------------------------------------------------------------- Elizabeth H. Howell (38) Vice President/Senior Portfolio Manager of each of the six investment companies and the other 27 investment companies in the Delaware Investments family, Delaware Management Company, Inc. and Delaware Management Company (a series of Delaware Management Business Trust) Before joining Delaware Investments in 1997, Ms. Howell was a senior portfolio manager with Voyageur Fund Managers, Inc. - ----------------------------------------------------------------------------------------------------------------------------------- Andrew M. McCullagh, Jr. (51) Vice President/Senior Portfolio Manager of each of the six investment companies and the other 27 investment companies in the Delaware Investments family, Delaware Management Company, Inc. and Delaware Management Company (a series of Delaware Management Business Trust) Before joining Delaware Investments in 1997, Mr. McCullagh was a senior portfolio manager with Voyageur Funds Managers. - -----------------------------------------------------------------------------------------------------------------------------------
-122- The following is a compensation table listing for each director or trustee entitled to receive compensation, the aggregate compensation expected to be received from each investment company noted below during the actual fiscal year and the total compensation received from all investment companies in the Delaware Investments family for the fiscal period ended August 31, 1999 and an estimate of annual benefits to be received upon retirement under the Delaware Investments Retirement Plan for Directors/Trustees as of August 31, 1999. Only the independent trustees of the Funds receive compensation from the Funds.
Total Compensation from all 33 Voyageur Voyageur Voyageur Voyageur Voyageur Voyageur Investment Tax Free Insured Invest- Inter. Tax Mutual Mutual Companies Funds Funds ment Free Funds Funds Funds II in Delaware Director/Trustee Inc. Inc. Trust Inc. Inc. Inc. Investments(1) W. Thacher Longstreth(2) Ann R. Leven Walter P. Babich Anthony D. Knerr Charles E. Peck Thomas F. Madison Jan L. Yeomans(2)
Pension or Retirement Benefits Accrued as Part of each Investment Company's Expenses Voyageur Voyageur Voyageur Voyageur Voyageur Voyageur Tax Free Insured Invest- Inter. Tax Mutual Mutual Funds Funds ment Free Funds Funds Funds II Director Inc. Inc. Trust Inc. Inc. Inc. Ann R. Leven none none none none none none Walter P. Babich none none none none none none Anthony D. Knerr none none none none none none Charles E. Peck none none none none none none Thomas F. Madison none none none none none none Jan L. Yeomans none none none none none none
(1) Each independent director currently receives a total annual retainer fee of $38,000 for serving as a director or trustee for all 33 investment companies in Delaware Investments, plus $3,145 for each Board Meeting attended. Ann R. Leven, Anthony D. Knerr and Thomas F. Madison serve on the Funds' audit committee; Ms. Leven is the chairperson. Members of the audit committee currently receive additional annual compensation of $5,000 from all investment companies, in the aggregate, with the exception of the chairperson, who receives $6,000. (2) W. Thacher Longstreth retired from the Board of Directors of the six investment companies on March 17, 1999. The compensation shown in the table is the amount Mr. Longstreth received from September 1, 1998 through March 17, 1999. Jan L. Yeomans joined the Board of Directors of each of the six investment companies on March 17, 1999. The compensation shown is the amount Ms. Yeomans received from March 17, 1999 through August 31, 1999. -123-
Estimated Annual Benefits Upon Retirement(3) Voyageur Voyageur Voyageur Voyageur Voyageur Voyageur Tax Free Insured Invest- Inter. Tax Mutual Mutual Funds Funds ment Free Funds Funds Funds II Director Inc. Inc. Trust Inc. Inc. Inc. Ann R. Leven $38,000 $38,000 $38,000 $38,000 $38,000 $38,000 Walter P. Babich $38,000 $38,000 $38,000 $38,000 $38,000 $38,000 Anthony D. Knerr $38,000 $38,000 $38,000 $38,000 $38,000 $38,000 Charles E. Peck $38,000 $38,000 $38,000 $38,000 $38,000 $38,000 Thomas F. Madison $38,000 $38,000 $38,000 $38,000 $38,000 $38,000 Jan L. Yeomans $38,000 $38,000 $38,000 $38,000 $38,000 $38,000
(3) Under the terms of the Delaware Investments Retirement Plan for Directors/Trustees, each disinterested director/trustee who, at the time of his or her retirement from the Board, has attained the age of 70 and served on the Board for at least five continuous years, is entitled to receive payments from each investment company in the Delaware Investments family for a period equal to the lesser of the number of years that such person served as a director or trustee or the remainder of such person's life. The amount of such payments will be equal, on an annual basis, to the amount of the annual retainer that is paid to directors/trustees of each investment company at the time of such person's retirement. If an eligible director/trustee retired as of August 31, 1999, he or she would be entitled to annual payments totaling $38,000, in the aggregate, from all of the investment companies in the Delaware Investments family, based on the number of investment companies in the Delaware Investments family as of that date. -124- GENERAL INFORMATION The shares of the Funds constitute separate series of parent entities, which are open-end investment companies. Each Fund is non-diversified as defined by the Investment Company Act of 1940. Below shows each Fund's original and current form of organization.
Parent Original Form of Organization Current Form of Organization (date) (date) Voyageur Tax-Free Funds Minnesota Corporation Delaware Business Trust Tax-Free Minnesota (November 10, 1983) (November 1, 1999) Tax-Free North Dakota Voyageur Intermediate Tax-Free Funds Minnesota Corporation Delaware Business Trust Tax-Free Minnesota Intermediate (January 21, 1985) (November 1, 1999) Voyageur Insured Funds Minnesota Corporation Delaware Business Trust Tax-Free Arizona Insured (January 6, 1987) (November 1, 1999) Minnesota Insured Voyageur Investment Trust Massachusetts Business Trust Delaware Business Trust Tax-Free California Insured (September 16, 1991) (November 1, 1999) Tax-Free Florida Insured Tax-Free Florida Tax-Free Kansas Tax-Free Missouri Insured Tax-Free New Mexico Tax-Free Oregon Insured Voyageur Mutual Funds Minnesota Corporation Delaware Business Trust Tax-Free Arizona (April 14, 1993) (November 1, 1999) Tax-Free California Tax-Free Idaho Tax-Free Iowa Tax-Free New York Minnesota High-Yield Fund Tax-Free Wisconsin Fund Tax-Free Montana Fund Voyageur Mutual Funds II Minnesota Corporation Delaware Business Trust Tax-Free Colorado (January 13, 1987) (November 1, 1999)
The Manager is the investment manager of each Fund. The Manager also provides investment management services to certain of the other funds in the Delaware Investments family. An affiliate of the Manager manages private investment accounts. While investment decisions for each Fund are made independently from those of the other funds and accounts, investment decisions for such other funds and accounts may be made at the same time as investment decisions for each Fund. -125- Delaware or Delaware International also manages the investment options for Delaware-Lincoln Choice Plus and Delaware Medallion (SM) III Variable Annuities. Choice Plus is issued and distributed by Lincoln National Life Insurance Company. choice Plus offers a variety of different investment styles managed by leading money managers. Medallion is issued by Allmerica Financial Life Insurance and Annuity Company (First Allmerica Financial Life Insurance Company in New York and Hawaii). Delaware Medallion offers various investment series ranging from domestic equity funds, international equity and bond funds and domestic fixed income funds. Each investment series available through Choice Plus and Medallion utilizes an investment strategy and discipline the same as or similar to one of the Delaware Investments mutual funds available outside the annuity. See Delaware Group Premium Fund, Inc., in Appendix B. Access persons and advisory persons of the funds in the Delaware Investments family, as those terms are defined in SEC Rule 17j-1 under the 1940 Act, who provide services to the Manager, Delaware International Advisers Ltd. or their affiliates, are permitted to engage in personal securities transactions subject to the exceptions set forth in Rule 17j-1 and the following general restrictions and procedures: (1) certain blackout periods apply to personal securities transactions of those persons; (2) transactions must receive advance clearance and must be completed on the same day as the clearance is received; (3) certain persons are prohibited from investing in initial public offerings of securities and other restrictions apply to investments in private placements of securities; (4) opening positions may only be closed-out at a profit after a 60-day holding period has elapsed; and (5) the Compliance Officer must be informed periodically of all securities transactions and duplicate copies of brokerage confirmations and account statements must be supplied to the Compliance Officer. Effective March 1, 1997, the Distributor acts as sole national distributor for each Fund and for the other mutual funds in the Delaware Investments family. Prior thereto, the Distributor and/or Voyageur Fund Distributors, Inc. ("VFD") acted as national distributor(s) for each Fund. The Distributor and/or VFD received net commissions from each Fund, after reallowances to dealers, as follows: -126-
- --------------------------------------------------------------------------------------------------------------- Total Underwriting Commissions Underwriting Commissions Retained by Underwriter - --------------------------------------------------------------------------------------------------------------- Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal year period year year year period year year ended ended ended ended ended ended ended ended 8/31/99 8/31/98 12/31/97 12/31/96 8/31/99 8/31/98 12/31/97 12/31/96 - --------------------------------------------------------------------------------------------------------------- Tax-Free Arizona $125,139 $162,464 $339,087 $18,977 $22,139 $40,338 Insured Fund - --------------------------------------------------------------------------------------------------------------- Tax-Free Arizona Fund 34,624 47,805 104,978 5,377 6,805 13,217 - --------------------------------------------------------------------------------------------------------------- Tax-Free California 30,767 30,039 107,617 4,563 4,208 14,226 Insured Fund - --------------------------------------------------------------------------------------------------------------- Tax-Free California Fund 28,096 16,692 11,751 3,880 2,201 1,641 - --------------------------------------------------------------------------------------------------------------- Tax-Free Colorado Fund 347,853 453,936 525,069 52,239 79,332 68,666 - --------------------------------------------------------------------------------------------------------------- Tax-Free Florida 43,501 93,605 174,064 7,037 12,762 20,261 Insured Fund - --------------------------------------------------------------------------------------------------------------- Tax-Free Florida Fund 52,188 26,437 41,214 7,799 3,569 5,271 - --------------------------------------------------------------------------------------------------------------- Tax-Free Idaho Fund 188,855 158,771 313,894 28,012 23,159 32,689 - --------------------------------------------------------------------------------------------------------------- Tax-Free Iowa Fund 78,483 95,358 167,735 10,975 12,752 26,641 - --------------------------------------------------------------------------------------------------------------- Tax-Free Kansas Fund 24,725 32,401 55,360 3,464 4,550 7,686 - --------------------------------------------------------------------------------------------------------------- Tax-Free Minnesota 30,062 58,451 71,429 4,484 14,687 5,306 Intermediate Fund - --------------------------------------------------------------------------------------------------------------- Tax-Free Minnesota Fund 295,201 428,428 650,734 45,681 74,750 69,682 - --------------------------------------------------------------------------------------------------------------- Minnesota Insured Fund 207,531 275,689 454,762 31,523 41,538 33,673 - --------------------------------------------------------------------------------------------------------------- Minnesota High-Yield 139,770 137,364 N/A 23,189 117,637 N/A Fund - --------------------------------------------------------------------------------------------------------------- Tax-Free Missouri 35,876 59,498 211,558 5,223 8,119 29,607 Insured Fund - --------------------------------------------------------------------------------------------------------------- Tax-Free New Mexico Fund 50,817 46,722 45,937 8,164 4,168 6,724 - --------------------------------------------------------------------------------------------------------------- Tax-Free New York Fund 15,202 11,429 465 2,123 1,603 --- - --------------------------------------------------------------------------------------------------------------- Tax-Free North Dakota 11,209 9,217 38,688 1,553 1,251 5,425 Fund - --------------------------------------------------------------------------------------------------------------- Tax-Free Oregon Insured 102,635 71,994 149,165 15,563 9,496 20,166 Fund - --------------------------------------------------------------------------------------------------------------- Tax-Free Wisconsin Fund 57,432 60,987 107,671 8,312 8,433 11,170 - ---------------------------------------------------------------------------------------------------------------
-127- The Distributor and/or VFD received in the aggregate Limited CDSC payments with respect to Class A Shares of each Fund as follows: Limited CDSC Payments Class A Shares
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended Fund 8/31/98 12/31/97 12/31/96 - ---- ------- -------- -------- Tax-Free Arizona Insured Fund $--- $--- $--- Tax-Free Arizona Fund --- --- --- Tax-Free California Insured Fund --- --- --- Tax-Free California Fund --- --- --- Tax-Free Colorado Fund --- --- --- Tax-Free Florida Insured Fund --- 2,443 --- Tax-Free Florida Fund --- 600 --- Tax-Free Idaho Fund --- 12,500 --- Tax-Free Iowa Fund --- --- --- Tax-Free Kansas Fund --- --- --- Tax-Free Minnesota Intermediate Fund --- --- --- Tax-Free Minnesota Fund --- 5,000 --- Minnesota Insured Fund --- --- --- Minnesota High-Yield Fund --- --- --- Tax-Free Missouri Insured Fund --- --- --- Tax-Free New Mexico Fund --- --- --- Tax-Free New York Fund --- --- --- Tax-Free North Dakota Fund --- --- --- Tax-Free Oregon Insured Fund --- --- --- Tax-Free Utah Fund --- --- --- Tax-Free Washington Insured Fund --- --- --- Tax-Free Wisconsin Fund --- --- ---
-128- The Distributor and/or VFD received in the aggregate CDSC payments with respect to Class B Shares of each Fund as follows: CDSC Payments Class B Shares
Fiscal Period Ended Fiscal Year Ended Fiscal Year Ended Fund 8/31/98 12/31/97 12/31/96 - ---- ------- -------- -------- Tax-Free Arizona Insured Fund $10,032 $27,983 $3,776 Tax-Free Arizona Fund 11,254 20,921 5,674 Tax-Free California Insured Fund 12,696 17,873 4,911 Tax-Free California Fund 6,336 2,542 --- Tax-Free Colorado Fund 6,647 15,156 12,013 Tax-Free Florida Insured Fund 19,856 6,964 6,555 Tax-Free Florida Fund 20,047 7,251 199 Tax-Free Idaho Fund 20,547 14,466 47 Tax-Free Iowa Fund 4,557 3,628 --- Tax-Free Kansas Fund 6,850 4,170 1,820 Tax-Free Minnesota Intermediate Fund 4,757 1,116 --- Tax-Free Minnesota Fund 12,155 13,282 11,641 Minnesota Insured Fund 16,552 5,440 3,613 Minnesota High-Yield Fund 15,556 14,833 --- Tax-Free Missouri Insured Fund 26,709 35,076 16,189 Tax-Free New Mexico Fund --- 3,500 4,739 Tax-Free New York Fund --- --- 2,119 Tax-Free North Dakota Fund 417 1,850 1,398 Tax-Free Oregon Insured Fund 13,858 1,587 12,186 Tax-Free Utah Fund --- 600 --- Tax-Free Washington Insured Fund 943 1,372 317 Tax-Free Wisconsin Fund 9,156 4 ---
-129- The Distributor and/or VFD received in the aggregate CDSC payments with respect to Class C Shares of each Fund as follows: CDSC Payments Class C Shares
Fiscal Period Ended Fiscal Year Ended Fiscal Year Ended Fund 8/31/98 12/31/97 12/31/96 - ---- ------- -------- -------- Tax-Free Arizona Insured Fund $--- $--- $--- Tax-Free Arizona Fund --- --- --- Tax-Free California Insured Fund --- --- --- Tax-Free California Fund --- --- --- Tax-Free Colorado Fund 1,416 --- 384 Tax-Free Florida Insured --- --- --- Tax-Free Florida Fund --- --- --- Tax-Free Idaho Fund 909 6 752 Tax-Free Iowa Fund 921 --- --- Tax-Free Kansas Fund --- 433 --- Tax-Free Minnesota Intermediate Fund 989 26 421 Tax-Free Minnesota Fund 143 753 16 Minnesota Insured Fund 486 497 41 Minnesota High-Yield Fund 2,411 2,925 --- Tax-Free Missouri Insured Fund --- --- --- Tax-Free New Mexico Fund --- 119 --- Tax-Free New York Fund --- --- --- Tax-Free North Dakota Fund --- --- --- Tax-Free Oregon Insured Fund 96 182 232 Tax-Free Utah Fund --- --- --- Tax-Free Washington Insured Fund --- --- --- Tax-Free Wisconsin Fund 29 30 ---
The Transfer Agent, an affiliate of the Manager, acts as shareholder servicing, dividend disbursing and transfer agent for the Funds and for the other mutual funds available from the Delaware Investments family. The Transfer Agent is paid a fee by each Fund for providing these services consisting of an annual per account charge of $11.00 plus transaction charges for particular services according to a schedule. Compensation is fixed each year and approved by the Board of Trustees, including a majority of the disinterested trustees. The Transfer Agent also provides accounting services to the Funds. Those services include performing all functions related to calculating 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. 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 -130- 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 Each Fund Trust has a present unlimited authorized number of shares of beneficial interest with no par value allocated to each Class. While all shares have equal voting rights on matters affecting each corporate entity, shareholders of each Fund would vote separately on any matter, such as any change in its own investment objective and policies or action to dissolve a Fund and as prescribed by the 1940 Act. Shares of a Fund have a priority in the assets of that Fund, and in gains on and income from the portfolio of such Fund. Class A Shares, Class B Shares and Class C Shares of each Fund represent a proportionate interest in the assets of a Fund and have the same voting and other rights and preferences, except that, as a general matter, Class A Shares, Class B Shares and Class C Shares may vote only on matters affecting the 12b-1 Plan that relates to the class of shares that they hold. However, Class B Shares may vote on any proposal to increase materially the fees to be paid by a Fund under the Plan relating to the respective Class A Shares. The shares of each Class have no preemptive rights are fully transferable and, when issued, are fully paid and nonassessable. -131- Effective June 9, 1997, the names of the Funds were changed as follows:
Previous Name New Name 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 Insured Tax Free Fund Delaware-Voyageur Tax-Free California Insured Fund Voyageur California Tax Free Fund Delaware-Voyageur Tax-Free California Fund Voyageur Colorado Tax Free Fund Delaware-Voyageur Tax-Free Colorado Fund Voyageur Florida Insured Tax Free Fund Delaware-Voyageur Tax-Free Florida Insured Fund Voyageur Florida Tax Free Fund Delaware-Voyageur Tax-Free Florida Fund Voyageur Idaho Tax Free Fund Delaware-Voyageur Tax-Free Idaho Fund Voyageur Iowa Tax Free Fund Delaware-Voyageur Tax-Free Iowa Fund Voyageur Kansas Tax Free Fund Delaware-Voyageur Tax-Free Kansas Fund Voyageur Minnesota Limited Term Tax Free Fund Delaware-Voyageur Tax-Free Minnesota Intermediate Fund Voyageur Minnesota Insured Fund Delaware-Voyageur Minnesota Insured Fund Voyageur Minnesota Tax Free Fund Delaware-Voyageur Tax-Free Minnesota Fund Voyageur Minnesota High-Yield Municipal Bond Fund Delaware-Voyageur Minnesota High-Yield Municipal Bond Fund Voyageur Missouri Insured Tax Free Fund Delaware-Voyageur Tax-Free Missouri Insured Fund Voyageur New Mexico Tax Free Fund Delaware-Voyageur Tax-Free New Mexico Fund Voyageur New York Tax Free Fund Delaware-Voyageur Tax-Free New York Fund Voyageur North Dakota Tax Free Fund Delaware-Voyageur Tax-Free North Dakota Fund Voyageur Oregon Insured Tax Free Fund Delaware-Voyageur Tax-Free Oregon Insured Fund Voyageur Wisconsin Tax Free Fund Delaware-Voyageur Tax-Free Wisconsin Fund
Effective August 16, 1999, the names of the Funds were changed as follows:
- ----------------------------------------------------------------------------------------------------------------------- Previous Name New Name - ----------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------- Delaware-Voyageur Tax-Free Arizona Insured Fund Delaware Tax-Free Arizona Insured Fund - ----------------------------------------------------------------------------------------------------------------------- Delaware-Voyageur Tax-Free Arizona Fund Delaware Tax-Free Arizona Fund - ----------------------------------------------------------------------------------------------------------------------- Delaware-Voyageur Tax-Free California Insured Fund Delaware Tax-Free California Insured Fund - ----------------------------------------------------------------------------------------------------------------------- Delaware-Voyageur Tax-Free California Fund Delaware Tax-Free California Fund - ----------------------------------------------------------------------------------------------------------------------- Delaware-Voyageur Tax-Free Colorado Fund Delaware Tax-Free Colorado Fund - ----------------------------------------------------------------------------------------------------------------------- Delaware-Voyageur Tax-Free Florida Insured Fund Delaware Tax-Free Florida Insured Fund - ----------------------------------------------------------------------------------------------------------------------- Delaware-Voyageur Tax-Free Florida Fund Delaware Tax-Free Florida Fund - ----------------------------------------------------------------------------------------------------------------------- Delaware-Voyageur Tax-Free Idaho Fund Delaware Tax-Free Idaho Fund - ----------------------------------------------------------------------------------------------------------------------- Delaware-Voyageur Tax-Free Iowa Fund Delaware Tax-Free Iowa Fund - ----------------------------------------------------------------------------------------------------------------------- Delaware-Voyageur Tax-Free Kansas Fund Delaware Tax-Free Kansas Fund - ----------------------------------------------------------------------------------------------------------------------- Delaware-Voyageur Tax-Free Minnesota Intermediate Fund Delaware Tax-Free Minnesota Intermediate Fund - ----------------------------------------------------------------------------------------------------------------------- Delaware-Voyageur Minnesota Insured Fund Delaware Minnesota Insured Fund - ----------------------------------------------------------------------------------------------------------------------- Delaware-Voyageur Tax-Free Minnesota Fund Delaware Tax-Free Minnesota Fund - ----------------------------------------------------------------------------------------------------------------------- Delaware-Voyageur Minnesota High-Yield Municipal Bond Fund Delaware Minnesota High-Yield Municipal Bond Fund - ----------------------------------------------------------------------------------------------------------------------- Delaware-Voyageur Tax-Free Missouri Insured Fund Delaware Tax-Free Missouri Insured Fund - ----------------------------------------------------------------------------------------------------------------------- Delaware-Voyageur Tax-Free New Mexico Fund Delaware Tax-Free New Mexico Fund - ----------------------------------------------------------------------------------------------------------------------- Delaware-Voyageur Tax-Free New York Fund Delaware Tax-Free New York Fund - ----------------------------------------------------------------------------------------------------------------------- Delaware-Voyageur Tax-Free North Dakota Fund Delaware Tax-Free North Dakota Fund - ----------------------------------------------------------------------------------------------------------------------- Delaware-Voyageur Tax-Free Oregon Insured Fund Delaware Tax-Free Oregon Insured Fund - ----------------------------------------------------------------------------------------------------------------------- Delaware-Voyageur Tax-Free Wisconsin Fund Delaware Tax-Free Wisconsin Fund - -----------------------------------------------------------------------------------------------------------------------
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 trustees can elect all the trustees if they choose to -132- do so, and, in such event, the holders of the remaining shares will not be able to elect any trustees. This Part B does not include all of the information contained in the Registration Statement which is on file with the SEC. -133- FINANCIAL STATEMENTS Effective May 1, 1997, Ernst & Young LLP serves as the independent auditors for each Fund and, in its capacity as such, audits the annual financial statements of the Funds. Each Fund's Statement of Net Assets, Statement of Assets and Liabilities, Statement of Operations, Statements 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 August 31, 1999 are included in each Fund's Annual Report to shareholders. The financial statements and financial highlights, the notes relating thereto and the reports of Ernst & Young LLP are incorporated by reference from the Annual Reports into this Part B. KPMG Peat Marwick LLP, the Funds' previous auditors, audited the annual financial statements and financial highlights of the Funds for fiscal years ending on or before December 31, 1996. -134- 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 C. 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. -135- 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. -136- Revenues and Expenditures. The General Fund closed fiscal year 1997 with a $515.9 million ending balance, setting a new record for the state, and the Executive plan for fiscal year 1998 anticipates a $497.1 million balance. Overall, fiscal year 1997 revenues totaled $5,028.2 million. Corporate income tax revenue jumped by 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. -137- 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 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. -138- California enjoys a large and diverse labor force. As of November, 1997, the total civilian labor force was 15,931,000 with 15,000,000 individuals employed and 931,000, or 5.8%, unemployed. In comparison, the unemployment rate for the United States during the same time was 4.6%. Budgetary Process. The State's fiscal year begins on July 1 and ends on June 30. The annual budget is proposed by the Governor by January 10 of each year for the next fiscal year (the "Governor's Budget"). Under State law, the annual proposed Governor's Budget cannot provide for projected expenditures in excess of projected revenues and balances available from prior fiscal years. Under the State Constitution, money may be drawn from the Treasury only through an appropriation made by law. The primary source of the annual expenditure authorizations is the Budget Act as approved by the Legislature and signed by the Governor. The Budget Act must be approved by a two-thirds majority vote of each House of the Legislature. The Governor may reduce or eliminate specific line items in the Budget Act or any other appropriations bill without vetoing the entire bill. Such individual line-item vetoes are subject to override by a two-thirds majority vote of each House of the Legislature. Appropriations also may be included in legislation other than the Budget Act. Bills containing appropriations (except K-14 education) must be approved by a two-thirds majority vote in each House of the Legislature and be signed by the Governor. Bills containing K-14 education appropriations only require a simple majority vote. Continuing appropriations, available without regard to fiscal year, may also be provided by statute or the State Constitution. Funds necessary to meet an appropriation need not be in the State Treasury at the time such appropriation is enacted; revenues may be appropriated in anticipation of their receipt. Revenues and Expenditures. The moneys of the State are segregated into the General Fund and approximately 600 Special Funds. The General Fund consists of revenues received by the State Treasury and not required by law to be credited to any other fund, as well as earnings from the investment of State moneys not allocable to another fund. The General Fund is the principal operating fund for the majority of governmental activities and is the depository of most of the major revenue sources of the State. The General Fund may be expended as a consequence of appropriation measures enacted by the Legislature and approved by the Governor, as well as appropriations pursuant to various constitutional authorizations and initiative statutes. Moneys on deposit in the State's Centralized Treasury System are invested by the Treasurer in the Pooled Money Investment Account ("PMIA"). As of December 17, 1997, the PMIA held approximately $16.8 billion of State moneys, and $10.3 billion of moneys invested for 2,538 local governmental entities through the Local Agency Investment Fund ("LAIF"). The total assets of the PMIA as of December 17, 1997, were $27.1 billion. The Treasurer does not invest in leveraged products or inverse floating rate securities. The investment policy permits the use of reverse repurchase agreements subject to limits of no more than 10% of PMIA. All reverse repurchase agreements are cash matched either to the maturity of the reinvestment or an adequately positive cash flow date which is approximate to the maturity date. The average life of the investment portfolio of the PMIA as of December 17, 1997 was 199 days. -139- 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. 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 Aspecial 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. -140- 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. -141- 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. 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. -142- 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. 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. -143- 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 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. -144- 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. 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. -145- 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. 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. -146- In recent years, the State's service sector employment has accounted for approximately 85% of total non-farm employment. While structurally the southeast and the nation are endowed with a greater proportion of manufacturing jobs, which tend to pay higher wages, service jobs, historically, tend to be less sensitive to business cycle swings. Florida has a concentration of manufacturing jobs in high-tech and high value-added sectors, such as electrical and electronic equipment, as well as printing and publishing. Manufacturing employment is forecasted to decline slightly in both FY 1997-98 and FY 1998-99. Total non-farm employment is expected to increase 3.9% in 1997-98 and 2.6% in 1998-99. Florida ranked third nationally and created more than 217,000 new jobs prior to the end of 1997. The strongest areas in job growth in Florida in fiscal year 1997-98 and 1998-99 are expected to be in services and a combination of retail and wholesale trade. Services are forecast to lead the economy, growing 4.7% (105,400 jobs) in fiscal year 1997-98, and accounting for about 50% of total new jobs in that year. Services are the single largest source of employment in Florida, making up about a third of the total in fiscal year 1997-98. Wholesale and retail trade is projected to increase 3.6% in fiscal year 1997-98 (59,700 new jobs), which parallels general economic growth. This sector is the second largest, with about 25% of all jobs in the state, and is anticipated to increase 2.3% (39,100 jobs) in fiscal year 1998-99. Construction job growth is expected to decline from 12% (42,000 jobs) in FY 1997-98 to 1.5% (5,600 jobs) in FY 1998-99 because of a slowing economy. Manufacturing will continue to struggle with the effects of international competition. As the State's economic growth has slowed from its previous highs, the unemployment rate has tracked above the national average. More recently, Florida's unemployment rate has been below the national average. Florida's unemployment rate was 4.8% in November 1996 and 4.6% for November 1997. The national unemployment rate was 5.4% in 1996 and 4.6% as of November 1997. Tourism is one of Florida's most important industries. Approximately 41 million people visited the State in 1995. In terms of business activities and State tax revenues, tourists in Florida effectively represented additional residents, spending their dollars predominantly at eating and drinking establishments, hotels and motels, and amusements and recreation parks. The State's tourist industry over the years has become more sophisticated, attracting visitors year-round, thus, to a degree, reducing its seasonality. Besides a sub-tropical climate and clean beaches that attract people in the winter months, the State has added, among other attractions, a variety of amusement and educational theme parks. This diversification has helped to reduce the seasonal and cyclical character of the industry and has effectively stabilized tourist related employment as a result. By the end of fiscal year 1998, 43.8 million domestic and international tourists are expected to have visited the State. In 1998-1999, tourist arrival should reach a high of 45.6 million, representing 4.1% growth from 1997-98. The current Florida Economic Consensus Estimating Conference forecast shows that the Florida economy is expected to decelerate along with the nation, but will continue to outperform the U.S. as a whole as a result of relatively rapid population growth. -147- 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 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. -148- 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, 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. -149- 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. 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. -150- 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 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. -151- 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. 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. -152- Factors Affecting Iowa Fund General Economic Conditions. In 1996, Iowa had the fourth lowest average annual unemployment rate in the nation; by 1997, Iowa tied North Dakota for the second lowest rate. The percentage of growth in Iowa's employed workforce began in 1992 when the State's economy was more resilient to the 1990-92 recession than was the rest of the nation. Beginning in mid-1992, Iowa's unemployment rate has consistently remained about two percentage points below the national average - even as the national average has been falling during this time. By the end of 1997, Iowa's seasonally adjusted unemployment rate was in the 2.6% to 2.7% range. The U.S. unemployment rate had just dropped to a 25 year low of 4.7% in October, 1997. All of Iowa's counties and cities had unemployment rates below the U.S. average. Iowa's resident employment continued to grow during this period. In 1990, just under 1.4 million people were working in Iowa, with 1.2 million in payroll jobs. By 1997, more than 1.5 million people were employed, with 1.4 million in payroll jobs. The Iowa Economic Forecasting Council, at its November 1997 meeting, forecast slower growth in payroll jobs for the next two years. The reasons are a slowing national economy and the tight labor markets in Iowa and other Midwest States. Iowa's challenges in the years ahead will be to make an existing work force more productive and to find ways to increase the size of the pool from which the work force is drawn. Currently, 87% of all Iowans between the ages of 18 and 69 are employed. That represents a higher rate than occurs elsewhere in the country (75% average) and means that only 13% of the working-age population can be included in the potential pool. During the late-1980's and early 1990's Iowa became a major exporting state. Despite its inland location, Iowa has been a major supplier to the world's markets for industrial machinery, instruments and measurement devices, electronics, specialized transportation equipment, chemicals and pharmaceuticals, processed food products, farm commodities and livestock. During the years 1991-1993, the value of Iowa's factory exports increased at a compounded rate of 9% per year. In 1994, factory exports increased 17%. In 1995 and 1996, Iowa factory exports had increased by another 21% and 10%, respectively. In 1996, the export of factory goods accounted for $4.5 billion, or about 50% of the $9.2 billion total exports from Iowa. Iowa farm exports increased 27% in 1996 with increases of 50% and 28% in feed grains and soybeans, respectively. However, vegetable exports decreased 116%. Iowa has been successful in reducing its reliance on both property and income taxes. In 1992, 40.5% of total taxes were property taxes, and by 1999, the share will have dropped to 36.1%. Similarly, despite robust growth in Iowa incomes during the 1990s, the share of total taxes collected from the income tax rose less than 1%. Tax changes enacted since 1992 consist of the following: (1) a one-cent sales tax increase in 1993 for (an increase of $203 million), (2) in 1996, relief for a mental health and machinery and equipment property tax was enacted along with increasing pension exemption and child credit (decrease of $121 million), (3) in 1997, the property tax relief for mental health and machinery and equipment was continued along with an increase in state share of school aid (decrease of $131 million), (4) beginning in 1998, there is a 10% across-the-board reduction in income taxes and elimination of inheritance taxes for lineal descendants (decrease of $208 million), (5) the 10% income tax reduction will continue in 1999 along with additional property tax relief (decrease of $144 million). For fiscal year 1999, the Governor proposed eliminated capital gains for family-owned businesses, an elimination of Iowa Pension taxes and an exemption of internet service from the sales tax which equals a decrease in taxes of $63 million. -153- 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 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%). -154- 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 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. -155- 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 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. -156- The recommendations for fiscal year 1999 result in an ending balance of $392.5 million and 9.6% of total budgeted expenditures. Budgeting a larger than 7.5% ending balance for fiscal year 1999 is necessary to provide adequate resources to maintain an approximate 7.5% ending balance in fiscal year 2000. Debt Administration and Limitation. The State of Kansas finances a portion of its capital expenditures with various debt instruments. Of capital expenditures that are debt-financed, revenue bonds and loans from the Pooled Money Investment Board finance most capital improvements for buildings, and "master lease" and "third-party" financing pay for most capital equipment. The Kansas Constitution makes provision for the issuance of general obligation bonds subject to certain restrictions; however, no bonds have been issued under this provision for many years. No other provision of the Constitution or state statute limits the amount of debt that can be issued. As of June 30, 1997, the state had authorized but unissued debt of $155,015,000. Although the state has no General Obligation debt rating, it seeks an underlying rating on specific issues of at least "AA-" from S&P and "A1" from Moody's. In October 1997, S&P assigned an issuer credit rating of AA+ to Kansas. S&P credit rating reflects the state's credit quality in the absence of general obligation debt. The underlying ratings for the most recently issued revenue bonds were A1 and AA- from Moody's and Fitch, respectively. The ratings for the most recently issued fixed rate bonds issued by the Kansas Department of Transportation were "Aa" and "AA" from Moody's and S&P, respectively. The Kansas Department of Transportation issues debt to finance highway projects. The Comprehensive Highway Program began during fiscal year 1989. The 20-year bonds will be retired with motor fuel taxes, motor vehicle registration fees, retail sales and compensating use taxes, and accrued interest. During fiscal years 1995 and 1996, the state sold bonds totaling approximately $167.1 million and $61.1 million, respectively. Of the fiscal year 1995 amount, $140.0 million was issued for the Comprehensive Highway Program. Other State of Kansas debt is issued by the Kansas Development Finance Authority (KDFA), an independent instrumentality of the state which was created in 1987 for this purpose. Proceeds from debt financing by KDFA for capital improvements are used for prison construction, acquisition and renovation of office space, energy conservation improvements, university facility construction and renovation, and projects for local governments. Consistent with the Governor's recommendation that revenue bonds be issued to address the capital needs of the universities, the 1996 Legislature approved the Crumbling Classroom initiative. Based on concerns for the aging buildings on the state's campuses, bonds have been issued to address a wide variety of rehabilitation and repair projects at the universities. With estimated interest earnings, the total project costs would be approximately $171.9 million, $8.35 million higher than originally anticipated. Debt service over the 15-year period will total $228.4 million, with each year's debt service payment over the next 15 years totaling $15 million. No project paid with bond proceeds will have a life-expectancy of less than 20 years, so as to "keep ahead" of the bonded indebtedness. Revenues from the Educational Building Fund have been appropriated through fiscal year 2000 to pay debt service. In November 1996, the first series of bonds totaling $50.0 million were issued to provide an initial flow of cash to start the projects. In October 1997, a second series of $110.3 million were issued. -157- 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 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. -158- 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 Exempt Obligations that are held by a Fund. See "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. -159- 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 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. -160- The State ended fiscal year 1997 with an ending balance (surplus) of $49.5 million for the General Revenue Fund. An appropriation of $86.55 million was transferred to the Budget Stabilization Fund to bring that Fund to 2.5% of net general revenue collections. The ending General Fund balance for fiscal year 1998 is projected at $172.4 million. Federal court-ordered payments for the St. Louis and Kansas City desegregation plans were $254.9 million in fiscal year 1997 which is about 3.9% of the State's general revenue budget. The estimate for fiscal year 1998 is $255.9 million. Desegregation expenditures, court orders, and other developments are continually monitored to provide the best possible anticipation and forecast of future costs. Debt Administration and Limitation. Pursuant to the Missouri State Constitution, the General Assembly may issue general obligation bonds solely for the purpose of (1) refunding outstanding bonds; or, (2) upon the recommendation of the Governor, for a temporary liability by reason of unforeseen emergency or of deficiency in revenue in an amount not to exceed $1 million for any one year and to be paid in not more than five years or as otherwise specifically provided. When the liability exceeds $1 million, the General Assembly, or the people by initiative, may submit the proposition to incur indebtedness to the voters of the State, and the bonds may be issued if approved by a majority of those voting. Before any bonds so authorized are issued, the General Assembly shall make adequate provisions for the payment of the principal and interest and shall provide for an annual tax on all taxable property in an amount sufficient for that purpose. Missouri voters have approved constitutional amendments providing for the issuance of general obligation bonds used for a number of purposes. The amount of general obligation debt that can be issued by the State is limited to the amount approved by popular vote plus the amount of $1 million. Total general obligation bonds issued as of November 30, 1997, was $1,147.4 million of which $979.4 was outstanding. As of November 30, 1997, total revenue bonds issued was $148.5 million with $114.68 million outstanding. Total state indebtedness as of November 30, 1997, was $1,624,746,207 with $1,289,911,009 outstanding. As of January 1, 1998, $194,465,000 principal remains outstanding of the $200,000,000 issued fourth state building bonds (approved in August 1994); and $128,590,000 principal remains outstanding of the $439,494,240 issued water pollution control bonds (both amounts excluding refunding issuances). With the final $75 million issuance on December 1, 1987, all $600 million in third state building bonds authorized by Missouri voters in 1982 were issued. With the final issuance in fiscal year 1998, Missouri will have issued all $250 million in fourth state building bonds authorized by Missouri voters. In fiscal year 1997, Missouri invested a total of $276.5 million in its capital assets with appropriations for maintenance and construction projects throughout the State. Appropriations for fiscal year 1998 are estimated at $237.6 million. Capital improvements of $192.5 million are recommended for fiscal years 1998-99 biennial budget. Of this amount, $20.8 million is for vital maintenance and repairs to state-owned facilities to initiate the voter-approved maintenance funding mechanism. Also included is $171.8 million for planning, major renovation, new construction, land acquisition, and other improvements. Amounts are designated to prison construction, projects at elementary and secondary education institutions, and facilities for veterans. The State's general obligation bond issues received triple "A" ratings from Moody's, S&P, and Fitch. Factors Affecting Montana Fund General Economic Conditions. Montana's growth rate in the 1990s has steadily converged on its predicted long-term sustainable rate of 2% per year. This growth is expected to continue for the next 10 years. Agriculture continues to be Montana's largest basic industry. It accounts for over 30% of the state's employment, labor income and gross sales. Approximately 60 million of the state's 93 million acres are used for farming and ranching. Montana agriculture generates about $2 billion in cash receipts. Total revenues have remained constant for approximately 40 years, but the mix of revenues has changed. Livestock prices rebounded dramatically in 1997 which may reflect a bottoming of the current cattle cycle. If so, Montana should see continued strength in cattle prices over the next few years. Wheat prices have been above average for the last few years due, in part, to relatively low prices elsewhere in the U.S. and around the world. -161- Much of Montana's manufacturing industry is tied to the state's natural resources. The state's manufacturing sector produces more than $5 billion in output annually and employs 30,000 workers earning $870 million in annual labor income in 1997. The largest component, wood, paper and furniture products manufacuting, is based primarily on Montana's timber resource and contributes approximately 40% of the state's manufacturing labor income and 37% of employment. In late 1997, due to Asian activity, three small to medium sawmills announced closures due to reduced timber availability and large swings in lumber prices. Overall, with growing global demand, the long-term outlook for Montana's wood and paper products industry is positive. The overall outlook for manufacturing is stability. A major addition in 1998, the Advanced Silicon plant in Silverbow County, will employ several hundred workers by the end of 1999. Personal income increased by 4.2% in 1997 which is nearly twice the inflation rate of 2.3%. Montana's non-farm wage and salary jobs increased by 8,000 in 1998. The job market is expected to increase at a rate of 9,400 jobs per year until 2006. Most job growth is projected to be in the services-producing segment of the economy. Although Montana's population continues to increase, the annual growth rate has begun a projected slow down. The 1997 population, estimated to be 879,000, reflects an increase of 80,000 or 10.01% since 1990. Budgetary Process. Montana prepares two annual budgets biennially in the odd-numbered years when the legislature meets. The constitution requires that legislative appropriations not exceed availalbe revenues. The legislature only utilizes revenue estimates in the budgetary process to establish appropriation levels. Expenditures may not legally exceed budgeted appropriations. In addition, the State Constitution prohibits borrowing to cover deficits incurred because appropriations exceed anticipated revenues. State law requires an appropriation for disbursements from the General, Special Revenue and Capital Projects Funds, except for those State Special Revenue Funds which receive donations. Budgets may be established in other funds for administrative purposes. Appropriations may not be increased by ammendment in the General Fund. However, a department, institution or agency of the executive branch desiring authorization to make expenditures from the General Fund during the first fiscal year of the biennium from appropriations for the second fiscal year of the biennium may apply for authorization from the Government through the budget director. In the second year of the biennium, during the legislative session, the legislative may authorize supplement appropriations. During the 1997 legislative session, the legislature appropriated $14.2 million general fund and $.93 million in special revenue supplemental appropriations for fiscal year 1997. Revenues and Expenditures. Revenue sources for general governmental functions, which include the General, Special Revenue, Debt Service, and Capital Projects Funds, increased 7.5% from fiscal year 1997 to fiscal year 1998. Total revenues were $2.34 billion. Total expenditures for all general govermental functions increased 7.6% from fiscal year 1997 to 1998. Total expenditures were $2.36 billion. Total General Fund revenues for fiscal year 1998 were estimated at $1.047 billion. Approximately $387 million of this amount was from the individual income tax. General appropriations for fiscal year 1998 were estimated at $979.7 million. The unreserved, undesignated fund balance of the General Fund increased from $30.315 million at June 30, 1997, to $44.309 million at June 30, 1998. This represents an increase of 46.16%. The Executive Budget projects an estimated ending fiscal year 1999 general fund balance of approximately $38.6 million. During the 2001 biennium the projected ending balance in the General Fund could be over $62 million due to reveneues from the tobacco settlement. The Governor's Budget Office estimates that current law revenues will increase from $1,959.3 million in the 1997 biennium to $2,132.7 million for the 1999 biennium, or by $173.4 million. Much of the estimated increase is due to increased revenues from the 101 mills state property tax levy and the property reappraisal. Debt Administration. State debt may be authorized either by a two-thirds vote of the members of each house of the legislature or by a favorable vote of a majority of the State's electors voting. There is no constitutional limit on the amount of debt that may be incurred by the State. The Montana Constitution does, however, prohibit the incurring of debt to cover deficits caused by appropriations exceeding anticipated revenue. General obligation debt increased from $96.62 million at June 30, 1997, to $187.005 million at June 30, 1998. Total Special Revenue debt as of June 30, 1997 was $166.83 million. Montana receives general obligation bond ratings of Aa3 from Moody's Investors Service and AA-from Standard & Poor's Corporation. -162- 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. 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. -163- 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. 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. -164- 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 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. -165- 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: -166- (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. 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. -167- 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. 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. -168- 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. -169- 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. -170- 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 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. -171- In June 1990, legislation was enacted creating the New York Local Government Assistance Corporation ("LGAC"), a public benefit corporation empowered to issue long-term obligations to fund certain payments to local governments traditionally funded through the State's annual seasonal borrowing. As of June 1995, LGAC had issued bonds and notes to provide net proceeds of $4.7 billion, and has been authorized to issue its bonds to provide net proceeds of up to $529 million during the State's 1995-96 fiscal year to redeem notes sold in June 1995. The LGAC program was completed in 1995-96 with the issuance of the last installment of authorized bond sales. As of March 31, 1997, $5.239 billion in bonds remained outstanding of the LGAC. Ratings. Moody's rating of the State's general obligation bonds is Aa2 and S&P's rating is A. Fitch does not rate the State's general obligation debt. Moody's previous rating was A on June 6, 1990, with its rating having been A1 since May 27, 1986. S&P's previous rating was AB on January 13, 1992. S&P's ratings were A from March 1990 to January 1992, AAB 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. -172- 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. 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. -173- 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 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. -174- 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 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 AB 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. -175- 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. 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. -176- 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. 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. -177- 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 $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. -178- 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 interest on such bonds shall be payable only from the applicable agencies' program income. On June 30, 1997, total Revenue Bonds outstanding were $938,442,000. The Bonds and balance were as follows: State Fair, $3,041,000; Student Loan Trust, $232,119,000; Building Authority, $73,837,000; Housing Finance, $466,868,000; University System, $57,228,000; and Municipal Bond Bank, $97,144,000. Long-Term Notes. The Bank of North Dakota has advances from the Federal Home Loan Bank in the amount of $14.5 million. The advances have a fixed rate of interest, ranging from 5.84% to 8.19%. North Dakota continues to receive bond ratings from both Moody's (Aa) and S&P (AA-) on general obligation bond issues. As of October 1997, Moody's refined North Dakota's general obligation bond rating to Aa3. Factors Affecting Oregon Fund General Economic Conditions. Oregon's December 1997 forecast issued by the Department of Administrative Services predicts that downside risks have increased with volatility in worldwide financial markets and the likelihood of slower growth in important Asian markets. Yet, there is most likely to be a continuation of the modest deceleration that has taken place during 1997. Growth is expected to be led by further expansion of the state's high technology manufacturing industries and their suppliers, along with additional gains in transportation equipment manufacturing. Expansion of these manufacturing sectors will translate into job creation in the service-producing sectors. The construction sector is expected to level off after four years of extremely rapid growth, thereby slowing the state's overall growth rate. A pattern of slowing growth is expected for both personal income and employment. Total nonfarm wage and salary employment is projected to increase 3.5% for 1997, down from 4.0% in 1996. Job growth is expected to slow further to 2.6% in 1998. Personal income will grow a projected 6.7% for 1997 and 5.6% for 1998, down from 7.0% growth in 1996. The state's population is forecast to increase 1.6% in 1998, up slightly from an estimated 1.5% in 1997. -179- 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 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. -180- 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. 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. -181- 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 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. -182- 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 been to a large extent financed by bonds and notes issued by the Commonwealth, its public corporations and municipalities. Economic progress has been aided by significant increases in the levels of education and occupational skills of the island's population. The economy of Puerto Rico is closely integrated with that of the mainland United States. During fiscal 1996 approximately 88% of Puerto Rico's exports went to the United States mainland, which was also the source of approximately 62% of Puerto Rico's imports. In fiscal 1996, Puerto Rico experienced a $3.2 billion positive adjusted merchandise trade balance. Gross product in fiscal 1992 was $23.7 billion and gross product in fiscal 1996 was $30.25 billion. This represents an increase in gross product of 27.6% from fiscal 1991 to 1996. Puerto Rico's more than decade-long economic expansion continued throughout the five-year period from fiscal 1992 through fiscal 1996. Almost every sector of the economy was affected and record levels of employment were achieved. Average employment in creased from 987,000 in fiscal 1992 to 1,128,000 in fiscal 1996. Average unemployment decreased from 15.1% in fiscal 1992 to 13.1% in fiscal 1996. Puerto Rico has a diversified economy. During the fiscal years 1992-1996, the manufacturing and service sectors generated the largest portion of gross domestic product. Three sectors of the economy provide the most employment: Manufacturing, services, and government. -183- 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 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. -184- 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 taxes during the first eighteen months of operation and between 80% and 60% thereafter, and 100% exemption from municipal excise taxes. The 1998 Act also provides various special deductions designed to simulate employment and productivity, research and development and capital investment in Puerto Rico. Under the 1998 Act, companies can repatriate and distribute their profits free of tollgate taxes. In addition, passive income derived from the investment of eligible funds in Puerto Rico financial institutions, obligations of the government of Puerto Rico and other designated investments are fully exempt from income and municipal license taxes. Individual shareholders of an exempted business are allowed a credit against their Puerto Rico income taxes equal to 30% of their proportionate share in the exempted business' income tax liability. Gain from the sale or exchange of shares of an exempted business by its shareholders during the exemption period is subject to a 4% income tax rate. -185- 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. As of December 31, 1997, the Commonwealth had guaranteed certain outstanding revenue bonds of the Aqueduct and Sewer Authority in the aggregate principal amount of $400,340,000. On January 1, 1997, the Commonwealth began to make debt service payments under the Commonwealth guaranty and expects to make all debt service payments required on these revenue bonds. Public Sector Debt. Historically, Puerto Rico has maintained a fiscal policy which provides for a prudent relationship between the growth of public sector debt and the growth of the economic base required to service that debt. The government of Puerto Rico has also sought opportunities to realize debt service savings by refunding outstanding debt with obligations bearing lower interest rates. -186- During fiscal 1992 to 1996, public sector debt and gross product increased 27.5% and 27.7%, respectively. during fiscal 1993 to 1997, however, public sector debt increased 37% while gross product increased 27.7%. This higher level of growth of public sector debt over the growth of gross product is due to the increase during fiscal 1996 and 1997 in the amount of debt incurred to finance certain key infrastructure projects, which are important to the development of the economy and are expected to produce long term economic benefits. This trend of higher levels of public sector debt relative to the growth in gross product is expected to continue during the next few fiscal years as the level of public sector capital investment remains high. As of December 31, 1997, outstanding short-term debt, relative to total debt, was 10.1%, including $600 million tax and revenue anticipation notes of the Commonwealth issued on December 3, 1997 and payable on July 30, 1998. Government Development Bank. The principal functions of Government Development Bank are to act as financial advisor to, and fiscal agent for, the Commonwealth, its municipalities and public corporations in connection with the issuance of bonds and notes, to make loans and advances to public corporations and municipalities, and to make loans to private enterprises to aid in the economic development of Puerto Rico. As of September 30, 1995, $1,540,948,000 of bonds and notes of Government Development Bank were outstanding. Government Development Bank has loaned $1,901,578,894 to Commonwealth public corporations and municipalities. Act No. 12, approved May 9, 1975, as amended, provides that the payment of principal of and interest on specified notes and other obligations of Government Development Bank, not exceeding $550,000,000, may be guaranteed by the Commonwealth, of which $267,000,000 were outstanding as of September 30, 1995. Government Development Bank has the following principal subsidiaries: Higher Education Assistance Corporation, Housing Finance Corporation, Tourism Development Fund, Development Fund, Capital Fund, and Public Finance Corporation. Factors Affecting 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. -187- Wisconsin's Clean Water Fund program provides financial assistance to municipalities for the planning, design and construction of pollution abatement facilities - primarily for wastewater treatment. Funding is provided from the federal state revolving fund grant authorized through the Water Quality Act, and through four State programs backed by State revenue and general obligation bonds. At June 30, 1997, there were five issues of Clean Water Revenue Bonds outstanding totaling $437.4 million. The Fund is authorized to issue up to $1,298.0 million 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. -188- 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. 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. -189- 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 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. -190- APPENDIX B--INVESTMENT OBJECTIVES OF THE OTHER FUNDS IN THE DELAWARE INVESTMENTS FAMILY Following is a summary of the investment objectives of the funds in the Delaware Investments family: Delaware Balanced Fund seeks long-term growth by a balance of capital appreciation, income and preservation of capital. It uses a dividend-oriented valuation strategy to select securities issued by established companies that are believed to demonstrate potential for income and capital growth. Delaware Devon Fund seeks current income and capital appreciation by investing primarily in income-producing common stocks, with a focus on common stocks the Manager believes have the potential for above average dividend increases over time. Delaware Trend Fund seeks long-term growth by investing in common stocks issued by emerging growth companies exhibiting strong capital appreciation potential. Delaware Small Cap Value Fund seeks capital appreciation by investing primarily in common stocks whose market values appear low relative to their underlying value or future potential. Delaware DelCap Fund seeks long-term capital growth by investing in common stocks and securities convertible into common stocks of companies that have a demonstrated history of growth and have the potential to support continued growth. Delaware Decatur Equity Income Fund seeks the highest possible current income by investing primarily in common stocks that provide the potential for income and capital appreciation without undue risk to principal. Delaware Growth and Income Fund seeks long-term growth by investing primarily in securities that provide the potential for income and capital appreciation without undue risk to principal. Delaware Blue Chip Fund seeks to achieve long-term capital appreciation. Current income is a secondary objective. It seeks to achieve these objectives by investing primarily in equity securities and any securities that are convertible into equity securities. Delaware Social Awareness Fund seeks to achieve long-term capital appreciation. It seeks to achieve this objective by investing primarily in equity securities of medium- to large-sized companies expected to grow over time that meet the Fund's "Social Criteria" strategy. Delaware Delchester Fund seeks as high a current income as possible by investing principally in high yield, high risk corporate bonds, and also in U.S. government securities and commercial paper. Delaware Strategic Income Fund seeks to provide investors with high current income and total return by using a multi-sector investment approach, investing principally in three sectors of the fixed-income securities markets: high yield, higher risk securities, investment grade fixed-income securities and foreign government and other foreign fixed-income securities. Delaware High-Yield Opportunities Fund seeks to provide investors with total return and, as a secondary objective, high current income. Delaware Corporate Bond Fund seeks to provide investors with total return by investing primarily in corporate bonds. Delaware Extended Duration Bond Fund seeks to provide investors with total return by investing primarily in corporate bonds. Delaware Limited-Term Government Fund seeks high, stable income by investing primarily in a portfolio of short-and intermediate-term securities issued or guaranteed by the U.S. government, its agencies or instrumentalities and instruments secured by such securities. Delaware American Government Bond Fund seeks high current income by investing primarily in long-term debt obligations issued or guaranteed by the U.S. government, its agencies or instrumentalities. -191- Delaware Cash Reserve Fund seeks the highest level of income consistent with the preservation of capital and liquidity through investments in short-term money market instruments, while maintaining a stable net asset value. REIT Fund seeks to achieve maximum long-term total return with capital appreciation as a secondary objective. It seeks to achieve its objectives by investing in securities of companies primarily engaged in the real estate industry. Delaware Tax-Free USA Fund seeks high current income exempt from federal income tax by investing in municipal bonds of geographically-diverse issuers. Delaware Tax-Free Insured Fund invests in these same types of securities but with an emphasis on municipal bonds protected by insurance guaranteeing principal and interest are paid when due. Delaware Tax-Free USA Intermediate Fund seeks a high level of current interest income exempt from federal income tax, consistent with the preservation of capital by investing primarily in municipal bonds. Delaware Tax-Free Money Fund seeks high current income, exempt from federal income tax, by investing in short-term municipal obligations, while maintaining a stable net asset value. Delaware Tax-Free New Jersey Fund seeks a high level of current interest income exempt from federal income tax and New Jersey state and local taxes, consistent with preservation of capital. Delaware Tax-Free Ohio Fund seeks a high level of current interest income exempt from federal income tax and Ohio state and local taxes, consistent with preservation of capital. Delaware Tax-Free Pennsylvania Fund seeks a high level of current interest income exempt from federal income tax and Pennsylvania state and local taxes, consistent with the preservation of capital. Foundation Funds are "fund of funds" which invest in other funds in the Delaware Investments family (referred to as "Underlying Funds"). Delaware Income Portfolio seeks a combination of current income and preservation of capital with capital appreciation by investing primarily in a mix of fixed income and domestic equity securities, including fixed income and domestic equity Underlying Funds. Delaware Balanced Portfolio seeks capital appreciation with current income as a secondary objective by investing primarily in domestic equity and fixed income securities, including domestic equity and fixed income Underlying Funds. Delaware Growth Portfolio seeks long term capital growth by investing primarily in equity securities, including equity Underlying Funds, and, to a lesser extent, in fixed income securities, including fixed-income Underlying Funds. Delaware International Equity Fund seeks to achieve long-term growth without undue risk to principal by investing primarily in international securities that provide the potential for capital appreciation and income. Delaware Global Bond Fund seeks to achieve current income consistent with the preservation of principal by investing primarily in global fixed-income securities that may also provide the potential for capital appreciation. Delaware Global Equity Fund seeks to achieve long-term total return by investing in global securities that provide the potential for capital appreciation and income. Delaware Emerging Markets Fund seeks long-term capital appreciation by investing primarily in equity securities of issuers located or operating in emerging countries. Delaware U.S. Growth Fund seeks to maximize capital appreciation by investing in companies of all sizes which have low dividend yields, strong balance sheets and high expected earnings growth rates relative to their industry. Delaware Overseas Equity Fund seeks to maximize total return (capital appreciation and income), principally through investments in an internationally diversified portfolio of equity securities. Delaware New Pacific Fund seeks long-term capital appreciation by investing primarily in companies which are domiciled in or have their principal business activities in the Pacific Basin. -192- Delaware Group Premium Fund, Inc. offers 17 funds available exclusively as funding vehicles for certain insurance company separate accounts. Growth and Income Series seeks the highest possible total rate of return by selecting issues that exhibit the potential for capital appreciation while providing higher than average dividend income. Delchester Series seeks as high a current income as possible by investing in rated and unrated corporate bonds, U.S. government securities and commercial paper. Capital Reserves Series seeks a high stable level of current income while minimizing fluctuations in principal by investing in a diversified portfolio of short- and intermediate-term securities. Cash Reserve Series seeks the highest level of income consistent with preservation of capital and liquidity through investments in short-term money market instruments. DelCap Series seeks long-term capital appreciation by investing its assets in a diversified portfolio of securities exhibiting the potential for significant growth. Delaware Balanced Series seeks a balance of capital appreciation, income and preservation of capital. It uses a dividend-oriented valuation strategy to select securities issued by established companies that are believed to demonstrate potential for income and capital growth. International Equity Series seeks long-term growth without undue risk to principal by investing primarily in equity securities of foreign issuers that provide the potential for capital appreciation and income. Small Cap Value Series seeks capital appreciation by investing primarily in small-cap common stocks whose market values appear low relative to their underlying value or future earnings and growth potential. Emphasis will also be placed on securities of companies that may be temporarily out of favor or whose value is not yet recognized by the market. Trend Series seeks long-term capital appreciation by investing primarily in small-cap common stocks and convertible securities of emerging and other growth-oriented companies. These securities will have been judged to be responsive to changes in the market place and to have fundamental characteristics to support growth. Income is not an objective. Global Bond Series seeks to achieve current income consistent with the preservation of principal by investing primarily in global fixed-income securities that may also provide the potential for capital appreciation. Strategic Income Series seeks high current income and total return by using a multi-sector investment approach, investing primarily in three sectors of the fixed-income securities markets: high-yield, higher risk securities; investment grade fixed-income securities; and foreign government and other foreign fixed-income securities. Devon Series seeks current income and capital appreciation by investing primarily in income-producing common stocks, with a focus on common stocks that the investment manager believes have the potential for above-average dividend increases over time. Emerging Markets Series seeks to achieve long-term capital appreciation by investing primarily in equity securities of issuers located or operating in emerging countries. Convertible Securities Series seeks a high level of total return on its assets through a combination of capital appreciation and current income by investing primarily in convertible securities. Social Awareness Series seeks to achieve long-term capital appreciation by investing primarily in equity securities of medium to large-sized companies expected to grow over time that meet the Series' "Social Criteria" strategy. REIT Series seeks to achieve maximum long-term total return, with capital appreciation as a secondary objective, by investing in securities of companies primarily engaged in the real estate industry. Aggressive Growth Series seeks long-term capital appreciation. The Series attempts to achieve its investment objective by investing primarily in equity securities of companies which the manager believes have the potential for high earnings growth. Delaware U.S. Government Securities Fund seeks to provide a high level of current income consistent with the prudent investment risk by investing in U.S. Treasury bills, notes, bonds, and other obligations issued or unconditionally guaranteed by the full faith and credit of the U.S. Treasury, and repurchase agreements fully secured by such obligations. Delaware Tax-Free Arizona Insured Fund seeks to provide a high level of current income exempt from federal income tax and the Arizona personal income tax, consistent with the preservation of capital. Delaware Minnesota Insured Fund seeks to provide a high level of current income exempt from federal income tax and the Minnesota personal income tax, consistent with the preservation of capital. -193- Delaware Tax-Free Minnesota Intermediate Fund seeks to provide a high level of current income exempt from federal income tax and the Minnesota personal income tax, consistent with preservation of capital. The Fund seeks to reduce market risk by maintaining an average weighted maturity from five to ten years. Delaware Tax-Free California Insured Fund seeks to provide a high level of current income exempt from federal income tax and the California personal income tax, consistent with the preservation of capital. Delaware Tax-Free Florida Insured Fund seeks to provide a high level of current income exempt from federal income tax, consistent with the preservation of capital. The Fund will seek to select investments that will enable its shares to be exempt from the Florida intangible personal property tax. Delaware Tax-Free Florida Fund seeks to provide a high level of current income exempt from federal income tax, consistent with the preservation of capital. The Fund will seek to select investments that will enable its shares to be exempt from the Florida intangible personal property tax. Delaware Tax-Free Kansas Fund seeks to provide a high level of current income exempt from federal income tax, the Kansas personal income tax and the Kansas intangible personal property tax, consistent with the preservation of capital. Delaware Tax-Free Missouri Insured Fund seeks to provide a high level of current income exempt from federal income tax and the Missouri personal income tax, consistent with the preservation of capital. Delaware Tax-Free New Mexico Fund seeks to provide a high level of current income exempt from federal income tax and the New Mexico personal income tax, consistent with the preservation of capital. Delaware Tax-Free Oregon Insured Fund seeks to provide a high level of current income exempt from federal income tax and the Oregon personal income tax, consistent with the preservation of capital. Delaware Tax-Free Arizona Fund seeks to provide a high level of current income exempt from federal income tax and the Arizona personal income tax, consistent with the preservation of capital. Delaware Tax-Free California Fund seeks to provide a high level of current income exempt from federal income tax and the California personal income tax, consistent with the preservation of capital. Delaware Tax-Free Iowa Fund seeks to provide a high level of current income exempt from federal income tax and the Iowa personal income tax, consistent with the preservation of capital. Delaware Tax-Free Idaho Fund seeks to provide a high level of current income exempt from federal income tax and the Idaho personal income tax, consistent with the preservation of capital. Delaware Minnesota High-Yield Municipal Bond Fund seeks to provide a high level of current income exempt from federal income tax and the Minnesota personal income tax primarily through investment in medium and lower grade municipal obligations. Delaware National High-Yield Municipal Fund seeks to provide a high level of income exempt from federal income tax, primarily through investment in medium and lower grade municipal obligations. Delaware Tax-Free New York Fund seeks to provide a high level of current income exempt from federal income tax and the personal income tax of the state of New York and the city of New York, consistent with the preservation of capital. Delaware Tax-Free Wisconsin Fund seeks to provide a high level of current income exempt from federal income tax and the Wisconsin personal income tax, consistent with the preservation of capital. Delaware Tax-Free Colorado Fund seeks to provide a high level of current income exempt from federal income tax and the Colorado personal income tax, consistent with the preservation of capital. Delaware Tax-Free Minnesota Fund seeks to provide a high level of current income exempt from federal income tax and the Minnesota personal income tax, consistent with the preservation of capital. Delaware Tax-Free North Dakota Fund seeks to provide a high level of current income exempt from federal income tax and the North Dakota personal income tax, consistent with the preservation of capital. -194- Delaware Aggressive Growth Fund seeks long-term capital appreciation, which the Fund attempts to achieve by investing primarily in equity securities believed to have the potential for high earnings growth. Although the Fund, in seeking its objective, may receive current income from dividends and interest, income is only an incidental consideration in the selection of the Fund's investments. Delaware Growth Stock Fund has an objective of long-term capital appreciation. The Fund seeks to achieve its objective from equity securities diversified among individual companies and industries. Delaware Tax-Efficient Equity Fund seeks to obtain for taxable investors a high total return on an after-tax basis. The Fund will attempt to achieve this objective by seeking to provide a high long-term after-tax total return through managing its portfolio in a manner that will defer the realization of accrued capital gains and minimize dividend income. For more complete information about any of the funds in the Delaware Investments family, including charges and expenses, you can obtain a prospectus from the Distributor. Read it carefully before you invest or forward funds. Each of the summaries above is qualified in its entirety by the information contained in each fund's prospectus(es). -195- APPENDIX C - DESCRIPTION OF RATINGS Bonds The ratings list below can be further described as follows. For all categories lower than Aaa, Moody's Investors Service, Inc. includes a "1", "2" or "3" following the rating to designate a high, medium or low rating, respectively. Similarly, for all categories lower than AAA, Standard & Poor's Ratings Group and Fitch IBCA, Inc. may add a "+" or "-" following the rating to characterize a higher or lower rating, respectively.
Moody's Investors Aaa Highest quality, smallest degree of investment risk. Service, Inc. Aa High quality; together with Aaa bonds, they compose the high-grade bond group A Upper-medium-grade obligations; many favorable investment attributes. Baa Medium-grade obligations; neither highly protected nor poorly secured. Interest and principal appear adequate for the present, but certain protective elements may be lacking or may be unreliable over any great length of time. Ba More uncertain with speculative elements. Protective of interest and principal payments not well safeguarded in good and bad times. B Lack characteristics of desirable investment; potentially low assurance of timely interest and principal payments or maintenance of other contract terms over time. Caa Poor standing, may be in default; elements of danger with respect to principal or interest payments. Ca Speculative in high degree; could be in default or have other marked shortcomings. C Lowest rated. Extremely poor prospects of ever attaining investment standing.
Standard & Poor's AAA Highest rating; extremely strong capacity to pay principal and interest. Ratings Group AA High quality; very strong capacity to pay principal and interest.
A Strong capacity to pay principal and interest; somewhat more susceptible to the adverse effects of changing circumstances and economic conditions. BBB Adequate capacity to pay principal and interest; normally exhibit adequate protection parameters, but adverse economic conditions or changing circumstances more likely to lead to weakened capacity to pay principal and interest than for higher-rated bonds. BB, B, Predominantly speculative with respect to the issuer's capacity to meet required CCC, interest and principal payments. BB-lowest degree of speculation; C-the CC,C highest degree of speculation. Quality and protective characteristics outweighed by large uncertainties or major risk exposure to adverse conditions. D In default. Fitch IBCA, Inc. AAA Highest quality; obligor has exceptionally strong ability to pay interest and repay principal, which is unlikely to be affected by reasonably foreseeable events. AA Very high quality; obligor's ability to pay interest and repay principal is very strong. Because bonds rated in the AAA and AA categories are not significantly vulnerable to foreseeable future developments, short-term debt of these issuers is generally rated F-1+. A High quality; obligor's ability to pay interest and repay principal is considered to be strong, but may be more vulnerable to adverse changes in economic conditions and circumstances than higher-rated bonds. BBB Satisfactory credit quality; obligor's ability to pay interest and repay principal is considered adequate. Unfavorable changes in economic conditions and circumstances are more likely to adversely affect these bonds and impair timely payment. The likelihood that the ratings of these bonds will fall below investment grade is higher than for higher-rated bonds. BB, Not investment grade; predominantly speculative with respect to the issuer's CCC, capacity to repay interest and repay principal in accordance with the terms of the CC, C obligation for bond issues not in default. BB is the least speculative. C is the most speculative.
Commercial Paper
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
-196- 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 good Service, Inc. asset protection and the least risk of dividend impairment within the universe of preferred stocks. Aa Considered a high-grade preferred stock. This rating indicates that there is reasonable assurance that earnings and asset protection will remain relatively well maintained in the foreseeable future. A Considered to be an upper-medium grade preferred stock. While risks are judged to be somewhat greater than in the "Aaa" and "Aa" classifications, earnings and asset protection are, nevertheless, expected to be maintained at adequate levels. Baa Considered to be medium-grade, neither highly protected nor poorly secured. Earnings and asset protection appear adequate at present but may be questionable over any great length of time. Ba Considered to have speculative elements and its future cannot be considered well assured. Earnings and asset protection may be very moderate and not well safeguarded during adverse periods. Uncertainty of position characterizes preferred stocks in this class. B Generally lacks the characteristics of a desirable investment. Assurance of dividend payments and maintenance of other terms of the issue over any long period of time may be small. Caa Likely to be in arrears on dividend payments. This rating designation does not purport to indicate the future status of payments. Ca Speculative in a high degree and is likely to be in arrears on dividends with little likelihood of eventual payment. C The lowest rated class of preferred or preference stock. Issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing. -197- 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, CCC Regarded, on balance, as predominantly speculative with respect to the issuer's capacity to pay preferred stock obligations. "BB" indicates the lowest degree of speculation and "CCC" the highest degree of speculation. While such issues will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions. CC Reserved for a preferred stock issue in arrears on dividends or sinking fund payments but that is currently paying. C A non-paying issue. D A non-paying issue with the issuer in default on debt instruments. NR Indicates that no rating has been requested, that there is insufficient information on which to base a rating, or that S&P does not rate a particular type of obligation as a matter of policy. 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 obligaiton as a matter of policy.
-198- PART C Other Information Item 23. Exhibits (a) Agreement and Declaration of Trust. (1) Agreement and Declaration of Trust (December 17, 1998) attached as Exhibit. (2) Certificate of Trust (December 17, 1998) attached as Exhibit. (b) By-Laws. By-Laws (December 17, 1998) attached as Exhibit. (c) Copies of All Instruments Defining the Rights of Holders. (1) Agreement and Declaration of Trust. Articles III, V and VI of Agreement and Declaration of Trust attached as Exhibit (a)(1). (2) By-Laws. Article II of By-Laws attached as Exhibit (b). (d) Investment Management Agreement. (1) Form of Investment Management Agreement (November 1999) between Delaware Management Company and the Registrant attached as Exhibit. (e) (1) Distribution Agreement. (i) Form of Distribution Agreement (November 1999) between Delaware Distributors, L.P. and the Registrant on behalf of each Series incorporated into this filing by reference to Post-Effective Amendment No. 18 filed August 28, 1997. (2) 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. (3) 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. (4) Mutual Fund Agreement for the Delaware Group of Funds (as amended November 1995) (Module) incorporated into this filing by reference to Post-Effective Amendment No. 18 filed August 28, 1997. (f) Inapplicable. (g) Custodian Agreement. (1) Form of Custodian Contract with Norwest Bank Minnesota N.A. (November 1999) incorporated into this filing by reference to Post- Effective Amendment No. 14 filed November 12, 1996. (h) Other Material Contracts. (1) Form of Shareholder Services Agreement (November 1999) 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. (2) Form of Fund Accounting Agreement (November 1999) 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) Opinion of Counsel. Attached as Exhibit. (j) Consent of Auditors. To be filed by Amendment. (k) Inapplicable. (l) Letter of Investment Intent incorporated into this filing by reference to Pre-Effective Amendment No. 1 filed on August 27, 1993. (m) Plan under Rule 12b-1. (1) Form of Plan under Rule 12b-1 for Class A, B and C Shares (November 1999) incorporated into this filing by reference to Post-Effective Amendment No. 8 filed April 30, 1996. (n) Plan under Rule 18f-3. (1) Form of Plan under Rule 18f-3 (November 1999) incorporated into this filing by reference to Post-Effective Amendment No. 19 filed April 29, 1998. (o) Other: Trustees' Powers of Attorney. Attached as Exhibit. Item 24. Persons Controlled by or under Common Control with Registrant. None. Item 25. Indemnification. Article VI of the By-Laws attached as Exhibit (b). Item 26. Business and Other Connections of Investment Adviser. Delaware Management Company, a series of Delaware Management Business Trust, (the "Manager") serves as investment manager to the Registrant and also serves as investment manager or sub-adviser to certain of the other funds in the Delaware Investments family (Delaware Group Equity Funds I, Inc., Delaware Group Equity Funds II, Inc., Delaware Group Equity Funds III, Delaware Group Equity Funds IV, Inc., Delaware Group Equity Funds V, Inc., Delaware Group Government Fund, Delaware Group Income Funds, Delaware Group Limited-Term Government Funds, Inc., Delaware Group Tax-Free Fund, Delaware Group State Tax- Free Income Trust, Delaware Group Tax-Free Money Fund, Delaware Group Premium Fund, Inc., Delaware Group Global & International Funds, Inc., Delaware Pooled Trust, Inc., Delaware Group Adviser Funds, Inc., Delaware Group Dividend and Income Fund, Inc., Delaware Group Global Dividend and Income Fund, Inc., Delaware Group Foundation Funds, Inc., Voyageur Intermediate Tax-Free Funds, Voyageur Tax-Free Funds, Voyageur Funds, Inc., Voyageur Insured Funds, Voyageur Investment Trust, Voyageur Investment Trust II, Voyageur Mutual Funds II, Voyageur Mutual Funds III, Inc., Voyageur Arizona Municipal Income Fund, Inc., Voyageur Colorado Insured Municipal Income Fund, Inc., Voyageur Florida Insured Municipal Income Fund, Voyageur Minnesota Municipal Fund, Inc., Voyageur Minnesota Municipal Fund II, Inc. and Voyageur Minnesota Municipal Fund III, Inc.). In addition, certain officers of the Manager also serve as directors/trustees of the other funds in the Delaware Investments family, and certain officers are also officers of these other funds. A company indirectly owned by the Manager's indirect parent company acts as principal underwriter to the mutual funds in the Delaware Investments family (see Item 29 below) and another such company acts as the shareholder services, dividend disbursing, accounting servicing and transfer agent for all of the mutual funds in the Delaware Investments family. (a) The following persons serving as directors or officers of the Manager have held the following positions during the past two years:
- ------------------------------------------------------------------------------------------------------------------------------------ Name and Positions and Offices with Delaware Management Company and its affiliates Principal Business and other Positions and Offices Held Address* - ------------------------------------------------------------------------------------------------------------------------------------ David K. Downes President of Delaware Management Company (a series of Delaware Management Business Trust); Executive Vice President, Chief Operating Officer and Chief Financial Officer of Delaware Management Holdings, Inc.; Executive Vice President, Chief Operating Officer, Chief Financial Officer and Director of DMH Corp.; Executive Vice President, Chief Operating Officer, Chief Financial Officer and Director of Delvoy, Inc.; President and Director of Delaware Management Company, Inc.; Executive Vice President, Chief Operating Officer, Chief Financial Officer and Trustee of Delaware Management Business Trust; Executive Vice President, Chief Operating Officer and Chief Financial Officer of Delaware Investment Advisers (a series of Delaware Management Business Trust); Chairman, President, Chief Executive Officer and Director of Delaware Service Company, Inc.; President, Chief Executive Officer and Director of Delaware Capital Management, Inc.; Chairman and Director of Retirement Financial Services, Inc.; Chairman and Director of Delaware Management Trust Company; Executive Vice President, Chief Operating Officer, Chief Financial Officer and Director of Delaware Distributors, Inc.; Executive Vice President, Chief Operating Officer and Chief Financial Officer of Delaware Distributors, L.P.; President, Chief Operating Officer, Chief Financial Officer and Director of Delaware International Holdings Ltd.; Director of Delaware International Advisers Ltd.; Executive Vice President, Chief Operating Officer, Chief Financial Officer and Director of Founders Holdings, Inc.; Executive Vice President, Chief Operating Officer and Chief Financial Officer of Founders CBO Corporation; President, Chief Executive Officer, Chief Operating Officer, Chief Financial Officer and Director/Trustee of each fund in the Delaware Investments family. Chief Executive Officer and Director of Forewarn, Inc. since 1993, 8 Clayton Place, Newtown Square, PA - ------------------------------------------------------------------------------------------------------------------------------------ Richard J. Flannery Executive Vice President and General Counsel of Delaware Management Company (a series of Delaware Management Business Trust); Executive Vice President and General Counsel of Delaware Management Holdings, Inc.; Executive Vice President, General Counsel and Director of DMH Corp.; Executive Vice President, General Counsel and Director of Delvoy, Inc.; Executive Vice President, General Counsel and Director of Delaware Management Company, Inc.; Executive Vice President, General Counsel and Trustee of Delaware Management Business Trust; Executive Vice President and General Counsel of Delaware Investment Advisers (a series of Delaware Management Business Trust); Executive Vice President, General Counsel and Director of Delaware Service Company, Inc.; Executive Vice President, General Counsel and Director of Delaware Capital Management, Inc.; Executive Vice President, General Counsel and Director of Retirement Financial Services, Inc.; Executive Vice President, General Counsel and Director of Delaware Management Trust Company; Executive Vice President, General Counsel and Director of Delaware Distributors, Inc.; Executive Vice President and General Counsel of Delaware Distributors, L.P.; Executive Vice President, General Counsel and Director of Delaware International Holdings Ltd.; Director of Delaware International Advisers Ltd.; Executive Vice President, General Counsel and Director of Founders Holdings, Inc.; Executive Vice President and General Counsel of Founders CBO Corporation; Executive Vice President and General Counsel of each fund in the Delaware Investments family. Director, HYPPCO Finance Company Ltd. Limited Partner of Stonewall Links, L.P. since 1991, Bulltown Rd., Elverton, PA; Director and Member of Executive Committee of Stonewall Links, Inc. since 1991, Bulltown Rd., Elverton, PA - ------------------------------------------------------------------------------------------------------------------------------------ Richard G. Unruh Executive Vice President, Chief Investment Officer/ DMC Equity of Delaware Management Company (a series of Delaware Management Business Trust); Executive Vice President of Delaware Management Holdings, Inc.; Executive Vice President and Trustee of Delaware Management Business Trust; Chief Executive Office, Chief Investment Officer/DIA Equity of Delaware Investment Advisers (a series of Delaware Management Business Trust; Executive Vice President of Delaware Capital Management, Inc.; Director of Delaware Investment Advisers Ltd.; Executive Vice President, Chief Investment Officer/Equity of each fund in the Delaware Investments family. Board of Directors, Chairman of Finance Committee, Keystone Insurance Company since 1989, 2040 Market Street, Philadelphia, PA; Board of Directors, Chairman of Finance Committee, AAA Mid Atlantic, Inc. since 1989, 2040 Market Street, Philadelphia, PA; Board of Directors, Metron, Inc. since 1995, 11911 Freedom Drive, Reston, VA - ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------ Name and Positions and Offices with Delaware Management Company and its affiliates Principal Business and other Positions and Offices Held Address* - ------------------------------------------------------------------------------------------------------------------------------------ Douglas L. Anderson Senior Vice President/Operations of Delaware Management Company (a series of Delaware Management Business Trust; Senior Vice President/Operations of Delaware Service Company, Inc.; Senior Vice President/Operations of Retirement Financial Services, Inc.; Senior Vice President/Operations of Delaware Management Trust Company. - ------------------------------------------------------------------------------------------------------------------------------------ Michael P. Bishof Senior Vice President, Treasurer/Investment Accounting of Delaware Management Company (a series of Delaware Management Business Trust); Senior Vice President, Treasurer/Investment Accounting of Delaware Investment Advisers (a series of Delaware Management Business Trust); Senior Vice President/Investment Accounting of Delaware Service Company, Inc.; Senior Vice President/Investment Accounting of Delaware Capital Management, Inc.; Senior Vice President, Treasurer/Investment Accounting of Delaware Distributors, L.P.; Senior Vice President, Manager of Investment Accounting of Delaware International Holdings Ltd.; Senior Vice President, Treasurer/Investment Accounting of Founders Holdings, Inc.; Senior Vice President and Assistant Treasurer of Founders CBO Corporation; Senior Vice President and Treasurer of each fund in the Delaware Investments family. - ------------------------------------------------------------------------------------------------------------------------------------ Robert J. DiBraccio Senior Vice President/Head of Equity Trading of Delaware Management Company (a series of Delaware Management Business Trust); Senior Vice President/Head of Equity Trading of Delaware Investment Advisers (a series of Delaware Management Business Trust); Senior Vice President/Head of Equity Trading of Delaware Capital Management, Inc. - ------------------------------------------------------------------------------------------------------------------------------------ John B. Fields Senior Vice President/Senior Portfolio Manager of Delaware Management Company (a series of Delaware Management Business Trust); Trustee of Delaware Management Business Trust; Senior Vice President/Senior Portfolio Manager of Delaware Investment Advisers (a series of Delaware Management Business Trust); Senior Vice President/Senior Portfolio Manager of Delaware Capital Mangement, Inc.; Senior Vice President/Senior Portfolio Manager of each fund in the Delaware Investments family. - ------------------------------------------------------------------------------------------------------------------------------------ Susan L. Hanson Senior Vice President/Global Marketing and Client Services of Delaware Management Company (a series of Delaware Management Business Trust); Senior Vice President/Global Marketing and Client Services of Delaware Investment Advisers (a series of Delaware Management Business Trust) - ------------------------------------------------------------------------------------------------------------------------------------ Joseph H. Hastings Senior Vice President/Treasurer/Corporate Controller of Delaware Management Company (a series of Delaware Management Business Trust); Senior Vice President/Treasurer/Corporate Controller of Delaware Management Holdings, Inc.; Senior Vice President/Treasurer/Corporate Controller of DMH Corp; Senior Vice President/Treasurer/Corporate Controller of Delvoy, Inc.; Senior Vice President/Treasurer/Corporate Controller of Delaware Management Company, Inc.; Senior Vice President/Treasurer/Corporate Controller of Delaware Management Business Trust; Senior Vice President/Treasurer/Corporate Controller of Delaware Service Company, Inc.; Senior Vice President/Treasurer/Corporate Controller of Delaware Capital Management, Inc.; Senior Vice President/Treasurer/Corporate Controller of Retirement Financial Services, Inc.; Executive Vice President/Corporate Controller/Treasurer of Delaware Management Trust Company; Senior Vice President/Treasurer/Corporate Controller of Delaware Distributors, L.P.; Senior Vice President/Treasurer/Corporate Controller of Delaware International Holdings; Senior Vice President/Treasurer/Corporate Controller of Founders Holdings, Inc.; Senior Vice President/ Assistant Treasurer Founders CBO Corporation; Senior Vice President/Corporate Controller of each fund in the Delaware Investments family - ------------------------------------------------------------------------------------------------------------------------------------ Joanne O. Hutcheson Senior Vice President/Human Resources of Delaware Management Company (a series of Delaware Management Business Trust); Senior Vice President/Human Resources of Delaware Management Holdings, Inc.; Senior Vice President/Human Resources of DMH Corp.; Senior Vice President/Human Resources of Delvoy, Inc.; Senior Vice President/Human Resources of Delaware Management Company, Inc.; Senior Vice President/Human Resources of Delaware Management Business Trust; Senior Vice President/Human Resources of Delaware Investment Advisers (a series of Delaware Management Business Trust); Senior Vice President/Human Resources of Delaware Service Company, Inc.; Senior Vice President/Human Resources of Delaware Capital Management, Inc.; Senior Vice President/Human Resources of Delaware Retirement Financial Services, Inc.; Senior Vice President/Human Resources of Delaware Management Trust Company; Senior Vice President/Human Resources of Delaware Distributors, Inc.; Senior Vice President/Human Resources of Delaware Distributors, L.P.; Senior Vice President/Human Resources of each fund in the Delaware Investments family. - ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------ Name and Positions and Offices with Delaware Management Company and its affiliates Principal Business and other Positions and Offices Held Address* - ------------------------------------------------------------------------------------------------------------------------------------ Richelle S. Maestro Senior Vice President, Assistant Secretary and Deputy General Counsel of Delaware Management Company (a series of Delaware Management Business Trust); Senior Vice President, Assistant Secretary and Deputy General Counsel of Delaware Management Holdings, Inc.; Senior Vice President, Assistant Secretary and Deputy General Counsel of DMH Corp.; Senior Vice President, Assistant Secretary and Deputy General Counsel of Delvoy, Inc.; Senior Vice President, Assistant Secretary and Deputy General Counsel of Delaware Management Company, Inc.; Senior Vice President, Assistant Secretary and Deputy General Counsel of Delaware Management Business Trust; Senior Vice President, Assistant Secretary and Deputy General Counsel of Delaware Investment Advisers (a series of Delaware Management Business Trust); Senior Vice President, Assistant Secretary and Deputy General Counsel of Delaware Service Company, Inc.; Senior Vice President, Assistant Secretary and Deputy General Counsel of Delaware Capital Management, Inc.; Senior Vice President, Assistant Secretary and Deputy General Counsel of Retirement Financial Services, Inc.; Senior Vice President, Assistant Secretary and Deputy General Counsel of Delaware Distributors, Inc.; Senior Vice President, Assistant Secretary and Deputy General Counsel of Delaware Distributors, L.P.; Senior Vice President, Secretary and Deputy General Counsel of Delaware International Holdings Ltd.; Senior Vice President, Assistant Secretary and Deputy General Counsel of Founders Holdings, Inc.; Secretary of Founders CBO Corporation; Senior Vice President, Assistant Secretary and Deputy General Counsel of each fund in the Delaware Investments family. General Partner of Tri-R Associates since 1989, 10001 Sandmeyer Lane, Philadelphia, PA. - ------------------------------------------------------------------------------------------------------------------------------------ Eric E. Miller Senior Vice President, Assistant Secretary and Deputy General Counsel of Delaware Management Company (a series of Delaware Management Business Trust); Senior Vice President, Assistant Secretary and Deputy General Counsel of Delaware Management Holdings, Inc.; Senior Vice President, Assistant Secretary and Deputy General Counsel of DMH Corp.; Senior Vice President, Assistant Secretary and Deputy General Counsel of Delvoy, Inc.; Senior Vice President, Assistant Secretary and Deputy General Counsel of Delaware Management Company, Inc.; Senior Vice President, Assistant Secretary and Deputy General Counsel of Delaware Management Business Trust; Senior Vice President, Assistant Secretary and Deputy General Counsel of Delaware Investment Advisers (a series of Delaware Management Business Trust); Senior Vice President, Assistant Secretary and Deputy General Counsel of Delaware Service Company, Inc.; Senior Vice President, Assistant Secretary and Deputy General Counsel of Delaware Capital Management, Inc.; Senior Vice President, Assistant Secretary and Deputy General Counsel of Retirement Financial Services, Inc.; Senior Vice President, Assistant Secretary and Deputy General Counsel of Delaware Distributors, Inc.; Senior Vice President, Assistant Secretary and Deputy General Counsel of Delaware Distributors, L.P.; Senior Vice President, Assistant Secretary and Deputy General Counsel of Founders Holdings, Inc.; Senior Vice President, Secretary and Deputy General Counsel of each fund in the Delaware Investments family. - ------------------------------------------------------------------------------------------------------------------------------------ James L. Shields Senior Vice President, Chief Information Officer of Delaware Management Company (a series of Delaware Management Business Trust); Senior Vice President, Chief Information Officer of Delaware Investment Advisers (a series of Delaware Management Business Trust); Senior Vice President, Chief Information Officer of Delaware Service Company, Inc.; Senior Vice President, Chief Information Officer of Delaware Capital Management Company, Inc.; Senior Vice President, Chief Information Officer of Retirement Financial Services, Inc.; Senior Vice President, Chief Information Officer of Delaware Distributors, L.P. - ------------------------------------------------------------------------------------------------------------------------------------ Christopher S. Adams Vice President/Business Manager, Equity of Delaware Management Company (a series of Delaware Management Business Trust); Vice President/Business Manager, Equity of Delaware Investment Advisers (a series of Delaware Management Business Trust) - ------------------------------------------------------------------------------------------------------------------------------------ Robert L. Arnold Vice President/Portfolio Manager of Delaware Management Company (a series of Delaware Management Business Trust); Vice President/Portfolio Manager of Delaware Investment Advisers (a series of Delaware Management Business Trust); Vice President/Portfolio Manager of Delaware Capital Management, Inc., Vice President/Portfolio Manager of each fund in the Delaware Investments family. - ------------------------------------------------------------------------------------------------------------------------------------ Marshall T. Bassett(1) Vice President/Portfolio Manager of Delaware Management Company (a series of Delaware Management Business Trust); Vice President/Portfolio Manager of Delaware Investment Advisers (a series of Delaware Management Business Trust); Vice President/Portfolio Manager of each fund in the Delaware Investments family. - ------------------------------------------------------------------------------------------------------------------------------------ Christopher S. Beck(2) Vice President/Senior Portfolio Manager of Delaware Management Company (a series of Delaware Management Business Trust); Vice President/Senior Portfolio Manager of Delaware Investment Advisers (a series of Delaware Management Business Trust); Vice President/Senior Portfolio Manager of each fund in the Delaware Investments family. Trustee of New Castle County Pension Board since October 1992, Wilmington DE. - ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------ Name and Positions and Offices with Delaware Management Company and its affiliates Principal Business and other Positions and Offices Held Address* - ------------------------------------------------------------------------------------------------------------------------------------ Richard E. Beister Vice President/Trading Operations of Delaware Management Company (a series of Delaware Management Business Trust) - ------------------------------------------------------------------------------------------------------------------------------------ Lisa O. Brinkley Vice President/Compliance Director of Delaware Management Company (a series of Delaware Management Business Trust); Vice President/Compliance Director of Delaware Management Holdings, Inc.;Vice President/Compliance Director of DMH Corp.;Vice President/Compliance Director of Delvoy, Inc.;Vice President/Compliance Director of Delaware Management Company, Inc.;Vice President/Compliance Director of Delaware Management Business Trust; Vice President/Compliance Director of Delaware Investment Advisers (a series of Delaware Management Business Trust);Vice President/Compliance Director of Delaware Service Company, Inc.;Vice President/Compliance Director of Delaware Capital Management, Inc.;Vice President/Compliance Director of Retirement Financial Services, Inc.; Vice President/Compliance Director/Assistant Secretary of Delaware Management Business Trust; Vice President/Compliance Director of Delaware Distributors, Inc.;Vice President/Compliance Director of Delaware Distributors, L.P.;Vice President/Compliance Director of each fund in the Delaware Investments family. - ------------------------------------------------------------------------------------------------------------------------------------ MaryEllen M. Carrozza Vice President/Client Services of Delaware Management Company (a series of Delaware Management Business Trust);Vice President/Client Services of Delaware Investment Advisers (a series of Delaware Management Business Trust);Vice President/Client Services of each fund in the Delaware Investments family. - ------------------------------------------------------------------------------------------------------------------------------------ Stephen R. Cianci Vice President/Portfolio Manager of Delaware Management Company (a series of Delaware Management Business Trust); Vice President/Portfolio Manager of Delaware Investment Advisers (a series of Delaware Management Business Trust); Vice President/Portfolio Manager of each fund in the Delaware Investments family. - ------------------------------------------------------------------------------------------------------------------------------------ Mitchell L. Conery(3) Vice President/Senior Portfolio Manager of Delaware Management Company (a series of Delaware Management Business Trust); Vice President/Senior Portfolio Manager of Delaware Investment Advisers (a series of Delaware Management Business Trust); Vice President/Senior Portfolio Manager of each fund in the Delaware Investments family. - ------------------------------------------------------------------------------------------------------------------------------------ Timothy G. Connors Vice President/Senior Portfolio Manager of Delaware Management Company (a series of Delaware Management Business Trust); Vice President/Senior Portfolio Manager of Delaware Investment Advisers (a series of Delaware Management Business Trust). - ------------------------------------------------------------------------------------------------------------------------------------ Patrick P. Coyne Vice President/Senior Portfolio Manager of Delaware Management Company (a series of Delaware Management Business Trust); Vice President/Senior Portfolio Manager of Delaware Investment Advisers (a series of Delaware Management Business Trust); Vice President/Senior Portfolio Manager of Delaware Capital Management, Inc.; Vice President/Senior Portfolio Manager of each fund in the Delaware Investments family. - ------------------------------------------------------------------------------------------------------------------------------------ Nancy M. Crouse Vice President/Senior Portfolio Manager of Delaware Management Company (a series of Delaware Management Business Trust); Vice President/Senior Portfolio Manager of Delaware Investment Advisers (a series of Delaware Management Business Trust); Vice President/Senior Portfolio Manager of each fund in the Delaware Investments family. - ------------------------------------------------------------------------------------------------------------------------------------ George E. Deming Vice President/Senior Portfolio Manager of Delaware Management Company (a series of Delaware Management Business Trust); Vice President/Senior Portfolio Manager of Delaware Investment Advisers (a series of Delaware Management Business Trust); Vice President/Senior Portfolio Manager of each fund in the Delaware Investments family. - ------------------------------------------------------------------------------------------------------------------------------------ James P. Dokas(4) Vice President/Portfolio Manager of Delaware Management Company (a series of Delaware Management Business Trust); Vice President/Portfolio Manager of Delaware Investment Advisers (a series of Delaware Management Business Trust); Vice President/ Portfolio Manager of each fund in the Delaware Investments family. - ------------------------------------------------------------------------------------------------------------------------------------ Michael J. Dugan Vice President/Senior Portfolio Manager of Delaware Management Company (a series of Delaware Management Business Trust); Vice President/Senior Portfolio Manager of Delaware Investment Advisers (a series of Delaware Management Business Trust); Vice President/Senior Portfolio Manager of each fund in the Delaware Investments family. - ------------------------------------------------------------------------------------------------------------------------------------ Roger A. Early Vice President/Senior Portfolio Manager of Delaware Management Company (a series of Delaware Management Business Trust); Vice President/Senior Portfolio Manager of Delaware Investment Advisers (a series of Delaware Management Business Trust); Vice President/Senior Portfolio Manager of each fund in the Delaware Investments family. - ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------ Name and Positions and Offices with Delaware Management Company and its affiliates Principal Business and other Positions and Offices Held Address* - ------------------------------------------------------------------------------------------------------------------------------------ Joel A. Ettinger(5) Vice President/Taxation of Delaware Management Company (a series of Delaware Management Business Trust);Vice President/Taxation of Delaware Management Holdings, Inc.;Vice President/Taxation of DMH Corp.;Vice President/Taxation of Delvoy, Inc.; Vice President/Taxation of Delaware Management Company, Inc.;Vice President/Taxation of Delaware Management Business Trust; Vice President/Taxation of Delaware Investment Advisers (a series of Delaware Management Business Trust);Vice President/Taxation of Delaware Service Company, Inc.;Vice President/Taxation of Delaware Capital Management, Inc.;Vice President/Taxation of Retirement Financial Services, Inc.;Vice President/Taxation of Delaware Distributors, Inc.;Vice President/Taxation of Delaware Distributors, L.P.;Vice President/Taxation of Founders Holdings, Inc.; Vice President/Taxation of Founders CBO Corporation; Vice President/Taxation of each fund in the Delaware Investments family. - ------------------------------------------------------------------------------------------------------------------------------------ Gerald S. Frey Vice President/Senior Portfolio Manager of Delaware Management Company (a series of Delaware Management Business Trust); Vice President/Senior Portfolio Manager of Delaware Investment Advisers (a series of Delaware Management Business Trust); Vice President/Senior Portfolio Manager of each fund in the Delaware Investments family. - ------------------------------------------------------------------------------------------------------------------------------------ James A. Furgele Vice President/Investment Accounting of Delaware Management Company (a series of Delaware Management Business Trust);Vice President/Investment Accounting of Delaware Investment Advisers (a series of Delaware Management Business Trust); Vice President/Investment Accounting of Delaware Service Company, Inc.;Vice President/Investment Accounting of each fund in the Delaware Investments family. - ------------------------------------------------------------------------------------------------------------------------------------ Stuart M. George Vice President/Equity Trading of Delaware Management Company (a series of Delaware Management Business Trust);Vice President/Equity Trading of Delaware Investment Advisers (a series of Delaware Management Business Trust). - ------------------------------------------------------------------------------------------------------------------------------------ Paul Grillo Vice President/Portfolio Manager of Delaware Management Company (a series of Delaware Management Business Trust); Vice President/Portfolio Manager of Delaware Investment Advisers (a series of Delaware Management Business Trust); Vice President/Portfolio Manager of each fund in the Delaware Investments family. - ------------------------------------------------------------------------------------------------------------------------------------ Brian T. Hannon Vice President of Delaware Management Company (a series of Delaware Management Business Trust); Vice President of Delaware Investment Advisers (a series of Delaware Management Business Trust); Vice President/Senior Portfolio Manager of each fund in the Delaware Investments family. - ------------------------------------------------------------------------------------------------------------------------------------ John A. Heffern(6) Vice President/Portfolio Manager of Delaware Management Company (a series of Delaware Management Business Trust); Vice President/Portfolio Manager of Delaware Investment Advisers (a series of Delaware Management Business Trust); Vice President/Portfolio Manager of each fund in the Delaware Investments family. - ------------------------------------------------------------------------------------------------------------------------------------ Elizabeth H. Howell(7) Vice President/Senior Portfolio Manager of Delaware Management Company (a series of Delaware Management Business Trust); Vice President/Senior Portfolio Manager of Delaware Investment Advisers (a series of Delaware Management Business Trust); Vice President/Senior Portfolio Manager of each fund in the Delaware Investments family. - ------------------------------------------------------------------------------------------------------------------------------------ Jeffrey Hynoski Vice President/Analyst of Delaware Management Company (a series of Delaware Management Business Trust);Vice President/Analyst of Delaware Investment Advisers (a series of Delaware Management Business Trust);Vice President/Analyst of each fund in the Delaware Investments family. - ------------------------------------------------------------------------------------------------------------------------------------ Cynthia Isom Vice President/Portfolio Manager of Delaware Management Company (a series of Delaware Management Business Trust); Vice President/Portfolio Manager of Delaware Investment Advisers (a series of Delaware Management Business Trust); Vice President/Portfolio Manager of each fund in the Delaware Investments family. - ------------------------------------------------------------------------------------------------------------------------------------ Karina J. Ivstan Vice President/Strategic Planning of Delaware Management Company (a series of Delaware Management Business Trust); Vice President/Strategic Planning of Delaware Management Holdings, Inc.;Vice President/Strategic Planning of Delaware Management Business Trust; Senior Vice President, Assistant Secretary and Deputy General Counsel of Delaware Investment Advisers (a series of Delaware Management Business Trust); Vice President/Strategic Planning of Delaware Service Company, Inc.;Vice President/Strategic Planning of Delaware Capital Management, Inc.; Vice President/Strategic Planning of Retirement Financial Services, Inc.; Vice President/Strategic Planning of Delaware Management Trust Company; Vice President/Strategic of Delaware Distributors, L.P.; Vice President/Strategic Planning of each fund in the Delaware Investments family. - ------------------------------------------------------------------------------------------------------------------------------------ Audrey E. Kohart Vice President/Assistant Controller/Corporate Accounting of Delaware Management Company (a series of Delaware Management Business Trust) - ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------ Name and Positions and Offices with Delaware Management Company and its affiliates Principal Business and other Positions and Offices Held Address* - ------------------------------------------------------------------------------------------------------------------------------------ Steven T. Lampe Vice President/Research Analyst of Delaware Management Company (a series of Delaware Management Business Trust); Vice President/Portfolio Manager of Delaware Investment Advisers (a series of Delaware Management Business Trust); Vice President/Portfolio Manager of each fund in the Delaware Investments family. - ------------------------------------------------------------------------------------------------------------------------------------ Philip Y. Lin Vice President, Assistant Secretary and Associate General Counsel of Delaware Management Company (a series of Delaware Management Business Trust); Vice President, Assistant Secretary and Associate General Counsel of Delaware Investment Advisers (a series of Delaware Management Business Trust);Vice President, Assistant Secretary and Associate General Counsel of Delaware Service Company, Inc.;Vice President, Assistant Secretary and Associate General Counsel of Delaware Capital Management, Inc.;Vice President, Assistant Secretary and Associate General Counsel of Retirement Financial Services, Inc.; Vice President, Assistant Secretary and Associate General Counsel of Delaware Management Trust Company; Vice President, Assistant Secretary and Associate General Counsel of Delaware Distributors, L.P.;Vice President, Assistant Secretary and Associate General Counsel of each fund in the Delaware Investments family. - ------------------------------------------------------------------------------------------------------------------------------------ Michael D. Mabry Vice President, Assistant Secretary and Associate General Counsel of Delaware Management Company (a series of Delaware Management Business Trust); Vice President, Assistant Secretary and Associate General Counsel of Delaware Investment Advisers (a series of Delaware Management Business Trust);Vice President, Assistant Secretary and Associate General Counsel of Delaware Service Company, Inc.;Vice President, Assistant Secretary and Associate General Counsel of Delaware Capital Management, Inc.;Vice President, Assistant Secretary and Associate General Counsel of Retirement Financial Services, Inc.; Vice President, Assistant Secretary and Associate General Counsel of Delaware Distributors, L.P.; Vice President, Assistant Secretary and Associate General Counsel of each fund in the Delaware Investments family. - ------------------------------------------------------------------------------------------------------------------------------------ Paul A. Matlack Vice President/Senior Portfolio Manager of Delaware Management Company (a series of Delaware Management Business Trust); Vice President/Senior Portfolio Manager of Delaware Investment Advisers (a series of Delaware Management Business Trust); Vice President/Senior Portfolio Manager of Founders Holdings, Inc., President and Director of Founders CBO Corporation; Vice President/Senior Portfolio Manager of each fund in the Delaware Investments family. - ------------------------------------------------------------------------------------------------------------------------------------ Andrew M. McCullagh, Vice President/Senior Portfolio Manager of Delaware Management Company (a series of Delaware Jr(8) Management Business Trust); Vice President/Senior Portfolio Manager of Delaware Investment Advisers (a series of Delaware Management Business Trust); Vice President/Senior Portfolio Manager of each fund in the Delaware Investments family. - ------------------------------------------------------------------------------------------------------------------------------------ Francis X. Morris Vice President/Senior Portfolio Manager of Delaware Management Company (a series of Delaware Management Business Trust); Vice President/Senior Portfolio Manager of Delaware Investment Advisers (a series of Delaware Management Business Trust); Vice President/Senior Portfolio Manager of each fund in the Delaware Investments family. - ------------------------------------------------------------------------------------------------------------------------------------ Gerald T. Nichols Vice President/Senior Portfolio Manager of Delaware Management Company (a series of Delaware Management Business Trust); Vice President/Senior Portfolio Manager of Delaware Investment Advisers (a series of Delaware Management Business Trust); Vice President/Senior Portfolio Manager of Founders Holdings, Inc., Treasurer, Assistant Secretary and Director of Founders CBO Corporation; Vice President/Senior Portfolio Manager of each fund in the Delaware Investments family. - ------------------------------------------------------------------------------------------------------------------------------------ Robert A Norton, Jr. Vice President/Research Analyst of Delaware Management Company (a series of Delaware Management Business Trust); Vice President/Portfolio Manager of Delaware Investment Advisers (a series of Delaware Management Business Trust). - ------------------------------------------------------------------------------------------------------------------------------------ David P. O'Connor Vice President, Assistant Secretary and Associate General Counsel of Delaware Management Company (a series of Delaware Management Business Trust); Vice President, Assistant Secretary and Associate General Counsel of Delaware Investment Advisers (a series of Delaware Management Business Trust);Vice President, Assistant Secretary and Associate General Counsel of Delaware Service Company, Inc.;Vice President, Assistant Secretary and Associate General Counsel of Delaware Capital Management, Inc.;Vice President, Assistant Secretary and Associate General Counsel of Retirement Financial Services, Inc.; Vice President, Assistant Secretary and Associate General Counsel of Delaware Distributors, L.P.; Vice President, Assistant Secretary and Associate General Counsel of each fund in the Delaware Investments family. - ------------------------------------------------------------------------------------------------------------------------------------ Gary A. Reed Vice President/Senior Portfolio Manager of Delaware Management Company (a series of Delaware Management Business Trust); Vice President/Senior Portfolio Manager of Delaware Investment Advisers (a series of Delaware Management Business Trust); Vice President/Senior Portfolio Manager of each fund in the Delaware Investments family. - ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------ Name and Positions and Offices with Delaware Management Company and its affiliates Principal Business and other Positions and Offices Held Address* - ------------------------------------------------------------------------------------------------------------------------------------ Richard Salus Vice President/Assistant Controller of Delaware Management Company (a series of Delaware Management Business Trust); Vice President/Senior Portfolio Manager of Delaware Investment Advisers (a series of Delaware Management Business Trust); Vice President/Assistant Controller of Delaware Management Trust Company; Vice President/Assistant Controller of Delaware International Holdings Ltd. - ------------------------------------------------------------------------------------------------------------------------------------ Richard D. Siedel Vice President/Assistant Controller/Manager Payroll of Delaware Management Company (a series of Delaware Management Business Trust). - ------------------------------------------------------------------------------------------------------------------------------------ Alan R. Stuart Vice President/Trading of Delaware Management Company (a series of Delaware Management Business Trust); Vice President/Trading of Delaware Investment Advisers (a series of Delaware Management Business Trust). - ------------------------------------------------------------------------------------------------------------------------------------ Michael T. Taggart Vice President/Facilities and Administration Services of Delaware Management Company (a series of Delaware Management Business Trust);Vice President/Facilities and Administration Services of Delaware Investment Advisers (a series of Delaware Management Business Trust); Vice President/Facilities and Administration Services of Delaware Service Company, Inc.;Vice President/Facilities and Administration Services of Delaware Distributors, L.P. - ------------------------------------------------------------------------------------------------------------------------------------ Thomas J. Trottman Vice President/Senior Corporate Bond Analyst of Delaware Management Company (a series of Delaware Management Business Trust); Vice President/Senior Corporate Bond Analyst of Delaware Investment Advisers (a series of Delaware Management Business Trust); Vice President/Senior Corporate Bond Analyst of each fund in the Delaware Investments family. - ------------------------------------------------------------------------------------------------------------------------------------ Lori P. Wachs Vice President/Assistant Portfolio Manager of Delaware Management Company (a series of Delaware Management Business Trust);Vice President/Assistant Portfolio Manager of Delaware Investment Advisers (a series of Delaware Management Business Trust);Vice President/Assistant Portfolio Manager of each fund in the Delaware Investments family. - ------------------------------------------------------------------------------------------------------------------------------------
*Business Address is 1818 Market Street, Philadelphia, PA 19103. - -------------------------------------------------------------------------------- (1) VICE PRESIDENT, Morgan Stanley Asset Management prior to March 1997. (2) SENIOR PORTFOLIO MANAGER, Pitcairn Trust Company prior to May 1997. (3) INVESTMENT OFFICER, Travelers Insurance prior to January 1997. (4) DIRECTOR OF TRUST INVESTMENTS, Bell Atlantic Corporation prior to February 1997. (5) TAX PRINCIPAL, Ernst & Young LLP prior to April 1998. (6) SENIOR VICE PRESIDENT, EQUITY RESEARCH, NatWest Securities Corporation prior to March 1997. (7) SENIOR PORTFOLIO MANAGER, Voyageur Fund Managers, Inc. prior to May 1997. (8) SENIOR VICE PRESIDENT, SENIOR PORTFOLIO MANAGER, Voyageur Asset Management LLC prior to May 1997. - -------------------------------------------------------------------------------- Item 27. Principal Underwriters. (a) Delaware Distributors, L.P. serves as principal underwriter for all the mutual funds in the Delaware Investments family. (b) Information with respect to each director, officer or partner of principal underwriter:
- ---------------------------------------------------------------------------------------------------------------------------------- Name and Principal Business Positions and Offices with Positions and Offices with Address* Underwriter Registrant - ---------------------------------------------------------------------------------------------------------------------------------- Delaware Distributors, Inc. General Partner None - ---------------------------------------------------------------------------------------------------------------------------------- Delaware Investment Advisers Limited Partner None - ---------------------------------------------------------------------------------------------------------------------------------- Delaware Capital Management, Inc. Limited Partner None - ---------------------------------------------------------------------------------------------------------------------------------- Bruce D. Barton President and Chief Executive Officer None - ----------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------- Name and Principal Business Positions and Offices with Positions and Offices with Address* Underwriter Registrant - ---------------------------------------------------------------------------------------------------------------------------------- David K. Downes Executive Vice President/Chief Operating President/Chief Executive Officer/Chief Officer/Chief Financial Officer Operating Officer/Chief Financial Officer/Director/Trustee - ---------------------------------------------------------------------------------------------------------------------------------- Richard J. Flannery Executive Vice President/General Counsel Executive Vice President/General Counsel - ---------------------------------------------------------------------------------------------------------------------------------- Diane M. Anderson Senior Vice President/Retirement None Operations - ---------------------------------------------------------------------------------------------------------------------------------- Michael P. Bishof Senior Vice President/Treasurer/ Senior Vice President/Treasurer Investment Accounting - ---------------------------------------------------------------------------------------------------------------------------------- Daniel J. Brooks III Senior Vice President/Wholesaler None - ---------------------------------------------------------------------------------------------------------------------------------- Terrence P. Cunningham Senior Vice President/National Sales None Director, Financial Institutions - ---------------------------------------------------------------------------------------------------------------------------------- Stephen J. Deangelis Senior Vice President/National Sales, None Managed Account Services - ---------------------------------------------------------------------------------------------------------------------------------- Joseph H. Hastings Senior Vice President/Treasurer/Corporate Senior Vice President/Corporate Controller Controller - ---------------------------------------------------------------------------------------------------------------------------------- Joanne O. Hutcheson Senior Vice President/Human Resources Senior Vice President/Human Resources - ---------------------------------------------------------------------------------------------------------------------------------- Bradley L. Kolstoe Senior Vice President/Western Division None Sales, IPI Channel - ---------------------------------------------------------------------------------------------------------------------------------- Richelle S. Maestro Senior Vice President/Deputy General Senior Vice President/Deputy General Counsel/Assistant Secretary Counsel/Assistant Secretary - ---------------------------------------------------------------------------------------------------------------------------------- Mac Macaulliffe Senior Vice President/Divisional Sales None Manager - ---------------------------------------------------------------------------------------------------------------------------------- J Chris Meyer Senior Vice President/Director, Product None Management - ---------------------------------------------------------------------------------------------------------------------------------- Eric E. Miller Senior Vice President/Deputy General Senior Vice President/Deputy General Counsel/Assistant Secretary Counsel/Secretary - ---------------------------------------------------------------------------------------------------------------------------------- Stephen C. Nell Senior Vice President/National Retirement None Sales - ---------------------------------------------------------------------------------------------------------------------------------- Henry W. Orvin Senior Vice President/Eastern Division None Sales - ---------------------------------------------------------------------------------------------------------------------------------- Christopher H. Price Senior Vice President/Channel Manager None - ---------------------------------------------------------------------------------------------------------------------------------- Thomas E. Sawyer Senior Vice President/Director, National None Sales - ---------------------------------------------------------------------------------------------------------------------------------- James L. Shields Senior Vice President/Chief Information None Officer - ---------------------------------------------------------------------------------------------------------------------------------- Richard P. Allen Vice President/Wholesaler, Midwest None - ---------------------------------------------------------------------------------------------------------------------------------- David P. Anderson, Jr. Vice President/Wholesaler None - ---------------------------------------------------------------------------------------------------------------------------------- Jeffrey H. Arcy Vice President/Wholesaler, South East None Region - ---------------------------------------------------------------------------------------------------------------------------------- Patrick A. Bearss Vice President/Wholesaler - Midwest None - ---------------------------------------------------------------------------------------------------------------------------------- Gabriella Bercze Vice President/Wholesaler, Financial None Institution - ---------------------------------------------------------------------------------------------------------------------------------- Denise D. Bradley Vice President/Wholesaler None - ---------------------------------------------------------------------------------------------------------------------------------- Larry Bridwell Vice President/Financial Institutions None Wholesaler - ----------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------- Name and Principal Business Positions and Offices with Positions and Offices with Address* Underwriter Registrant - ---------------------------------------------------------------------------------------------------------------------------------- Lisa O. Brinkley Vice President/Compliance Director Vice President/Compliance Director - ---------------------------------------------------------------------------------------------------------------------------------- Terrance L. Bussard Vice President/Wholesaler None - ---------------------------------------------------------------------------------------------------------------------------------- Daniel H. Carlson Vice President/Marketing Services None - ---------------------------------------------------------------------------------------------------------------------------------- Larry Carr Vice President/VA Sales Manager None - ---------------------------------------------------------------------------------------------------------------------------------- William S. Carroll Vice President/Wholesaler None - ---------------------------------------------------------------------------------------------------------------------------------- Matthew Coldren Vice President/National Accounts None - ---------------------------------------------------------------------------------------------------------------------------------- Patrick A Connelly Vice President/RIA Sales None - ---------------------------------------------------------------------------------------------------------------------------------- Jessie V. Emery Vice President/Marketing Communications None - ---------------------------------------------------------------------------------------------------------------------------------- Joel A. Ettinger Vice President/Taxation Vice President/Taxation - ---------------------------------------------------------------------------------------------------------------------------------- Susan T. Friestedt Vice President/Retirement Services None - ---------------------------------------------------------------------------------------------------------------------------------- Douglan R. Glennon Vice President/Wholesaler None - ---------------------------------------------------------------------------------------------------------------------------------- Darryl S. Grayson Vice President/Director, Internal Sales None - ---------------------------------------------------------------------------------------------------------------------------------- Rhonda J. Guido Vice President/Wholesaler None - ---------------------------------------------------------------------------------------------------------------------------------- Ronald A. Haimowitz Vice President/Wholesaler None - ---------------------------------------------------------------------------------------------------------------------------------- Edward J. Hecker Vice President/Wholesaler None - ---------------------------------------------------------------------------------------------------------------------------------- John R. Herron Vice President/VA Wholesaler None - ---------------------------------------------------------------------------------------------------------------------------------- Dinah J. Huntoon Vice President/Product Manager, Equities None - ---------------------------------------------------------------------------------------------------------------------------------- Karina J. Istvan Vice President/Strategic Planning None - ---------------------------------------------------------------------------------------------------------------------------------- Chirstopher L. Johnston Vice President/Wholesaler None - ---------------------------------------------------------------------------------------------------------------------------------- Michael J. Jordan Vice President/Wholesaler None - ---------------------------------------------------------------------------------------------------------------------------------- Carolyn Kelly Vice President/Wholesaler None - ---------------------------------------------------------------------------------------------------------------------------------- Richard M. Koerner Vice President/Wholesaler None - ---------------------------------------------------------------------------------------------------------------------------------- Ellen M. Krott Vice President/Marketing None - ---------------------------------------------------------------------------------------------------------------------------------- John Leboeuf Vice President/VA Wholesaler None - ---------------------------------------------------------------------------------------------------------------------------------- SooHee Lee Vice President/Fixed Income & None International Product Management - ---------------------------------------------------------------------------------------------------------------------------------- Philip Y. Lin Vice President/Associate General Vice President/Associate General Counsel/Assistant Secretary Counsel/Assistant Secretary - ---------------------------------------------------------------------------------------------------------------------------------- John R. Logan Vice President/Wholesaler, Financial None Institutions - ---------------------------------------------------------------------------------------------------------------------------------- Michael D. Mabry Vice President/Associate General Vice President/Associate General Counsel/Assistant Secretary Counsel/Assistant Secretary - ---------------------------------------------------------------------------------------------------------------------------------- Thoedore T. Malone Vice President/IPI Wholesaler None - ---------------------------------------------------------------------------------------------------------------------------------- Debbie Marler Vice President/Wholesaler None - ---------------------------------------------------------------------------------------------------------------------------------- Gregory J. McMillan Vice President/National Accounts None - ---------------------------------------------------------------------------------------------------------------------------------- Nathan W. Medin Vice President/Wholesaler None - ---------------------------------------------------------------------------------------------------------------------------------- Scott L. Metzger Vice President/Business Development None - ---------------------------------------------------------------------------------------------------------------------------------- Roger J. Miller Vice President/Wholesaler None - ----------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------- Name and Principal Business Positions and Offices with Positions and Offices with Address* Underwriter Registrant - ---------------------------------------------------------------------------------------------------------------------------------- Christopher W. Moore Vice President/VA Wholesaler None - ---------------------------------------------------------------------------------------------------------------------------------- Andrew F. Morris Vice President/Wholesaler None - ---------------------------------------------------------------------------------------------------------------------------------- Patrick L. Murphy Vice President/Wholesaler None - ---------------------------------------------------------------------------------------------------------------------------------- Scott E. Naughton Vice President/IPI Wholesaler None - ---------------------------------------------------------------------------------------------------------------------------------- Julie Nusbaum Vice President/Wholesaler, Financial None Institutions - ---------------------------------------------------------------------------------------------------------------------------------- Julie A. Nye Vice President/Wholesaler None - ---------------------------------------------------------------------------------------------------------------------------------- Daniel J. O'Brien Vice President/Insurance Products None - ---------------------------------------------------------------------------------------------------------------------------------- David P. O'Connor Vice President/Associate General Vice President/Associate General Counsel/Assistant Secretary Counsel/Assistant Secretary - ---------------------------------------------------------------------------------------------------------------------------------- Joseph T. Owczarek Vice President/Wholesaler None - ---------------------------------------------------------------------------------------------------------------------------------- Otis S. Page Vice President/Wholesaler None - ---------------------------------------------------------------------------------------------------------------------------------- Mary Ellen Pernice-Fadden Vice President/Wholesaler None - ---------------------------------------------------------------------------------------------------------------------------------- Mark A. Pletts Vice President/Wholesaler None - ---------------------------------------------------------------------------------------------------------------------------------- Philip G. Rickards Vice President/Wholesaler None - ---------------------------------------------------------------------------------------------------------------------------------- Laura E. Roman Vice President/Wholesaler None - ---------------------------------------------------------------------------------------------------------------------------------- Rovert A. Rosso Vice President/Wholesaler None - ---------------------------------------------------------------------------------------------------------------------------------- Linda D. Shulz Vice President/Wholesaler None - ---------------------------------------------------------------------------------------------------------------------------------- Gordan E. Searles Vice President/Client Services None - ---------------------------------------------------------------------------------------------------------------------------------- James R. Searles Vice President/VA Sales Manager None - ---------------------------------------------------------------------------------------------------------------------------------- Catherine A. Seklecki Vice President/Retirement Sales None - ---------------------------------------------------------------------------------------------------------------------------------- John C. Shalloe Vice President/Wrap Fee Wholesaler, None Western Region - ---------------------------------------------------------------------------------------------------------------------------------- Edward B. Sheridan Vice President/Wholesaler None - ---------------------------------------------------------------------------------------------------------------------------------- Robert E. Stansbury Vice President/Wholesaler None - ---------------------------------------------------------------------------------------------------------------------------------- Michael T. Taggart Vice President/Facilities and None Administration Services - ---------------------------------------------------------------------------------------------------------------------------------- Julia R. Vander-Els Vice President/Retirement Plan None Communications - ---------------------------------------------------------------------------------------------------------------------------------- Wayne W. Wagner Vice President/Wholesaler None - ---------------------------------------------------------------------------------------------------------------------------------- John A. Wells Vice President/Marketing Technology None - ---------------------------------------------------------------------------------------------------------------------------------- Courtney S. West Vice President/Institutional Sales None - ---------------------------------------------------------------------------------------------------------------------------------- Andrew J. Wittaker Vice President/Wholesaler, Financial None Institutions - ---------------------------------------------------------------------------------------------------------------------------------- Theordore V. Wood Vice President/Technical Systems Officer None - ----------------------------------------------------------------------------------------------------------------------------------
* Business address of each is 1818 Market Street, Philadelphia, PA 19103. (c) Inapplicable. Item 28. Location of Accounts and Records. All accounts and records are maintained in Philadelphia at 1818 Market Street, Philadelphia, PA 19103, One Commerce Square, Philadelphia, PA 19103 or 90 South Seventh Street, Minneapolis, Minnesota 55402. Item 29. Management Services. None. Item 30. Undertakings. Not Applicable. SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, this Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in this City of Philadelphia, Commonwealth of Pennsylvania on this 15th day of July, 1999. VOYAGEUR MUTUAL FUNDS By /s/David K. Downes ------------------------- David K. Downes President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated:
Signature Title Date - ------------------------------- ----------------------------------------- -------------- /s/David K. Downes President/Chief Executive Officer/ July 15, 1999 - ------------------------------- Chief Operating Officer/Chief Financial David K. Downes Officer (Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer) and Trustee /s/Wayne A. Stork Trustee July 15, 1999 - ------------------------------- Wayne A. Stork /s/Walter P. Babich Trustee July 15, 1999 - ------------------------------- Walter P. Babich /s/ Anthony D. Knerr Trustee July 15, 1999 - ------------------------------- Anthony D. Knerr /s/ Ann R. Leven Trustee July 15, 1999 - ------------------------------- Ann R. Leven /s/Thomas F. Madison Trustee July 15, 1999 - ------------------------------- Thomas F. Madison /s/Charles E. Peck Trustee July 15, 1999 - ------------------------------- Charles E. Peck
SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 Exhibits to Form N-1A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 INDEX TO EXHIBITS Exhibit No. Exhibit EX-99.A1 Agreement and Declaration of Trust EX-99.A2 Certificate of Trust EX-99.B By-Laws EX-99.D1 Form of Investment Management Agreement (November 1999) between Delaware Management Company and the Registrant EX-99.I Opinion of Counsel EX-99.O Powers of Attorney EX-99.A1 2 EXHIBIT-99.A1 AGREEMENT AND DECLARATION OF TRUST of VOYAGEUR MUTUAL FUNDS a Delaware Business Trust TABLE OF CONTENTS Page ARTICLE I. Name and Definitions...............................................1 Section 1. Name...............................................................1 Section 2. Registered Agent and Registered Office; Principal Place of Business................................... 2 (a) Registered Agent and Registered Office................2 (b) Principal Place of Business...........................2 Section 3. Definitions........................................................2 (a) "1940 Act".................................................2 (b) "Affiliate"................................................2 (c) "Board of Trustees"........................................2 (d) "By-Laws"..................................................2 (e) "Certificate of Trust".....................................2 (f) "Code".....................................................2 (g) "Commission"...............................................2 (h) "DBTA".....................................................3 (i) "Declaration of Trust".....................................3 (j) "General Liabilities"......................................3 (k) "Interested Person"........................................3 (l) "Investment Adviser" or "Adviser"..........................3 (m) "National Financial Emergency".............................3 (n) "Person"...................................................3 (o) "Principal Underwriter"....................................3 (p) "Series"...................................................3 (q) "Shares"...................................................3 (r) "Shareholder"..............................................3 (s) "Trust"....................................................4 (t) "Trust Property"...........................................4 (u) "Trustee" or "Trustees"....................................4 ARTICLE II. Purpose of Trust..................................................4 ARTICLE III. Shares...........................................................8 Section 1. Division of Beneficial Interest....................................8 Section 2. Ownership of Shares................................................9 Section 3. Investments in the Trust...........................................9 Section 4. Status of Shares and Limitation of Personal Liability.............10 i Section 5. Power of Board of Trustees to Change Provisions Relating to Shares............................................................10 Section 6. Establishment and Designation of Series...........................11 (a) Assets Held with Respect to a Particular Series...........11 (b) Liabilities Held with Respect to a Particular Series......12 (c) Dividends, Distributions, Redemptions and Repurchases.....13 (d) Voting....................................................13 (e) Equality..................................................13 (f) Fractions.................................................14 (g) Exchange Privilege........................................14 (h) Combination of Series.....................................14 (i) Elimination of Series.....................................14 Section 7. Indemnification of Shareholders...................................14 ARTICLE IV....................................................................15 The Board of Trustees.........................................................15 Section 1. Number, Election and Tenure.......................................15 Section 2. Effect of Death, Resignation, Removal, etc. of a Trustee.........15 Section 3. Powers............................................................16 Section 4. Payment of Expenses by the Trust..................................17 Section 5. Payment of Expenses by Shareholders...............................18 Section 6. Ownership of Trust Property.......................................18 Section 7. Service Contracts.................................................18 ARTICLE V. Shareholders' Voting Powers and Meetings..........................20 Section 1. Voting Powers.....................................................20 Section 2. Meetings..........................................................20 Section 3. Quorum and Required Vote..........................................21 Section 4. Shareholder Action by Written Consent without a Meeting...........21 Section 5. Record Dates......................................................21 Section 6. Additional Provisions.............................................22 ARTICLE VI. Net Asset Value, Distributions and Redemptions...................22 Section 1. Determination of Net Asset Value, Net Income and Distributions....22 Section 2. Redemptions at the Option of a Shareholder........................23 Section 3. Redemptions at the Option of the Trust............................24 ii ARTICLE VII. Compensation and Limitation of Liability of Officers and Trustees.........................................................24 Section 1. Compensation......................................................24 Section 2. Indemnification and Limitation of Liability.......................25 Section 3. Officers and Trustees' Good Faith Action, Expert Advice, No Bond or Surety........................... ........................25 Section 4. Insurance.........................................................26 ARTICLE VIII. Miscellaneous..................................................26 Section 1. Liability of Third Persons Dealing with Trustees..................26 Section 2. Dissolution of Trust or Series....................................26 Section 3. Merger and Consolidation; Conversion..............................27 (a) Merger and Consolidation.............................27 (b) Conversion...........................................27 Section 4. Reorganization....................................................28 Section 5. Amendments........................................................29 Section 6. Filing of Copies, References, Headings............................29 Section 7. Applicable Law....................................................29 Section 8. Provisions in Conflict with Law or Regulations....................30 Section 9. Business Trust Only...............................................30 Section 10. Use of the Names "Delaware Group" and "Delaware Investments".....30 iii AGREEMENT AND DECLARATION OF TRUST OF VOYAGEUR MUTUAL FUNDS AGREEMENT AND DECLARATION OF TRUST made as of this 17th day of December, 1998, by the Trustees hereunder, and by the holders of shares of beneficial interest to be issued hereunder as hereinafter provided. This Declaration of Trust shall be effective upon the filing of the Certificate of Trust in the office of the Secretary of State of the State of Delaware. W I T N E S S E T H: WHEREAS this Trust has been formed to carry on the business of an investment company; and WHEREAS this Trust is authorized to issue its shares of beneficial interest in separate Series, and to issue classes of Shares of any Series or divide Shares of any Series into two or more classes, all in accordance with the provisions hereinafter set forth; and WHEREAS the Trustees have agreed to manage all property coming into their hands as trustees of a Delaware business trust in accordance with the provisions of the Delaware Business Trust Act (12 Del. C. ss.3801, et seq.), as from time to time amended and including any successor statute of similar import (the "DBTA"), and the provisions hereinafter set forth. NOW, THEREFORE, the Trustees hereby declare that they will hold all cash, securities and other assets which they may from time to time acquire in any manner as Trustees hereunder IN TRUST to manage and dispose of the same upon the following terms and conditions for the benefit of the holders from time to time of shares of beneficial interest in this Trust and the Series created hereunder as hereinafter set forth. ARTICLE I. Name and Definitions Section 1. Name. This trust shall be known as "Voyageur Mutual Funds" and the Trustees shall conduct the business of the Trust under that name, or any other name as they may from time to time determine. Section 2. Registered Agent and Registered Office; Principal Place of Business. (a) Registered Agent and Registered Office. The name of the registered agent of the Trust and the address of the registered office of the Trust are as set forth on the Certificate of Trust. (b) Principal Place of Business. The principal place of business of the Trust is One Commerce Square, Philadelphia, Pennsylvania, 19103 or such other location within or outside of the State of Delaware as the Board of Trustees may determine from time to time. Section 3. Definitions. Whenever used herein, unless otherwise required by the context or specifically provided: (a) "1940 Act" shall mean the Investment Company Act of 1940 and the rules and regulations thereunder, all as adopted or amended from time to time; (b) "Affiliate" shall have the meaning given to it in Section 2(a)(3) of the 1940 Act when used with reference to a specified Person. (c) "Board of Trustees" shall mean the governing body of the Trust, which is comprised of the Trustees of the Trust; (d) "By-Laws" shall mean the By-Laws of the Trust, as amended from time to time in accordance with Article X of the By-Laws, and incorporated herein by reference; (e) "Certificate of Trust" shall mean the certificate of trust filed with the Office of the Secretary of State of the State of Delaware as required under the DBTA to form the Trust; (f) "Code" shall mean the Internal Revenue Code of 1986, as amended, and the rules and regulations thereunder; (g) "Commission" shall have the meaning given it in Section 2(a)(7) of the 1940 Act; 2 (h) "DBTA" shall mean the Delaware Business Trust Act, (12 Del. C. ss.3801, et seq.), as amended from time to time; (i) "Declaration of Trust" shall mean this Agreement and Declaration of Trust, as amended or restated from time to time; (j) "General Liabilities" shall have the meaning given it in Article III, Section 6(b) of this Declaration Trust; (k) "Interested Person" shall have the meaning given it in Section 2(a)(19) of the 1940 Act; (l) "Investment Adviser" or "Adviser" shall mean a party furnishing services to the Trust pursuant to any contract described in Article IV, Section 7(a) hereof; (m) "National Financial Emergency" shall mean the whole or any part of any period set forth in Section 22(e) of the 1940 Act. The Board of Trustees may, in its discretion, declare that the suspension relating to a national financial emergency shall terminate, as the case may be, on the first business day on which the New York Stock Exchange shall have reopened or the period specified in Section 22(e) of the 1940 Act shall have expired (as to which, in the absence of an official ruling by the Commission, the determination of the Board of Trustees shall be conclusive); (n) "Person" shall include a natural person, partnership, limited partnership, trust, estate, association, corporation, custodian, nominee or any other individual or entity in its own or any representative capacity; (o) "Principal Underwriter" shall have the meaning given to it in Section 2(a)(29) of the 1940 Act; (p) "Series" shall refer to each Series of Shares established and designated under or in accordance with the provisions of Article III and shall mean an entity such as that described in Section 18(f)(2) of the 1940 Act, and subject to Rule 18f-2 thereunder; (q) "Shares" shall mean the outstanding shares of beneficial interest into which the beneficial interest in the Trust shall be divided from time to time, and shall include fractional and whole shares; (r) "Shareholder" shall mean a record owner of Shares; 3 (s) "Trust" shall refer to the Delaware business trust established by this Declaration of Trust, as amended from time to time; (t) "Trust Property" shall mean any and all property, real or personal, tangible or intangible, which is owned or held by or for the account of the Trust or one or more of any Series, including, without limitation, the rights referenced in Article VIII, Section 2 hereof; (u) "Trustee" or "Trustees" shall refer to each signatory to this Declaration of Trust as a trustee, so long as such signatory continues in office in accordance with the terms hereof, and all other Persons who may, from time to time, be duly elected or appointed, qualified and serving on the Board of Trustees in accordance with the provisions hereof. Reference herein to a Trustee or the Trustees shall refer to such Person or Persons in their capacity as trustees hereunder. ARTICLE II. Purpose of Trust The purpose of the Trust is to conduct, operate and carry on the business of a registered management investment company registered under the 1940 Act through one or more Series investing primarily in securities and, in addition to any authority given by law, to exercise all of the powers and to do any and all of the things as fully and to the same extent as any private corporation organized for profit under the general corporation law of the State of Delaware, now or hereafter in force, including, without limitation, the following powers: (a) To invest and reinvest cash, to hold cash uninvested, and to subscribe for, invest in, reinvest in, purchase or otherwise acquire, own, hold, pledge, sell, assign, mortgage, transfer, exchange, distribute, write options on, lend or otherwise deal in or dispose of contracts for the future acquisition or delivery of fixed income or other securities, and securities or property of every nature and kind, including, without limitation, all types of bonds, debentures, stocks, preferred stocks, negotiable or non-negotiable instruments, obligations, evidences of indebtedness, certificates of deposit or indebtedness, commercial paper, repurchase agreements, bankers' acceptances, and other securities of any kind, issued, created, guaranteed, or sponsored by any and all Persons, including, without limitation, states, territories, and possessions of the United States and the District of Columbia and any political subdivision, agency, or instrumentality thereof, any foreign government or any political subdivision of the U.S. Government or any foreign government, or any international instrumentality, or by any bank or savings institution, or by any corporation or 4 organization organized under the laws of the United States or of any state, territory, or possession thereof, or by any corporation or organization organized under any foreign law, or in "when issued" contracts for any such securities, to change the investments of the assets of the Trust; (b) To exercise any and all rights, powers and privileges with reference to or incident to ownership or interest, use and enjoyment of any of such securities and other instruments or property of every kind and description, including, but without limitation, the right, power and privilege to own, vote, hold, purchase, sell, negotiate, assign, exchange, lend, transfer, mortgage, hypothecate, lease, pledge or write options with respect to or otherwise deal with, dispose of, use, exercise or enjoy any rights, title, interest, powers or privileges under or with reference to any of such securities and other instruments or property, the right to consent and otherwise act with respect thereto, with power to designate one or more Persons, to exercise any of said rights, powers, and privileges in respect of any of said instruments, and to do any and all acts and things for the preservation, protection, improvement and enhancement in value of any of such securities and other instruments or property; (c) To sell, exchange, lend, pledge, mortgage, hypothecate, lease or write options with respect to or otherwise deal in any property rights relating to any or all of the assets of the Trust or any Series, subject to any requirements of the 1940 Act; (d) To vote or give assent, or exercise any rights of ownership, with respect to stock or other securities or property; and to execute and deliver proxies or powers of attorney to such person or persons as the Trustees shall deem proper, granting to such person or persons such power and discretion with relation to securities or property as the Trustees shall deem proper; (e) To exercise powers and right of subscription or otherwise which in any manner arise out of ownership of securities; (f) To hold any security or property in a form not indicating that it is trust property, whether in bearer, unregistered or other negotiable form, or in its own name or in the name of a custodian or subcustodian or a nominee or nominees or otherwise or to authorize the custodian or a subcustodian or a nominee or nominees to deposit the same in a securities depository, subject in each case to proper safeguards according to the usual practice of investment companies or any rules or regulations applicable thereto; (g) To consent to, or participate in, any plan for the reorganization, consolidation or merger of any corporation or issuer of any security which is held 5 in the Trust; to consent to any contract, lease, mortgage, purchase or sale of property by such corporation or issuer; and to pay calls or subscriptions with respect to any security held in the Trust; (h) To join with other security holders in acting through a committee, depositary, voting trustee or otherwise, and in that connection to deposit any security with, or transfer any security to, any such committee, depositary or trustee, and to delegate to them such power and authority with relation to any security (whether or not so deposited or transferred) as the Trustees shall deem proper, and to agree to pay, and to pay, such portion of the expenses and compensation of such committee, depositary or trustee as the Trustees shall deem proper; (i) To compromise, arbitrate or otherwise adjust claims in favor of or against the Trust or any matter in controversy, including but not limited to claims for taxes; (j) To enter into joint ventures, general or limited partnerships and any other combinations or associations; (k) To endorse or guarantee the payment of any notes or other obligations of any Person; to make contracts of guaranty or suretyship, or otherwise assume liability for payment thereof; (l) To purchase and pay for entirely out of Trust Property such insurance as the Trustees may deem necessary or appropriate for the conduct of the business, including, without limitation, insurance policies insuring the assets of the Trust or payment of distributions and principal on its portfolio investments, and insurance policies insuring the Shareholders, Trustees, officers, employees, agents, Investment Advisers, Principal Underwriters, or independent contractors of the Trust, individually against all claims and liabilities of every nature arising by reason of holding Shares, holding, being or having held any such office or position, or by reason of any action alleged to have been taken or omitted by any such Person as Trustee, officer, employee, agent, Investment Adviser, Principal Underwriter, or independent contractor, to the fullest extent permitted by this Declaration of Trust, the Bylaws and by applicable law; and (m) To adopt, establish and carry out pension, profit-sharing, share bonus, share purchase, savings, thrift and other retirement, incentive and benefit plans, trusts and provisions, including the purchasing of life insurance and annuity contracts as a means of providing such retirement and other benefits, for any or all of the Trustees, officers, employees and agents of the 6 Trust. (n) To purchase or otherwise acquire, own, hold, sell, negotiate, exchange, assign, transfer, mortgage, pledge or otherwise deal with, dispose of, use, exercise or enjoy, property of all kinds. (o) To buy, sell, mortgage, encumber, hold, own, exchange, rent or otherwise acquire and dispose of, and to develop, improve, manage, subdivide, and generally to deal and trade in real property, improved and unimproved, and wheresoever situated; and to build, erect, construct, alter and maintain buildings, structures, and other improvements on real property. (p) To borrow or raise moneys for any of the purposes of the Trust, and to mortgage or pledge the whole or any part of the property and franchises of the Trust, real, personal, and mixed, tangible or intangible, and wheresoever situated. (q) To enter into, make and perform contracts and undertakings of every kind for any lawful purpose, without limit as to amount. (r) To issue, purchase, sell and transfer, reacquire, hold, trade and deal in Shares, bonds, debentures and other securities, instruments or other property of the Trust, from time to time, to such extent as the Board of Trustees shall, consistent with the provisions of this Declaration of Trust, determine; and to repurchase, re-acquire and redeem, from time to time, its Shares or, if any, its bonds, debentures and other securities. The Trust shall not be limited to investing in obligations maturing before the possible dissolution of the Trust or one or more of its Series. The Trust shall not in any way be bound or limited by any present or future law or custom in regard to investment by fiduciaries. Neither the Trust nor the Trustees shall be required to obtain any court order to deal with any assets of the Trust or take any other action hereunder. The foregoing clauses shall each be construed as purposes, objects and powers, and it is hereby expressly provided that the foregoing enumeration of specific purposes, objects and powers shall not be held to limit or restrict in any manner the powers of the Trust, and that they are in furtherance of, and in addition to, and not in limitation of, the general powers conferred upon the Trust by the DBTA and the other laws of the State of Delaware or otherwise; nor shall the enumeration of one thing be deemed to exclude another, although it be of like nature, not expressed. 7 ARTICLE III. Shares Section 1. Division of Beneficial Interest. The beneficial interest in the Trust shall at all times be divided into Shares, all without par value. The number of Shares authorized hereunder is unlimited. The Board of Trustees may authorize the division of Shares into separate and distinct Series and the division of any Series into separate classes of Shares. The different Series and classes shall be established and designated, and the variations in the relative rights and preferences as between the different Series and classes shall be fixed and determined by the Board of Trustees without the requirement of Shareholder approval. If no separate Series or classes shall be established, the Shares shall have the rights and preferences provided for herein and in Article III, Section 6 hereof to the extent relevant and not otherwise provided for herein, and all references to Series and classes shall be construed (as the context may require) to refer to the Trust. The fact that a Series shall have initially been established and designated without any specific establishment or designation of classes (i.e., that all Shares of such Series are initially of a single class) shall not limit the authority of the Board of Trustees to establish and designate separate classes of said Series. The fact that a Series shall have more than one established and designated class, shall not limit the authority of the Board of Trustees to establish and designate additional classes of said Series, or to establish and designate separate classes of the previously established and designated classes. The Board of Trustees shall have the power to issue Shares of the Trust, or any Series or class thereof, from time to time for such consideration (but not less than the net asset value thereof) and in such form as may be fixed from time to time pursuant to the direction of the Board of Trustees. The Board of Trustees may hold as treasury shares, reissue for such consideration and on such terms as they may determine, or cancel, at their discretion from time to time, any Shares of any Series reacquired by the Trust. The Board of Trustees may classify or reclassify any unissued Shares or any Shares previously issued and reacquired of any Series or class into one or more Series or classes that may be established and designated from time to time. Notwithstanding the foregoing, the Trust and any Series thereof may acquire, hold, sell and otherwise deal in, for purposes of investment or otherwise, the Shares of any other Series of the Trust or Shares of the Trust, and such Shares shall not be deemed treasury shares or cancelled. Subject to the provisions of Section 6 of this Article III, each Share shall have voting rights as provided in Article V hereof, and the Shareholders of any 8 Series shall be entitled to receive dividends and distributions, when, if and as declared with respect thereto in the manner provided in Article IV, Section 3 hereof. No Share shall have any priority or preference over any other Share of the same Series or class with respect to dividends or distributions paid in the ordinary course of business or distributions upon dissolution of the Trust or of such Series or class made pursuant to Article VIII, Section 2 hereof. All dividends and distributions shall be made ratably among all Shareholders of a particular class of Series from the Trust Property held with respect to such Series according to the number of Shares of such class of such Series held of record by such Shareholders on the record date for any dividend or distribution. Shareholders shall have no preemptive or other right to subscribe to new or additional Shares or other securities issued by the Trust or any Series. The Trustees may from time to time divide or combine the Shares of any particular Series into a greater or lesser number of Shares of that Series. Such division or combination may not materially change the proportionate beneficial interests of the Shares of that Series in the Trust Property held with respect to that Series or materially affect the rights of Shares of any other Series. Any Trustee, officer or other agent of the Trust, and any organization in which any such Person is interested, may acquire, own, hold and dispose of Shares of the Trust to the same extent as if such Person were not a Trustee, officer or other agent of the Trust; and the Trust may issue and sell or cause to be issued and sold and may purchase Shares from any such Person or any such organization subject only to the general limitations, restrictions or other provisions applicable to the sale or purchase of such Shares generally. Section 2. Ownership of Shares. The ownership of Shares shall be recorded on the books of the Trust kept by the Trust or by a transfer or similar agent for the Trust, which books shall be maintained separately for the Shares of each Series and class thereof that has been established and designated. No certificates certifying the ownership of Shares shall be issued except as the Board of Trustees may otherwise determine from time to time. The Board of Trustees may make such rules not inconsistent with the provisions of the 1940 Act as they consider appropriate for the issuance of Share certificates, the transfer of Shares of each Series or class and similar matters. The record books of the Trust as kept by the Trust or any transfer or similar agent, as the case may be, shall be conclusive as to who are the Shareholders of each Series or class thereof and as to the number of Shares of each Series or class thereof held from time to time by each such Shareholder. Section 3. Investments in the Trust. Investments may be accepted by the Trust from such Persons, at such times, on such terms, and for such consideration as the Board of Trustees may, from time to time, authorize. Each 9 investment shall be credited to the individual Shareholder's account in the form of full and fractional Shares of the Trust, in such Series or class as the purchaser may select, at the net asset value per Share next determined for such Series or class after receipt of the investment; provided, however, that the Principal Underwriter may, in its sole discretion, impose a sales charge upon investments in the Trust. Section 4. Status of Shares and Limitation of Personal Liability. Shares shall be deemed to be personal property giving to Shareholders only the rights provided in this Declaration of Trust and under applicable law. Every Shareholder by virtue of having become a Shareholder shall be held to have expressly assented and agreed to the terms hereof and to have become a party hereto. The death of a Shareholder during the existence of the Trust shall not operate to dissolve the Trust or any Series, nor entitle the representative of any deceased Shareholder to an accounting or to take any action in court or elsewhere against the Trust or the Trustees or any Series, but entitles such representative only to the rights of said deceased Shareholder under this Declaration of Trust. Ownership of Shares shall not entitle the Shareholder to any title in or to the whole or any part of the Trust Property or right to call for a partition or division of the same or for an accounting, nor shall the ownership of Shares constitute the Shareholders as partners. Neither the Trust nor the Trustees, nor any officer, employee or agent of the Trust, shall have any power to bind personally any Shareholder, nor, except as specifically provided herein, to call upon any Shareholder for the payment of any sum of money or assessment whatsoever other than such as the Shareholder may at any time personally agree to pay. All Shares when issued on the terms determined by the Board of Trustees, shall be fully paid and nonassessable. As provided in the DBTA, Shareholders of the Trust shall be entitled to the same limitation of personal liability extended to stockholders of a private corporation organized for profit under the general corporation law of the State of Delaware. Section 5. Power of Board of Trustees to Change Provisions Relating to Shares. Notwithstanding any other provisions of this Declaration of Trust and without limiting the power of the Board of Trustees to amend this Declaration of Trust or the Certificate of Trust as provided elsewhere herein, the Board of Trustees shall have the power to amend this Declaration of Trust, or the Certificate of Trust, at any time and from time to time, in such manner as the Board of Trustees may determine in its sole discretion, without the need for Shareholder action, so as to add to, delete, replace or otherwise modify any provisions relating to the Shares contained in this Declaration of Trust, provided that before adopting any such amendment without Shareholder approval, the Board of Trustees shall determine that it is consistent with the fair and equitable treatment of all Shareholders and that Shareholder approval is not otherwise 10 required by the 1940 Act or other applicable law. If Shares have been issued, Shareholder approval shall be required to adopt any amendments to this Declaration of Trust which would adversely affect to a material degree the rights and preferences of the Shares of any Series or class already issued; provided, however, that in the event that the Board of Trustees determines that the Trust shall no longer be operated as an investment company in accordance with the provisions of the 1940 Act, the Board of Trustees may adopt such amendments to this Declaration of Trust to delete those terms the Board of Trustees identifies as being required by the 1940 Act. Subject to the foregoing Paragraph, the Board of Trustees may amend the Declaration of Trust to amend any of the provisions set forth in paragraphs (a) through (i) of Section 6 of this Article III. The Board of Trustees shall have the power, in its discretion, to make such elections as to the tax status of the Trust as may be permitted or required under the Code as presently in effect or as amended, without the vote of any Shareholder. Section 6. Establishment and Designation of Series. The establishment and designation of any Series or class of Shares shall be effective upon the resolution by a majority of the then Board of Trustees, adopting a resolution which sets forth such establishment and designation and the relative rights and preferences of such Series or class. Each such resolution shall be incorporated herein by reference upon adoption. Each Series shall be separate and distinct from any other Series and shall maintain separate and distinct records on the books of the Trust, and the assets and liabilities belonging to any such Series shall be held and accounted for separately from the assets and liabilities of the Trust or any other Series. Shares of each Series or class established pursuant to this Section 6, unless otherwise provided in the resolution establishing such Series, shall have the following relative rights and preferences: (a) Assets Held with Respect to a Particular Series. All consideration received by the Trust for the issue or sale of Shares of a particular Series, together with all assets in which such consideration is invested or reinvested, all income, earnings, profits, and proceeds thereof from whatever source derived, including, without limitation, any proceeds derived from the sale, exchange or liquidation of such assets, and any funds or payments derived from any reinvestment of such proceeds in whatever form the same may be, shall irrevocably be held with respect to that Series for all purposes, subject only to 11 the rights of creditors with respect to that Series, and shall be so recorded upon the books of account of the Trust. Such consideration, assets, income, earnings, profits and proceeds thereof, from whatever source derived, including, without limitation, any proceeds derived from the sale, exchange or liquidation of such assets, and any funds or payments derived from any reinvestment of such proceeds, in whatever form the same may be, are herein referred to as "assets held with respect to" that Series. In the event that there are any assets, income, earnings, profits and proceeds thereof, funds or payments which are not readily identifiable as assets held with respect to any particular Series (collectively "General Assets"), the Board of Trustees shall allocate such General Assets to, between or among any one or more of the Series in such manner and on such basis as the Board of Trustees, in its sole discretion, deems fair and equitable, and any General Asset so allocated to a particular Series shall be held with respect to that Series. Each such allocation by the Board of Trustees shall be conclusive and binding upon the Shareholders of all Series for all purposes. (b) Liabilities Held with Respect to a Particular Series. The assets of the Trust held with respect to each particular Series shall be charged against the liabilities of the Trust held with respect to that Series and all expenses, costs, charges and reserves attributable to that Series, and any liabilities, expenses, costs, charges and reserves of the Trust which are not readily identifiable as being held with respect to any particular Series (collectively "General Liabilities") shall be allocated and charged by the Board of Trustees to and among any one or more of the Series in such manner and on such basis as the Board of Trustees in its sole discretion deems fair and equitable. The liabilities, expenses, costs, charges, and reserves so charged to a Series are herein referred to as "liabilities held with respect to" that Series. Each allocation of liabilities, expenses, costs, charges and reserves by the Board of Trustees shall be conclusive and binding upon the Shareholders of all Series for all purposes. All Persons who have extended credit which has been allocated to a particular Series, or who have a claim or contract which has been allocated to any particular Series, shall look, and shall be required by contract to look exclusively, to the assets of that particular Series for payment of such credit, claim, or contract. In the absence of an express contractual agreement so limiting the claims of such creditors, claimants and contract providers, each creditor, claimant and contract provider will be deemed nevertheless to have impliedly agreed to such limitation unless an express provision to the contrary has been incorporated in the written contract or other document establishing the claimant relationship. Subject to the right of the Board of Trustees in its discretion to allocate General Liabilities as provided herein, the debts, liabilities, obligations and expenses incurred, contracted for or otherwise existing with respect to a particular Series, whether such Series is now authorized and existing pursuant 12 to this Declaration of Trust or is hereafter authorized and existing pursuant to this Declaration of Trust, shall be enforceable against the assets held with respect to that Series only, and not against the assets of any other Series or the Trust generally and none of the debts, liabilities, obligations and expenses incurred, contracted for or otherwise existing with respect to the Trust generally or any other Series thereof shall be enforceable against the assets held with respect to such Series. Notice of this limitation on liabilities between and among Series shall be set forth in the Certificate of Trust of the Trust (whether originally or by amendment) as filed or to be filed in the Office of the Secretary of State of the State of Delaware pursuant to the DBTA, and upon the giving of such notice in the Certificate of Trust, the statutory provisions of Section 3804 of the DBTA relating to limitations on liabilities between and among Series (and the statutory effect under Section 3804 of setting forth such notice in the Certificate of Trust) shall become applicable to the Trust and each Series. (c) Dividends, Distributions, Redemptions and Repurchases. Notwithstanding any other provisions of this Declaration of Trust, including, without limitation, Article VI, no dividend or distribution including, without limitation, any distribution paid upon dissolution of the Trust or of any Series with respect to, nor any redemption or repurchase of, the Shares of any Series or class shall be effected by the Trust other than from the assets held with respect to such Series, nor, except as specifically provided in Section 7 of this Article III, shall any Shareholder of any particular Series otherwise have any right or claim against the assets held with respect to any other Series or the Trust generally except to the extent that such Shareholder has such a right or claim hereunder as a Shareholder of such other Series. The Board of Trustees shall have full discretion, to the extent not inconsistent with the 1940 Act, to determine which items shall be treated as income and which items as capital; and each such determination and allocation shall be conclusive and binding upon the Shareholders. (d) Voting. All Shares of the Trust entitled to vote on a matter shall vote on the matter, separately by Series and, if applicable, by class, subject to: (1) where the 1940 Act requires all Shares of the Trust to be voted in the aggregate without differentiation between the separate Series or classes, then all of the Trust's Shares shall vote in the aggregate; and (2) if any matter affects only the interests of some but not all Series or classes, then only the Shareholders of such affected Series or classes shall be entitled to vote on the matter. (e) Equality. All Shares of each particular Series shall represent an equal proportionate undivided beneficial interest in the assets held with respect to that Series (subject to the liabilities held with respect to that Series and such rights and preferences as may have been established and designated with 13 respect to classes of Shares within such Series), and each Share of any particular Series shall be equal to each other Share of that Series (subject to the rights and preferences with respect to separate classes of such Series). (f) Fractions. Any fractional Share of a Series shall carry proportionately all the rights and obligations of a whole Share of that Series, including rights with respect to voting, receipt of dividends and distributions, redemption of Shares and dissolution of the Trust or that Series. (g) Exchange Privilege. The Board of Trustees shall have the authority to provide that the holders of Shares of any Series shall have the right to exchange said Shares for Shares of one or more other Series in accordance with such requirements and procedures as may be established by the Board of Trustees, and in accordance with the 1940 Act and the rules and regulations thereunder. (h) Combination of Series. The Board of Trustees shall have the authority, without the approval of the Shareholders of any Series unless otherwise required by applicable law, to combine the assets and liabilities held with respect to any two or more Series into assets and liabilities held with respect to a single Series. (i) Elimination of Series. At any time that there are no Shares outstanding of any particular Series or class previously established and designated, the Board of Trustees may by resolution of a majority of the then Board of Trustees abolish that Series or class and rescind the establishment and designation thereof. Section 7. Indemnification of Shareholders. If any Shareholder or former Shareholder shall be exposed to liability by reason of a claim or demand relating solely to his or her being or having been a Shareholder of the Trust (or by having been a Shareholder of a particular Series), and not because of such Person's acts or omissions, the Shareholder or former Shareholder (or, in the case of a natural person, his or her heirs, executors, administrators, or other legal representatives or, in the case of a corporation or other entity, its corporate or other general successor) shall be entitled to be held harmless from and indemnified out of the assets of the Trust or out of the assets of the applicable Series (as the case may be) against all loss and expense arising from such claim or demand; provided, however, there shall be no liability or obligation of the Trust (or any particular Series) arising hereunder to reimburse any Shareholder for taxes paid by reason of such Shareholder's ownership of any Shares. 14 ARTICLE IV. The Board of Trustees Section 1. Number, Election and Tenure. The number of Trustees constituting the Board of Trustees may be fixed from time to time by a written instrument signed, or by resolution approved at a duly constituted meeting, by a majority of the Board of Trustees, provided, however, that the number of Trustees shall in no event be less than one (1) nor more than fifteen (15). The Board of Trustees, by action of a majority of the then Trustees at a duly constituted meeting, may fill vacancies in the Board of Trustees or remove any Trustee with or without cause. The Shareholders may elect Trustees, including filling any vacancies in the Board of Trustees, at any meeting of Shareholders called by the Board of Trustees for that purpose. A meeting of Shareholders for the purpose of electing one or more Trustees may be called by the Board of Trustees or, to the extent provided by the 1940 Act and the rules and regulations thereunder, by the Shareholders. Shareholders shall have the power to remove a Trustee only to the extent provided by the 1940 Act and the rules and regulations thereunder. Each Trustee shall serve during the continued lifetime of the Trust until he or she dies, resigns, is declared bankrupt or incompetent by a court of appropriate jurisdiction, or is removed, or, if sooner than any of such events, until the next meeting of Shareholders called for the purpose of electing Trustees and until the election and qualification of his or her successor. Any Trustee may resign at any time by written instrument signed by him or her and delivered to any officer of the Trust or to a meeting of the Board of Trustees. Such resignation shall be effective upon receipt unless specified to be effective at some later time. Except to the extent expressly provided in a written agreement with the Trust, no Trustee resigning and no Trustee removed shall have any right to any compensation for any period following any such event or any right to damages on account of such events or any actions taken in connection therewith following his or her resignation or removal. Section 2. Effect of Death, Resignation, Removal, etc. of a Trustee. The death, declination, resignation, retirement, removal, declaration as bankrupt or incapacity of one or more Trustees, or of all of them, shall not operate to dissolve the Trust or any Series or to revoke any existing agency created pursuant to the terms of this Declaration of Trust. Whenever a vacancy in the Board of Trustees shall occur, until such vacancy is filled as provided in this Article IV, Section 1, the Trustee(s) in office, regardless of the number, shall have all the powers granted to the Board of Trustees and shall discharge all the duties imposed upon the Board of Trustees by this Declaration of Trust. In the event of the death, declination, resignation, retirement, removal, declaration as bankrupt or 15 incapacity of all of the then Trustees, the Trust's Investment Adviser(s) is (are) empowered to appoint new Trustees subject to the provisions of Section 16(a) of the 1940 Act. Section 3. Powers. Subject to the provisions of this Declaration of Trust, the business of the Trust shall be managed by the Board of Trustees, and such Board of Trustees shall have all powers necessary or convenient to carry out that responsibility, including, without limitation, the power to engage in securities or other transactions of all kinds on behalf of the Trust. The Board of Trustees shall have full power and authority to do any and all acts and to make and execute any and all contracts and instruments that it may consider necessary or appropriate in connection with the administration of the Trust. The Trustees shall not be bound or limited by present or future laws or customs with regard to investment by trustees or fiduciaries, but shall have full authority and absolute power and control over the assets of the Trust and the business of the Trust to the same extent as if the Trustees were the sole owners of the assets of the Trust and the business in their own right, including such authority, power and control to do all acts and things as they, in their sole discretion, shall deem proper to accomplish the purposes of this Trust. Without limiting the foregoing, the Trustees may: (1) adopt, amend and repeal By-Laws not inconsistent with this Declaration of Trust providing for the regulation and management of the affairs of the Trust; (2) fill vacancies in or remove from their number in accordance with this Declaration of Trust or the By-Laws, and may elect and remove such officers and appoint and terminate such agents as they consider appropriate; (3) appoint from their own number and establish and terminate one or more committees consisting of two or more Trustees which may exercise the powers and authority of the Board of Trustees to the extent that the Board of Trustees determine; (4) employ one or more custodians of the Trust Property and may authorize such custodians to employ subcustodians and to deposit all or any part of such Trust Property in a system or systems for the central handling of securities or with a Federal Reserve Bank; (5) retain a transfer agent, dividend disbursing agent, a shareholder servicing agent or administrative services agent, or all of them; (6) provide for the issuance and distribution of Shares by the Trust directly or through one or more Principal Underwriters or otherwise; (7) retain one or more Investment Adviser(s); (8) redeem, repurchase and transfer Shares pursuant to applicable law; (9) set record dates for the determination of Shareholders with respect to various matters, in the manner provided in Article V, Section 5 of this Declaration of Trust; (10) declare and pay dividends and distributions to Shareholders from the Trust Property; (11) establish from time to time, in accordance with the provisions of Article III, Section 6 hereof, any Series or class of Shares, each such Series to operate as a separate and distinct investment medium and with separately defined investment objectives and policies and distinct investment purposes; and (12) in general delegate such authority as they 16 consider desirable to any officer of the Trust, to any committee of the Board of Trustees and to any agent or employee of the Trust or to any such custodian, transfer, dividend disbursing or shareholder servicing agent, Principal Underwriter or Investment Adviser. Any determination as to what is in the best interests of the Trust made by the Board of Trustees in good faith shall be conclusive. In construing the provisions of this Declaration of Trust, the presumption shall be in favor of a grant of power to the Trustees. Unless otherwise specified herein or required by law, any action by the Board of Trustees shall be deemed effective if approved or taken by a majority of the Trustees then in office. Any action required or permitted to be taken by the Board of Trustees, or a committee thereof, may be taken without a meeting if a majority of the members of the Board of Trustees, or committee thereof, as the case may be, shall individually or collectively consent in writing to that action. Such action by written consent shall have the same force and effect as a majority vote of the Board of Trustees, or committee thereof, as the case may be. Such written consent or consents shall be filed with the minutes of the proceedings of the Board of Trustees, or committee thereof, as the case may be. The Trustees shall devote to the affairs of the Trust such time as may be necessary for the proper performance of their duties hereunder, but neither the Trustees nor the officers, directors, shareholders or partners of the Trustees, shall be expected to devote their full time to the performance of such duties. The Trustees, or any Affiliate shareholder, officer, director, partner or employee thereof, or any Person owning a legal or beneficial interest therein, may engage in or possess an interest in any other business or venture of any nature and description, independently or with or for the account of others. Section 4. Payment of Expenses by the Trust. The Board of Trustees is authorized to pay or cause to be paid out of the principal or income of the Trust or any particular Series or class, or partly out of the principal and partly out of the income of the Trust or any particular Series or class, and to charge or allocate the same to, between or among such one or more of the Series or classes that may be established or designated pursuant to Article III, Section 6, as it deems fair, all expenses, fees, charges, taxes and liabilities incurred by or arising in connection with the maintenance or operation of the Trust or a particular Series or class, or in connection with the management thereof, including, but not limited to, the Trustees' compensation and such expenses, fees, charges, taxes and liabilities for the services of the Trust's officers, employees, Investment Adviser, Principal Underwriter, auditors, counsel, custodian, sub-custodian (if any), transfer agent, dividend disbursing agent, shareholder servicing agent, and 17 such other agents or independent contractors and such other expenses, fees, charges, taxes and liabilities as the Board of Trustees may deem necessary or proper to incur. Section 5. Payment of Expenses by Shareholders. The Board of Trustees shall have the power, as frequently as it may determine, to cause each Shareholder of the Trust, or each Shareholder of any particular Series, to pay directly, in advance or arrears, for charges of the Trust's custodian or transfer, dividend disbursing, shareholder servicing or similar agent, an amount fixed from time to time by the Board of Trustees, by setting off such charges due from such Shareholder from declared but unpaid dividends or distributions owed such Shareholder and/or by reducing the number of Shares in the account of such Shareholder by that number of full and/or fractional Shares which represents the outstanding amount of such charges due from such Shareholder. Section 6. Ownership of Trust Property. Legal title to all of the Trust Property shall at all times be considered to be vested in the Trust, except that the Board of Trustees shall have the power to cause legal title to any Trust Property to be held by or in the name of any Person as nominee, on such terms as the Board of Trustees may determine, in accordance with applicable law. Section 7. Service Contracts. (a) Subject to such requirements and restrictions as may be set forth in the By-Laws and/or the 1940 Act, the Board of Trustees may, at any time and from time to time, contract for exclusive or nonexclusive advisory, management and/or administrative services for the Trust or for any Series with any corporation, trust, association or other organization, including any Affiliate; and any such contract may contain such other terms as the Board of Trustees may determine, including without limitation, authority for the Investment Adviser or administrator to determine from time to time without prior consultation with the Board of Trustees what securities and other instruments or property shall be purchased or otherwise acquired, owned, held, invested or reinvested in, sold, exchanged, transferred, mortgaged, pledged, assigned, negotiated, or otherwise dealt with or disposed of, and what portion, if any, of the Trust Property shall be held uninvested and to make changes in the Trust's or a particular Series' investments, or such other activities as may specifically be delegated to such party. (b) The Board of Trustees may also, at any time and from time to time, contract with any corporation, trust, association or other organization, including any Affiliate, appointing it or them as the exclusive or nonexclusive distributor or Principal Underwriter for the Shares of the Trust or one or more of the Series or 18 classes thereof or for other securities to be issued by the Trust, or appointing it or them to act as the custodian, transfer agent, dividend disbursing agent and/or shareholder servicing agent for the Trust or one or more of the Series or classes thereof. (c) The Board of Trustees is further empowered, at any time and from time to time, to contract with any Persons to provide such other services to the Trust or one or more of its Series, as the Board of Trustees determines to be in the best interests of the Trust or one or more of its Series. (d) The fact that: (i) any of the Shareholders, Trustees, employees or officers of the Trust is a shareholder, director, officer, partner, trustee, employee, manager, Adviser, Principal Underwriter, distributor, or Affiliate or agent of or for any corporation, trust, association, or other organization, or for any parent or Affiliate of any organization with which an Adviser's, management or administration contract, or Principal Underwriter's or distributor's contract, or custodian, transfer, dividend disbursing, shareholder servicing or other type of service contract may have been or may hereafter be made, or that any such organization, or any parent or Affiliate thereof, is a Shareholder or has an interest in the Trust, or that (ii) any corporation, trust, association or other organization with which an Adviser's, management or administration contract or Principal Underwriter's or distributor's contract, or custodian, transfer, dividend disbursing, shareholder servicing or other type of service contract may have been or may hereafter be made also has an Adviser's, management or administration contract, or Principal Underwriter's or distributor's contract, or custodian, transfer, dividend disbursing, shareholder servicing or other service contract with one or more other corporations, trusts, associations, or other organizations, or has other business or interests, shall not affect the validity of any such contract or disqualify any Shareholder, Trustee, employee or officer of the Trust from voting upon or executing the same, or create any liability or accountability to the Trust or its Shareholders, provided that the establishment of and performance under each such contract is permissible under the provisions of the 1940 Act. (e) Every contract referred to in this Section 7 shall comply with such requirements and restrictions as may be set forth in the By-Laws, the 1940 Act 19 or stipulated by resolution of the Board of Trustees; and any such contract may contain such other terms as the Board of Trustees may determine. ARTICLE V. Shareholders' Voting Powers and Meetings Section 1. Voting Powers. Subject to the provisions of Article III, Section 6(d), the Shareholders shall have power to vote only (i) for the election of Trustees, including the filling of any vacancies in the Board of Trustees, as provided in Article IV, Section 1; (ii) with respect to such additional matters relating to the Trust as may be required by this Declaration of Trust, the By-Laws, the 1940 Act or any registration statement of the Trust filed with the Commission; and (iii) on such other matters as the Board of Trustees may consider necessary or desirable. The Shareholder of record (as of the record date established pursuant to Section 5 of this Article V) of each Share shall be entitled to one vote for each full Share, and a fractional vote for each fractional Share. Shareholders shall not be entitled to cumulative voting in the election of Trustees or on any other matter. Shares may be voted in person or by proxy. Section 2. Meetings. Meetings of the Shareholders may be called by the Board of Trustees for the purpose of electing Trustees as provided in Article IV, Section 1 and for such other purposes as may be prescribed by law, by this Declaration of Trust or by the By-Laws. Meetings of the Shareholders may also be called by the Board of Trustees from time to time for the purpose of taking action upon any other matter deemed by the Board of Trustees to be necessary or desirable. 20 Section 3. Quorum and Required Vote. Except when a larger quorum is required by applicable law, by the By-Laws or by this Declaration of Trust, thirty-three and one-third percent (33-1/3%) of the Shares present in person or represented by proxy and entitled to vote at a Shareholders' meeting shall constitute a quorum at such meeting. When a separate vote by one or more Series or classes is required, thirty-three and one-third percent (33-1/3%) of the Shares of each such Series or class present in person or represented by proxy and entitled to vote shall constitute a quorum at a Shareholders' meeting of such Series or class. Subject to the provisions of Article III, Section 6(d), Article VIII, Section 4 and any other provision of this Declaration of Trust, the By-Laws or applicable law which requires a different vote: (1) in all matters other than the election of Trustees, the affirmative vote of the majority of votes cast at a Shareholders' meeting at which a quorum is present shall be the act of the Shareholders; (2) Trustees shall be elected by a plurality of the votes cast at a Shareholders' meeting at which a quorum is present. Section 4. Shareholder Action by Written Consent without a Meeting. Any action which may be taken at any meeting of Shareholders may be taken without a meeting and without prior notice if a consent in writing setting forth the action so taken is signed by the holders of Shares having not less than the minimum number of votes that would be necessary to authorize or take that action at a meeting at which all Shares entitled to vote on that action were present and voted. All such consents shall be filed with the secretary of the Trust and shall be maintained in the Trust's records. Any Shareholder giving a written consent or the Shareholder's proxy holders or a transferee of the Shares or a personal representative of the Shareholder or its respective proxy-holder may revoke the consent by a writing received by the secretary of the Trust before written consents of the number of Shares required to authorize the proposed action have been filed with the secretary. If the consents of all Shareholders entitled to vote have not been solicited in writing and if the unanimous written consent of all such Shareholders shall not have been received, the secretary shall give prompt notice of the action taken without a meeting to such Shareholders. This notice shall be given in the manner specified in the By-Laws. Section 5. Record Dates. For purposes of determining the Shareholders entitled to notice of any meeting or to vote or entitled to give consent to action without a meeting, the Board of Trustees may fix in advance a record date which shall not be more than one hundred eighty (180) days nor less than seven (7) days before the date of any such meeting. If the Board of Trustees does not so fix a record date: 21 (a) The record date for determining Shareholders entitled to notice of or to vote at a meeting of Shareholders shall be at the close of business on the business day next preceding the day on which notice is given or, if notice is waived, at the close of business on the business day which is five (5) business days next preceding to the day on which the meeting is held. (b) The record date for determining Shareholders entitled to give consent to action in writing without a meeting, (i) when no prior action by the Board of Trustees has been taken, shall be the day on which the first written consent is given, or (ii) when prior action of the Board of Trustees has been taken, shall be at the close of business on the day on which the Board of Trustees adopts the resolution taking such prior action or the seventy-fifth (75th) day before the date of such other action, whichever is later. For the purpose of determining the Shareholders of any Series or class who are entitled to receive payment of any dividend or of any other distribution, the Board of Trustees may from time to time fix a date, which shall be before the date for the payment of such dividend or such other distribution, as the record date for determining the Shareholders of such Series or class having the right to receive such dividend or distribution. Nothing in this Section shall be construed as precluding the Board of Trustees from setting different record dates for different Series or classes. Section 6. Additional Provisions. The By-Laws may include further provisions for Shareholders' votes, meetings and related matters. ARTICLE VI. Net Asset Value, Distributions and Redemptions Section 1. Determination of Net Asset Value, Net Income and Distributions. Subject to Article III, Section 6 hereof, the Board of Trustees shall have the power to fix an initial offering price for the Shares of any Series or class thereof which shall yield to such Series or class not less than the net asset value thereof, at which price the Shares of such Series or class shall be offered initially for sale, and to determine from time to time thereafter the offering price which shall yield to such Series or class not less than the net asset value thereof from sales of the Shares of such Series or class; provided, however, that no Shares of a Series or class thereof shall be issued or sold for consideration which shall yield to such Series or class less than the net asset value of the Shares of such Series or class next determined after the receipt of the order (or at such other times set by the Board of Trustees), except in the case of Shares of such Series or 22 class issued in payment of a dividend properly declared and payable. Subject to Article III, Section 6 hereof, the Board of Trustees, in their absolute discretion, may prescribe and shall set forth in the By-laws or in a duly adopted vote of the Board of Trustees such bases and time for determining the per Share or net asset value of the Shares of any Series or net income attributable to the Shares of any Series, or the declaration and payment of dividends and distributions on the Shares of any Series, as they may deem necessary or desirable. Section 2. Redemptions at the Option of a Shareholder. Unless otherwise provided in the prospectus of the Trust relating to the Shares, as such prospectus may be amended from time to time ("Prospectus"): (a) The Trust shall purchase such Shares as are offered by any Shareholder for redemption, upon the presentation of a proper instrument of transfer together with a request directed to the Trust or a Person designated by the Trust that the Trust purchase such Shares or in accordance with such other procedures for redemption as the Board of Trustees may from time to time authorize; and the Trust will pay therefor the net asset value thereof, in accordance with the By-Laws and applicable law. Payment for said Shares shall be made by the Trust to the Shareholder within seven days after the date on which the request is received in proper form. The obligation set forth in this Section 2 is subject to the provision that in the event that any time the New York Stock Exchange (the "Exchange") is closed for other than weekends or holidays, or if permitted by the Rules of the Commission during periods when trading on the Exchange is restricted or during any National Financial Emergency which makes it impracticable for the Trust to dispose of the investments of the applicable Series or to determine fairly the value of the net assets held with respect to such Series or during any other period permitted by order of the Commission for the protection of investors, such obligations may be suspended or postponed by the Board of Trustees. If certificates have been issued to a Shareholder, any such request by such Shareholder must be accompanied by surrender of any outstanding certificate or certificates for such Shares in form for transfer, together with such proof of the authenticity of signatures as may reasonably be required on such Shares and accompanied by proper stock transfer stamps, if applicable. (b) Payments for Shares so redeemed by the Trust shall be made in cash, except payment for such Shares may, at the option of the Board of Trustees, or such officer or officers as it may duly authorize in its complete discretion, be made in kind or partially in cash and partially in kind. In case of any payment in kind, the Board of Trustees, or its delegate, shall have absolute 23 discretion as to what security or securities of the Trust shall be distributed in kind and the amount of the same; and the securities shall be valued for purposes of distribution at the value at which they were appraised in computing the then current net asset value of the Shares, provided that any Shareholder who cannot legally acquire securities so distributed in kind by reason of the prohibitions of the 1940 Act or the provisions of the Employee Retirement Income Security Act ("ERISA") shall receive cash. Shareholders shall bear the expenses of in-kind transactions, including, but not limited to, transfer agency fees, custodian fees and costs of disposition of such securities. (c) Payment for Shares so redeemed by the Trust shall be made by the Trust as provided above within seven days after the date on which the redemption request is received in good order; provided, however, that if payment shall be made other than exclusively in cash, any securities to be delivered as part of such payment shall be delivered as promptly as any necessary transfers of such securities on the books of the several corporations whose securities are to be delivered practicably can be made, which may not necessarily occur within such seven day period. Moreover, redemptions may be suspended in the event of a National Financial Emergency. In no case shall the Trust be liable for any delay of any corporation or other Person in transferring securities selected for delivery as all or part of any payment in kind. (d) The right of Shareholders to receive dividends or other distributions on Shares may be set forth in a Plan adopted by the Board of Trustees and amended from time to time pursuant to Rule 18f-3 of the 1940 Act. The right of any Shareholder of the Trust to receive dividends or other distributions on Shares redeemed and all other rights of such Shareholder with respect to the Shares so redeemed by the Trust, except the right of such Shareholder to receive payment for such Shares, shall cease at the time as of which the purchase price of such Shares shall have been fixed, as provided above. Section 3. Redemptions at the Option of the Trust. The Board of Trustees may, from time to time, without the vote or consent of the Shareholders, and subject to the 1940 Act, redeem Shares or authorize the closing of any Shareholder account, subject to such conditions as may be established by the Board of Trustees. ARTICLE VII. Compensation and Limitation of Liability of Officers and Trustees Section 1. Compensation. Except as set forth in the last sentence of this 24 Section 1, the Board of Trustees may, from time to time, fix a reasonable amount of compensation to be paid by the Trust to the Trustees and officers of the Trust. Nothing herein shall in any way prevent the employment of any Trustee for advisory, management, legal, accounting, investment banking or other services and payment for the same by the Trust. Section 2. Indemnification and Limitation of Liability. (a) To the fullest extent that limitations on the liability of Trustees and officers are permitted by the DBTA, the officers and Trustees shall not be responsible or liable in any event for any act or omission of: any agent or employee of the Trust; any Investment Adviser or Principal Underwriter of the Trust; or with respect to each Trustee and officer, the act or omission of any other Trustee or officer, respectively. The Trust, out of the Trust Property, shall indemnify and hold harmless each and every officer and Trustee from and against any and all claims and demands whatsoever arising out of or related to such officer's or Trustee's performance of his or her duties as an officer or Trustee of the Trust. This limitation on liability applies to events occurring at the time a Person serves as a Trustee or officer of the Trust whether or not such Person is a Trustee or officer at the time of any proceeding in which liability is asserted. Nothing herein contained shall indemnify, hold harmless or protect any officer or Trustee from or against any liability to the Trust or any Shareholder to which such Person would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such Person's office. (b) Every note, bond, contract, instrument, certificate or undertaking and every other act or document whatsoever issued, executed or done by or on behalf of the Trust, the officers or the Trustees or any of them in connection with the Trust shall be conclusively deemed to have been issued, executed or done only in such Person's capacity as Trustee and/or as officer, and such Trustee or officer, as applicable, shall not be personally liable therefore, except as described in the last sentence of the first paragraph of this Section 2 of this Article VII. Section 3. Officers and Trustees' Good Faith Action, Expert Advice, No Bond or Surety. The exercise by the Trustees of their powers and discretions hereunder shall be binding upon everyone interested. An officer or Trustee shall be liable to the Trust and to any Shareholder solely for such officer's or Trustee's own willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of the office of such officer or Trustee, and for nothing else, and shall not be liable for errors of judgment or mistakes of fact or law. The officers and Trustees may obtain the advice of counsel or other experts with respect to the meaning and operation of this Declaration of Trust and their 25 duties as officers or Trustees. No such officer or Trustee shall be liable for any act or omission in accordance with such advice and no inference concerning liability shall arise from a failure to follow such advice. The officers and Trustees shall not be required to give any bond as such, nor any surety if a bond is required. Section 4. Insurance. To the fullest extent permitted by applicable law, the officers and Trustees shall be entitled and have the authority to purchase with Trust Property, insurance for liability and for all expenses reasonably incurred or paid or expected to be paid by a Trustee or officer in connection with any claim, action, suit or proceeding in which such Person becomes involved by virtue of such Person's capacity or former capacity with the Trust, whether or not the Trust would have the power to indemnify such Person against such liability under the provisions of this Article. ARTICLE VIII. Miscellaneous Section 1. Liability of Third Persons Dealing with Trustees. No person dealing with the Trustees shall be bound to make any inquiry concerning the validity of any actions made or to be made by the Trustees. Section 2. Dissolution of Trust or Series. Unless dissolved as provided herein, the Trust shall have perpetual existence. The Trust may be dissolved at any time by vote of a majority of the Shares of the Trust entitled to vote or by the Board of Trustees by written notice to the Shareholders. Any Series may be dissolved at any time by vote of a majority of the Shares of that Series or by the Board of Trustees by written notice to the Shareholders of that Series. Upon dissolution of the Trust (or a particular Series, as the case may be), the Trustees shall (in accordance with ss. 3808 of the DBTA) pay or make reasonable provision to pay all claims and obligations of each Series (or the particular Series, as the case may be), including all contingent, conditional or unmatured claims and obligations known to the Trust, and all claims and obligations which are known to the Trust but for which the identity of the claimant is unknown. If there are sufficient assets held with respect to each Series of the Trust (or the particular Series, as the case may be), such claims and obligations shall be paid in full and any such provisions for payment shall be made in full. If there are insufficient assets held with respect to each Series of the Trust (or the particular Series, as the case may be), such claims and obligations shall be paid or provided for according to their priority and, among claims and obligations of equal priority, ratably to the extent of assets available 26 therefor. Any remaining assets (including without limitation, cash, securities or any combination thereof) held with respect to each Series of the Trust (or the particular Series, as the case may be) shall be distributed to the Shareholders of such Series, ratably according to the number of Shares of such Series held by the several Shareholders on the record date for such dissolution distribution. Section 3. Merger and Consolidation; Conversion. (a) Merger and Consolidation. Pursuant to an agreement of merger or consolidation, the Trust, or any one or more Series, may, by act of a majority of the Board of Trustees, merge or consolidate with or into one or more business trusts or other business entities formed or organized or existing under the laws of the State of Delaware or any other state or the United States or any foreign country or other foreign jurisdiction. Any such merger or consolidation shall not require the vote of the Shareholders affected thereby, unless such vote is required by the 1940 Act, or unless such merger or consolidation would result in an amendment of this Declaration of Trust which would otherwise require the approval of such Shareholders. In accordance with Section 3815(f) of the DBTA, an agreement of merger or consolidation may effect any amendment to this Declaration of Trust or the By-Laws or effect the adoption of a new declaration of trust or by-laws of the Trust if the Trust is the surviving or resulting business trust. Upon completion of the merger or consolidation, the Trustees shall file a certificate of merger or consolidation in accordance with Section 3810 of the DBTA. (b) Conversion. A majority of the Board of Trustees may, without the vote or consent of the Shareholders, cause (i) the Trust to convert to a common-law trust, a general partnership, limited partnership or a limited liability company organized, formed or created under the laws of the State of Delaware as permitted pursuant to Section 3821 of the DBTA; (ii) the Shares of the Trust or any Series to be converted into beneficial interests in another business trust (or series thereof) created pursuant to this Section 3 of this Article VIII, or (iii) the Shares to be exchanged under or pursuant to any state or federal statute to the extent permitted by law; provided, however, that if required by the 1940 Act, no such statutory conversion, Share conversion or Share exchange shall be effective unless the terms of such transaction shall first have been approved at a meeting called for that purpose by the "vote of a majority of the outstanding voting securities," as such phrase is defined in the 1940 Act, of the Trust or Series, as applicable; provided, further, that in all respects not governed by statute or applicable law, the Board of Trustees shall have the power to prescribe the procedure necessary or appropriate to accomplish a sale of assets, merger or consolidation including the power to create one or more separate business trusts to which all or any part of the assets, liabilities, profits or losses of the Trust may 27 be transferred and to provide for the conversion of Shares of the Trust or any Series into beneficial interests in such separate business trust or trusts (or series thereof). Section 4. Reorganization. A majority of the Board of Trustees may cause the Trust to sell, convey and transfer all or substantially all of the assets of the Trust, or all or substantially all of the assets associated with any one or more Series, to another trust, business trust, partnership, limited partnership, limited liability company, association or corporation organized under the laws of any state, or to one or more separate series thereof, or to the Trust to be held as assets associated with one or more other Series of the Trust, in exchange for cash, shares or other securities (including, without limitation, in the case of a transfer to another Series of the Trust, Shares of such other Series) with such transfer either (a) being made subject to, or with the assumption by the transferee of, the liabilities associated with each Series the assets of which are so transferred, or (b) not being made subject to, or not with the assumption of, such liabilities; provided, however, that, if required by the 1940 Act, no assets associated with any particular Series shall be so sold, conveyed or transferred unless the terms of such transaction shall first have been approved at a meeting called for that purpose by the "vote of a majority of the outstanding voting securities," as such phrase is defined in the 1940 Act, of that Series. Following such sale, conveyance and transfer, the Board of Trustees shall distribute such cash, shares or other securities (giving due effect to the assets and liabilities associated with and any other differences among the various Series the assets associated with which have so been sold, conveyed and transferred) ratably among the Shareholders of the Series the assets associated with which have been so sold, conveyed and transferred (giving due effect to the differences among the various classes within each such Series); and if all of the assets of the Trust have been so sold, conveyed and transferred, the Trust shall be dissolved. 28 Section 5. Amendments. Subject to the provisions of the second paragraph of this Section 5 of this Article VIII, this Declaration of Trust may be restated and/or amended at any time by an instrument in writing signed by a majority of the then Board of Trustees and, if required, by approval of such amendment by Shareholders in accordance with Article V, Section 3 hereof. Any such restatement and/or amendment hereto shall be effective immediately upon execution and approval or upon such future date and time as may be stated therein. The Certificate of Trust of the Trust may be restated and/or amended by a similar procedure, and any such restatement and/or amendment shall be effective immediately upon filing with the Office of the Secretary of State of the State of Delaware or upon such future date as may be stated therein. Notwithstanding the above, the Board of Trustees expressly reserves the right to amend or repeal any provisions contained in this Declaration of Trust or the Certificate of Trust, in accordance with the provisions of Section 5 of Article III hereof, and all rights, contractual and otherwise, conferred upon Shareholders are granted subject to such reservation. The Board of Trustees further expressly reserves the right to amend or repeal any provision of the By-Laws pursuant to Article X of the By-Laws. Section 6. Filing of Copies, References, Headings. The original or a copy of this Declaration of Trust and of each restatement and/or amendment hereto shall be kept at the principal executive office of the Trust where it may be inspected by any Shareholder. Anyone dealing with the Trust may rely on a certificate by an officer of the Trust as to whether or not any such restatements and/or amendments have been made and as to any matters in connection with the Trust hereunder; and, with the same effect as if it were the original, may rely on a copy certified by an officer of the Trust to be a copy of this instrument or of any such restatements and/or amendments. In this Declaration of Trust and in any such restatements and/or amendments, references to this instrument, and all expressions of similar effect to "herein," "hereof" and "hereunder," shall be deemed to refer to this instrument as amended or affected by any such restatements and/or amendments. Headings are placed herein for convenience of reference only and shall not be taken as a part hereof or control or affect the meaning, construction or effect of this instrument. Whenever the singular number is used herein, the same shall include the plural; and the neuter, masculine and feminine genders shall include each other, as applicable. This instrument may be executed in any number of counterparts, each of which shall be deemed an original. Section 7. Applicable Law. This Declaration of Trust is created under and 29 is to be governed by and construed and administered according to the laws of the State of Delaware and the applicable provisions of the 1940 Act and the Code. The Trust shall be a Delaware business trust pursuant to the DBTA, and without limiting the provisions hereof, the Trust may exercise all powers which are ordinarily exercised by such a business trust. Section 8. Provisions in Conflict with Law or Regulations. (a) The provisions of this Declaration of Trust are severable, and if the Board of Trustees shall determine, with the advice of counsel, that any of such provisions is in conflict with the 1940 Act, the Code, the DBTA, or with other applicable laws and regulations, the conflicting provision shall be deemed not to have constituted a part of this Declaration of Trust from the time when such provisions became inconsistent with such laws or regulations; provided, however, that such determination shall not affect any of the remaining provisions of this Declaration of Trust or render invalid or improper any action taken or omitted prior to such determination. (b) If any provision of this Declaration of Trust shall be held invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall attach only to such provision in such jurisdiction and shall not in any manner affect such provision in any other jurisdiction or any other provision of this Declaration of Trust in any jurisdiction. Section 9. Business Trust Only. It is the intention of the Trustees to create a business trust pursuant to the DBTA, and thereby to create the relationship of trustee and beneficial owners within the meaning of the DBTA between the Trustees and each Shareholder. It is not the intention of the Trustees to create a general or limited partnership, limited liability company, joint stock association, corporation, bailment, or any form of legal relationship other than a business trust pursuant to the DBTA. Nothing in this Declaration of Trust shall be construed to make the Shareholders, either by themselves or with the Trustees, partners or members of a joint stock association. Section 10. Use of the Names "Delaware Group" and "Delaware Investments". The Trust expressly agrees and acknowledges that the names "Delaware Group" and "Delaware Investments" are the sole property of Delaware Management Holdings, Inc. ("DMH"), and, with respect to such names, that similar names are used by funds in the investment business which are affiliated with DMH. DMH has consented to the use by the Trust of the identifying words "Delaware Group" and "Delaware Investments" and has granted to the Trust a nonexclusive license to use the names "Delaware Group" and "Delaware Investments" as part of the name of the Trust and the name of any Series of 30 Shares. The Trust further expressly agrees and acknowledges that the non-exclusive license granted herein may be terminated by DMH if the Trust ceases to use an Affiliate of DMH as Investment Adviser or Delaware Distributors, L.P. ("DDLP") as Principal Underwriter (or to use other Affiliates or successors of DMH and DDLP for such purposes). In such event, the non-exclusive license granted herein may be revoked by DMH and the Trust shall cease using the names "Delaware Group" and "Delaware Investments" as part of its name or the name of any Series of Shares, unless otherwise consented to by DMH or any successor to its interests in such names. The Trust further understands and agrees that so long as DMH and/or its advisory Affiliates shall continue to serve as the Trust's Investment Adviser, other mutual funds as may be sponsored or advised by DMH or its Affiliates shall have the right permanently to adopt and to use the words "Delaware" in their names and in the names of any Series or class of Shares of such funds. IN WITNESS WHEREOF, the Trustees named below do hereby make and enter into this Declaration of Trust as of the 17th day of December, 1998. /s/Wayne A. Stork /s/Charles E. Peck - ------------------------------------ ------------------------------------ Wayne A. Stork Charles E. Peck Trustee Trustee /s/Walter P. Babich /s/Jeffrey J. Nick - ------------------------------------ ------------------------------------ Walter P. Babich Jeffrey J. Nick Trustee Trustee /s/Anthony D. Knerr /s/Ann R. Leven - ------------------------------------ ------------------------------------ Anthony D. Knerr Ann R. Leven Trustee Trustee /s/W. Thacher Longstreth /s/Thomas F. Madison - ------------------------------------ ------------------------------------ W. Thacher Longstreth Thomas F. Madison Trustee Trustee 31 EX-99.A2 3 EXHIBIT-99.A2 CERTIFICATE OF TRUST OF VOYAGEUR MUTUAL FUNDS This Certificate of Trust of Voyageur Mutual Funds, a business trust (the "Trust"), executed by the undersigned trustees, and filed under and in accordance with the provisions of the Delaware Business Trust Act (12 Del. C. ss. 3801 et seq.) (the "Act"), sets forth the following: FIRST: The name of the business trust formed hereby is Voyageur Mutual Funds. SECOND: The address of the registered office of the Trust in the State of Delaware is at 1209 Orange Street, Wilmington, Delaware 19801 and the name and address of the registered agent for service of process on the Trust in the State of Delaware is The Corporation Trust Company, 1209 Orange Street, Wilmington, Delaware 19801. THIRD: The Trust formed hereby is or will become an investment company registered under the Investment Company Act of 1940, as amended (15 U.S.C. ss.ss.80a-1 et seq.). FOURTH: Pursuant to Section 3804 of the Act, the debts, liabilities, obligations and expenses incurred, contracted for or otherwise existing with respect to a particular series, whether such series is now authorized and existing pursuant to the governing instrument of the Trust or is hereafter authorized and existing pursuant to said governing instrument, shall be enforceable against the assets associated with such series only, and not against the assets of the Trust generally or any other series thereof, and, except as otherwise provided in the governing instrument of the Trust, none of the debts, liabilities, obligations and expenses incurred, contracted for or otherwise existing with respect to the Trust generally or any other series thereof shall be enforceable against the assets of such series. In witness whereof, the undersigned, being all of the trustees of Voyageur Mutual Funds, have duly executed this Certificate of Trust as of the 17th day of December, 1998. By: /s/Wayne A. Stork By: /s/Jeffrey J. Nick -------------------------- ---------------------------- Wayne A. Stork Jeffrey J. Nick Trustee Trustee By: /s/Walter P. Babich By: /s/Ann R. Leven -------------------------- ---------------------------- Walter P. Babich Ann R. Leven Trustee Trustee By: /s/Anthony D. Knerr By: /s/Thomas F. Madison -------------------------- ----------------------- Anthony D. Knerr Thomas F. Madison Trustee Trustee By: /s/W. Thacher Longstreth By: /s/Charles E. Peck -------------------------- ----------------------- W. Thacher Longstreth Charles E. Peck Trustee Trustee EX-99.B 4 EXHIBIT-99.B Approved as of 12/17/98 BY-LAWS OF voyageur mutual funds A Delaware Business Trust ARTICLE I OFFICES Section 1. PRINCIPAL OFFICE. The principal executive office of Voyageur Mutual Funds (the "Trust") shall be One Commerce Square, Philadelphia, Pennsylvania, 19103. The board of trustees (the "Board of Trustees") may, from time to time, change the location of the principal executive office of the Trust to any place within or outside the State of Delaware. Section 2. OTHER OFFICES. The Board of Trustees may at any time establish branch or subordinate offices at any place or places where the Trust intends to do business. ARTICLE II MEETINGS OF SHAREHOLDERS Section 1. PLACE OF MEETINGS. Meetings of shareholders shall be held at any place within or outside the State of Delaware designated by the Board of Trustees. In the absence of any such designation by the Board of Trustees, shareholders' meetings shall be held at the principal executive office of the Trust. For purposes of these By-Laws, the term "shareholder" shall mean a record owner of shares of the Trust. Section 2. CALL OF MEETING. A meeting of the shareholders may be called at any time by the Board of Trustees or by the chairperson of the board or by the president. If the Trust is required under the Investment Company Act of 1940, as amended (the "1940 Act"), to hold a shareholders' meeting to elect trustees, the meeting shall be deemed an "annual meeting" for that year for purposes of the 1940 Act. Section 3. NOTICE OF SHAREHOLDERS' MEETING. All notices of meetings of shareholders shall be sent or otherwise given in accordance with Section 4 of this Article II not less than seven (7) nor more than ninety-three (93) days before the date of the meeting. The notice shall specify (i) the place, date and hour of the meeting, and (ii) the general nature of the business to be transacted. The notice of any meeting at which trustees are to be elected also shall include the name of any nominee or nominees whom at the time of the notice are intended to be presented for election. Except with respect to adjournments as provided herein, no business shall be transacted at such meeting other than that specified in the notice. Section 4. MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE. Notice of any meeting of shareholders shall be given either personally or by first-class mail, courier or telegraphic, facsimile, electronic mail or other written communication, charges prepaid, addressed to the shareholder at the address of that shareholder appearing on the books of the Trust or its transfer agent or given by the shareholder to the Trust for the purpose of notice. If no such address appears on the Trust's books or is given, notice shall be deemed to have been given if sent to that shareholder by first-class mail, courier, or telegraphic, facsimile, electronic mail or other written communication to the Trust's principal executive office. Notice shall be deemed to have been given at the time when delivered personally or deposited in the mail, with a courier or sent by telegram, facsimile, electronic mail or other means of written communication. If any notice addressed to a shareholder at the address of that shareholder appearing on the books of the Trust is returned to the Trust marked to indicate that the notice to the shareholder cannot be delivered at that address, all future notices or reports shall be deemed to have been duly given without further mailing, or substantial equivalent thereof, if such notices shall be available to the shareholder on written demand of the shareholder at the principal executive office of the Trust for a period of one year from the date of the giving of the notice. An affidavit of the mailing or other means of giving any notice of any shareholders' meeting shall be executed by the secretary, assistant secretary or any transfer agent of the Trust giving the notice and shall be filed and maintained in the records of the Trust. Such affidavit shall, in the absence of fraud, be prima facie evidence of the facts stated therein. Section 5. ADJOURNED MEETING; NOTICE. Any shareholders' meeting, whether or not a quorum is present, may be adjourned from time to time (and at any time during the course of the meeting) by a majority of the votes cast by those shareholders present in person or by proxy, or by the chairperson of the meeting. Any adjournment may be with respect to one or more proposals, but not necessarily all proposals, to be voted or acted upon at such meeting and any adjournment will not delay or otherwise affect the effectiveness and validity of a vote or other action taken at a shareholders' meeting prior to adjournment. When any shareholders' meeting is adjourned to another time or place, notice need not be given of the adjourned meeting at which the adjournment is taken, unless a new record date of the adjourned meeting is fixed or unless the 2 adjournment is for more than one hundred eighty (180) days from the record date set for the original meeting, in which case the Board of Trustees shall set a new record date. If notice of any such adjourned meeting is required pursuant to the preceding sentence, it shall be given to each shareholder of record entitled to vote at the adjourned meeting in accordance with the provisions of Sections 3 and 4 of this Article II. At any adjourned meeting, the Trust may transact any business which might have been transacted at the original meeting. Section 6. VOTING. The shareholders entitled to vote at any meeting of shareholders shall be determined in accordance with the provisions of the Declaration of Trust, as in effect at such time. The shareholders' vote may be by voice vote or by ballot, provided, however, that any election for trustees must be by ballot if demanded by any shareholder before the voting has begun. On any matter other than elections of trustees, any shareholder may vote part of the shares in favor of the proposal and refrain from voting the remaining shares or vote them against the proposal, but if the shareholder fails to specify the number of shares which the shareholder is voting affirmatively, it will be conclusively presumed that the shareholder's approving vote is with respect to the total shares that the shareholder is entitled to vote on such proposal. Abstentions and broker non-votes will be included for purposes of determining whether a quorum is present at a shareholders' meeting. Abstentions and broker non-votes will be treated as votes present at a shareholders' meeting, but will not be treated as votes cast. Abstentions and broker non-votes, therefore, will have no effect on proposals which require a plurality or majority of votes cast for approval, but will have the same effect as a vote "against" on proposals requiring a majority of outstanding voting securities for approval. Section 7. WAIVER OF NOTICE BY CONSENT OF ABSENT SHAREHOLDERS. The transactions of a meeting of shareholders, however called and noticed and wherever held, shall be valid as though transacted at a meeting duly held after regular call and notice if a quorum be present either in person or by proxy. Attendance by a person at a meeting shall also constitute a waiver of notice with respect to that person of that meeting, except when the person objects at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened and except that such attendance is not a waiver of any right to object to the consideration of matters not included in the notice of the meeting if that objection is expressly made at the beginning of the meeting. Whenever notice of a meeting is required to be given to a shareholder under the Declaration of Trust or these By-Laws, a written waiver thereof, executed before or after the meeting by such shareholder or his or her attorney thereunto authorized and filed with the records of the meeting, shall be deemed equivalent to such notice. 3 Section 8. PROXIES. Every shareholder entitled to vote for trustees or on any other matter shall have the right to do so either in person or by one or more agents authorized by a written proxy signed by the shareholder and filed with the secretary of the Trust. A proxy shall be deemed signed if the shareholder's name is placed on the proxy (whether by manual signature, typewriting, telegraphic transmission or otherwise) by the shareholder or the shareholder's attorney-in-fact. A validly executed proxy which does not state that it is irrevocable shall continue in full force and effect unless (i) revoked by the shareholder executing it by a written notice delivered to the Trust prior to the exercise of the proxy or by the shareholder's execution of a subsequent proxy or attendance and vote in person at the meeting; or (ii) written notice of the death or incapacity of the shareholder is received by the Trust before the proxy's vote is counted; provided, however, that no proxy shall be valid after the expiration of eleven (11) months from the date of the proxy unless otherwise provided in the proxy. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of the General Corporation Law of the State of Delaware. With respect to any shareholders' meeting, the Board of Trustees may act to permit the Trust to accept proxies by any electronic, telephonic, computerized, telecommunications or other reasonable alternative to the execution of a written instrument authorizing the proxy to act, provided the shareholder's authorization is received within eleven (11) months before the meeting. A proxy with respect to shares held in the name of two or more Persons shall be valid if executed by any one of them unless at or prior to exercise of the proxy the Trust receives a specific written notice to the contrary from any one of them. A proxy purporting to be executed by or on behalf of a shareholder shall be deemed valid unless challenged at or prior to its exercise and the burden of proving invalidity shall rest with the challenger. Section 9. INSPECTORS OF ELECTION. Before any meeting of shareholders, the Board of Trustees may appoint any person other than nominees for office to act as inspector of election at the meeting or its adjournment. If no inspector of election is so appointed, the chairperson of the meeting may, and on the request of any shareholder or a shareholder's proxy shall, appoint an inspector of election at the meeting. If any person appointed as inspector fails to appear or fails or refuses to act, the chairperson of the meeting may, and on the request of any shareholder or a shareholder's proxy shall, appoint a person to fill the vacancy. 4 The inspector shall: (a) determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum and the authenticity, validity and effect of proxies; (b) receive votes, ballots or consents; (c) hear and determine all challenges and questions in any way arising in connection with the right to vote; (d) count and tabulate all votes or consents; (e) determine when the polls shall close; (f) determine the result; and (g) do any other acts that may be proper to conduct the election or vote with fairness to all shareholders. ARTICLE III TRUSTEES Section 1. POWERS. Subject to the applicable provisions of the Declaration of Trust and these By-Laws relating to action required to be approved by the shareholders, the business and affairs of the Trust shall be managed and all powers shall be exercised by or under the direction of the Board of Trustees. Section 2. NUMBER OF TRUSTEES. The number of trustees constituting the Board of Trustees shall be determined as set forth in the Declaration of Trust. Section 3. VACANCIES. Vacancies in the Board of Trustees may be filled by a majority of the remaining trustees, though less than a quorum, or by a sole remaining trustee, unless the Board of Trustees calls a meeting of shareholders for the purpose of filling such vacancies. Notwithstanding the above, whenever and for so long as the Trust is a participant in or otherwise has in effect a plan under which the Trust may be deemed to bear expenses of distributing its shares as that practice is described in Rule 12b- 1 under the 1940 Act, then the selection and nomination of the trustees who are not "interested persons" of the Trust (as that term is defined in the 1940 Act) shall be, and is, committed to the discretion of such disinterested trustees. 5 Section 4. PLACE OF MEETINGS AND MEETINGS BY TELEPHONE. All meetings of the Board of Trustees may be held at any place within or outside the State of Delaware that has been designated from time to time by resolution of the Board of Trustees. In the absence of such a designation, regular meetings shall be held at the principal executive office of the Trust. Any meeting, regular or special, may be held by conference telephone or similar communication equipment, so long as all trustees participating in the meeting can hear one another, and all such trustees shall be deemed to be present in person at the meeting. Section 5. REGULAR MEETINGS. Regular meetings of the Board of Trustees shall be held without call at such time as shall from time to time be fixed by the Board of Trustees. Such regular meetings may be held without notice. Section 6. SPECIAL MEETINGS. Special meetings of the Board of Trustees for any purpose or purposes may be called at any time by the chairperson of the board or the president or any vice president or the secretary or any two (2) trustees. Notice of the time and place of special meetings shall be delivered personally or by telephone to each trustee or sent by first-class mail, courier or telegram, charges prepaid, or by facsimile or electronic mail, addressed to each trustee at that trustee's address as it is shown on the records of the Trust. In case the notice is mailed, it shall be deposited in the United States mail at least seven (7) days before the time of the holding of the meeting. In case the notice is delivered personally, by telephone, by courier, to the telegraph company, or by express mail, facsimile, electronic mail or similar service, it shall be delivered at least forty-eight (48) hours before the time of the holding of the meeting. Any oral notice given personally or by telephone may be communicated either to the trustee or to a person at the office of the trustee who the person giving the notice has reason to believe will promptly communicate it to the trustee. The notice need not specify the purpose of the meeting or the place if the meeting is to be held at the principal executive office of the Trust. Section 7. QUORUM. A majority of the authorized number of trustees shall constitute a quorum for the transaction of business, except to adjourn as provided in Section 10 of this Article III. Every act or decision done or made by a majority of the trustees present at a meeting duly held at which a quorum is present shall be regarded as the act of the Board of Trustees, subject to the provisions of the Declaration of Trust. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of 6 trustees if any action taken is approved by at least a majority of the required quorum for that meeting. Section 8. WAIVER OF NOTICE. Notice of any meeting need not be given to any trustee who either before or after the meeting signs a written waiver of notice, a consent to holding the meeting, or an approval of the minutes. The waiver of notice or consent need not specify the purpose of the meeting. All such waivers, consents, and approvals shall be filed with the records of the Trust or made a part of the minutes of the meeting. Notice of a meeting shall also be deemed given to any trustee who attends the meeting without protesting before or at its commencement about the lack of notice to that trustee. Section 9. ADJOURNMENT. A majority of the trustees present, whether or not constituting a quorum, may adjourn any matter at any meeting to another time and place. Section 10. NOTICE OF ADJOURNMENT. Notice of the time and place of holding an adjourned meeting need not be given unless the meeting is adjourned for more than seven (7) days, in which case notice of the time and place shall be given before the time of the adjourned meeting to the trustees who were present at the time of the adjournment. Section 11. FEES AND COMPENSATION OF TRUSTEES. Trustees and members of committees may receive such compensation, if any, for their services and such reimbursement of expenses as may be fixed or determined by resolution of the Board of Trustees. This Section 11 shall not be construed to preclude any trustee from serving the Trust in any other capacity as an officer, agent, employee, or otherwise and receiving compensation for those services. Section 12. TRUSTEE EMERITUS. Upon retirement of a trustee, the Board of Trustees may elect him or her to the position of Trustee Emeritus. Said Trustee Emeritus shall serve for one year and may be reelected by the Board of Trustees from year to year thereafter. Said Trustee Emeritus shall not vote at meetings of trustees and shall not be held responsible for actions of the Board of Trustees but shall receive fees paid to trustees for serving as such. ARTICLE IV COMMITTEES Section 1. COMMITTEES OF TRUSTEES. The Board of Trustees may, by resolution adopted by a majority of the authorized number of trustees, designate one or more committees, each consisting of two (2) or more trustees, to serve at the pleasure of the Board of Trustees. The Board of Trustees may designate one 7 or more trustees as alternate members of any committee who may replace any absent member at any meeting of the committee. Any committee to the extent provided in the resolution of the Board of Trustees, shall have the authority of the Board of Trustees, except with respect to: (a) the approval of any action which under the Declaration of Trust or applicable law also requires shareholders' approval or requires approval by a majority of the entire Board of Trustees or certain members of said Board of Trustees; (b) the filling of vacancies on the Board of Trustees or in any committee; (c) the fixing of compensation of the trustees for serving on the Board of Trustees or on any committee; (d) the amendment or repeal of the Declaration of Trust or of the By-Laws or the adoption of new By-Laws; (e) the amendment or repeal of any resolution of the Board of Trustees which by its express terms is not so amendable or repealable; or (f) the appointment of any other committees of the Board of Trustees or the members of these committees. Section 2. MEETINGS AND ACTION OF COMMITTEES. Meetings and action of any committee shall be governed by and held and taken in accordance with the provisions of Article III of these By-Laws, with such changes in the context thereof as are necessary to substitute the committee and its members for the Board of Trustees and its members, except that the time of regular meetings of any committee may be determined either by resolution of the Board of Trustees or by resolution of the committee. Special meetings of any committee may also be called by resolution of the Board of Trustees, and notice of special meetings of any committee shall also be given to all alternate members who shall have the right to attend all meetings of the committee. The Board of Trustees may adopt rules for the government of any committee not inconsistent with the provisions of these By-Laws. ARTICLE V OFFICERS Section 1. OFFICERS. The officers of the Trust shall be a chairperson of the board, a president and chief executive officer, a secretary, and a treasurer. The Trust may also have, at the discretion of the Board of Trustees, 8 one or more vice presidents, one or more assistant vice presidents, one or more assistant secretaries, one or more assistant treasurers, and such other officers as may be appointed in accordance with the provisions of Section 3 of this Article V. Any number of offices may be held by the same person, except the offices of president and vice president. Section 2. ELECTION OF OFFICERS. The officers of the Trust shall be chosen by the Board of Trustees, and each shall serve at the pleasure of the Board of Trustees, subject to the rights, if any, of an officer under any contract of employment. Section 3. SUBORDINATE OFFICERS. The Board of Trustees may appoint and may empower the president to appoint such other officers as the business of the Trust may require, each of whom shall hold office for such period, have such authority and perform such duties as are provided in these By-Laws or as the Board of Trustees may from time to time determine. Section 4. REMOVAL AND RESIGNATION OF OFFICERS. Subject to the rights, if any, of an officer under any contract of employment, any officer may be removed, either with or without cause, by the Board of Trustees at any regular or special meeting of the Board of Trustees, or by an officer upon whom such power of removal may be conferred by the Board of Trustees. Any officer may resign at any time by giving written notice to the Trust. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice; and unless otherwise specified in that notice, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the Trust under any contract to which the officer is a party. Section 5. VACANCIES IN OFFICES. A vacancy in any office because of death, resignation, removal, disqualification or other cause shall be filled in the manner prescribed in these By-Laws for regular appointment to that office. Section 6. CHAIRPERSON OF THE BOARD. The chairperson of the board shall, if present, preside at meetings of the Board of Trustees and exercise and perform such other powers and duties as may be from time to time assigned to the chairperson by the Board of Trustees or prescribed by the By-Laws. The chairperson of the board shall be a member ex officio of all standing committees. In the absence, resignation, disability or death of the president, the chairperson shall exercise all the powers and perform all the duties of the president until his or her return, or until such disability shall be removed or until a new president shall have been elected. 9 Section 7. PRESIDENT. Subject to such supervisory powers, if any, as may be given by the Board of Trustees to the chairperson of the board, the president shall be the chief executive officer of the Trust and shall, subject to the control of the Board of Trustees, have general supervision, direction and control of the business and the officers of the Trust. In the absence of the chairperson of the board, he shall preside at all meetings of the shareholders and at all meetings of the Board of Trustees. He shall have the general powers and duties of management usually vested in the office of president of a corporation and shall have such other powers and duties as may be prescribed by the Board of Trustees or these By-Laws. Section 8. VICE PRESIDENTS. In the absence or disability of the president, the vice presidents, if any, in order of their rank as fixed by the Board of Trustees or if not ranked, a vice president designated by the Board of Trustees, shall perform all the duties of the president and when so acting shall have all powers of and be subject to all the restrictions upon the president. The vice presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the Board of Trustees or by these By-Laws and the president or the chairperson of the board. Section 9. SECRETARY. The secretary shall keep or cause to be kept at the principal executive office of the Trust or such other place as the Board of Trustees may direct a book of minutes of all meetings and actions of trustees, committees of trustees and shareholders with the time and place of holding, whether regular or special, and if special, how authorized, the notice given, the names of those present at trustees' meetings or committee meetings, the number of shares present or represented at shareholders' meetings, and the proceedings. The secretary shall cause to be kept at the principal executive office of the Trust or at the office of the Trust's transfer agent or registrar, as determined by resolution of the Board of Trustees, a share register or a duplicate share register showing the names of all shareholders and their addresses, the number, series and classes of shares held by each, the number and date of certificates issued for the same and the number and date of cancellation of every certificate surrendered for cancellation. The secretary shall give or cause to be given notice of all meetings of the shareholders and of the Board of Trustees required by these By-Laws or by applicable law to be given and shall have such other powers and perform such other duties as may be prescribed by the Board of Trustees or by these By-Laws. 10 Section 10. TREASURER. The treasurer shall keep and maintain or cause to be kept and maintained adequate and correct books and records of accounts of the properties and business transactions of the Trust, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, retained earnings and shares. The books of account shall at all reasonable times be open to inspection by any trustee. The treasurer shall deposit all monies and other valuables in the name and to the credit of the Trust with such depositories as may be designated by the Board of Trustees. He shall disburse the funds of the Trust as may be ordered by the Board of Trustees, shall render to the president and trustees, whenever they request it, an account of all of his transactions and of the financial condition of the Trust and shall have other powers and perform such other duties as may be prescribed by the Board of Trustees or these By-Laws. ARTICLE VI INDEMNIFICATION OF TRUSTEES, OFFICERS, EMPLOYEES AND OTHER AGENTS Section 1. AGENTS, PROCEEDINGS AND EXPENSES. For the purpose of this Article, "agent" means any person who is or was a trustee, officer, employee or other agent of this Trust or is or was serving at the request of the Trust as a trustee, director, officer, employee or agent of another foreign or domestic corporation, partnership, joint venture, trust or other enterprise or was a trustee, director, officer, employee or agent of a foreign or domestic corporation which was a predecessor of another enterprise at the request of such predecessor entity; "proceeding" means any threatened, pending or completed action or proceeding, whether civil, criminal, administrative or investigative; and "expenses" includes without limitation attorneys' fees and any expenses of establishing a right to indemnification under this Article. Section 2. ACTIONS OTHER THAN BY TRUST. The Trust shall indemnify any person who was or is a party or is threatened to be made a party to any proceeding (other than an action by or in the right of the Trust) by reason of the fact that such person is or was an agent of the Trust, against expenses, judgments, fines, settlements and other amounts actually and reasonably incurred in connection with such proceeding if such person acted in good faith and in a manner that such person reasonably believed to be in the best interests of the Trust and in the case of a criminal proceeding, had no reasonable cause to believe the conduct of such person was unlawful. The termination of any proceeding by judgment, order, settlement, conviction or plea of nolo contendere or its equivalent shall not of itself create a presumption that the person did not act in good faith or in a manner which the person reasonably believed to be in the best interests of the Trust or that the person had reasonable cause to believe that the person's conduct was unlawful. 11 Section 3. ACTIONS BY TRUST. The Trust shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action by or in the right of the Trust to procure a judgment in its favor by reason of the fact that the person is or was an agent of the Trust, against expenses actually and reasonably incurred by that person in connection with the defense or settlement of that action if that person acted in good faith, in a manner that person believed to be in the best interests of the Trust and with such care, including reasonable inquiry, as an ordinarily prudent person in a like position would use under similar circumstances. Section 4. EXCLUSION OF INDEMNIFICATION. Notwithstanding any provision to the contrary contained herein, there shall be no right to indemnification for any liability arising by reason of willful misfeasance, bad faith, gross negligence, or the reckless disregard of the duties involved in the conduct of the agent's office with the Trust. No indemnification shall be made under Sections 2 or 3 of this Article: (a) In respect of any claim, issue or matter as to which that person shall have been adjudged to be liable in the performance of that person's duty to the Trust, unless and only to the extent that the court in which that action was brought shall determine upon application that in view of all the circumstances of the case, that person was not liable by reason of the disabling conduct set forth in the preceding paragraph and is fairly and reasonably entitled to indemnity for the expenses which the court shall determine; or (b) In respect of any claim, issue, or matter as to which that person shall have been adjudged to be liable on the basis that personal benefit was improperly received by him, whether or not the benefit resulted from an action taken in the person's official capacity; or (c) Of amounts paid in settling or otherwise disposing of a threatened or pending action, with or without court approval, or of expenses incurred in defending a threatened or pending action which is settled or otherwise disposed of without court approval, unless the required approval set forth in Section 6 of this Article is obtained. Section 5. SUCCESSFUL DEFENSE BY AGENT. To the extent that an agent of the Trust has been successful on the merits in defense of any proceeding referred to in Sections 2 or 3 of this Article or in defense of any claim, issue or matter therein, before the court or other body before whom the proceeding was 12 brought, the agent shall be indemnified against expenses actually and reasonably incurred by the agent in connection therewith, provided that the Board of Trustees, including a majority who are disinterested, non-party trustees, also determines that based upon a review of the facts, the agent was not liable by reason of the disabling conduct referred to in Section 4 of this Article. Section 6. REQUIRED APPROVAL. Except as provided in Section 5 of this Article, any indemnification under this Article shall be made by the Trust only if authorized in the specific case on a determination that indemnification of the agent is proper in the circumstances because the agent has met the applicable standard of conduct set forth in Sections 2 or 3 of this Article and is not prohibited from indemnification because of the disabling conduct set forth in Section 4 of this Article, by: (a) A majority vote of a quorum consisting of trustees who are not parties to the proceeding and are not "interested persons" of the Trust (as defined in the 1940 Act); or (b) A written opinion by an independent legal counsel. Section 7. ADVANCEMENT OF EXPENSES. Expenses incurred in defending any proceeding may be advanced by the Trust before the final disposition of the proceeding on receipt of an undertaking by or on behalf of the agent to repay the amount of the advance unless it shall be determined ultimately that the agent is entitled to be indemnified as authorized in this Article, provided the agent provides a security for his undertaking, or a majority of a quorum of the disinterested, non-party trustees, or an independent legal counsel in a written opinion, determine that based on a review of readily available facts, there is reason to believe that said agent ultimately will be found entitled to indemnification. Section 8. OTHER CONTRACTUAL RIGHTS. Nothing contained in this Article shall affect any right to indemnification to which persons other than trustees and officers of the Trust or any subsidiary thereof may be entitled by contract or otherwise. Section 9. LIMITATIONS. No indemnification or advance shall be made under this Article, except as provided in Sections 5 or 6, in any circumstances where it appears: (a) That it would be inconsistent with a provision of the Declaration of Trust, a resolution of the shareholders, or an agreement which prohibits or 13 otherwise limits indemnification which was in effect at the time of accrual of the alleged cause of action asserted in the proceeding in which the expenses were incurred or other amounts were paid; or (b) That it would be inconsistent with any condition expressly imposed by a court in approving a settlement. Section 10. INSURANCE. Upon and in the event of a determination by the Board of Trustees to purchase such insurance, the Trust shall purchase and maintain insurance on behalf of any agent of the Trust against any liability asserted against or incurred by the agent in such capacity or arising out of the agent's status as such, but only to the extent that the Trust would have the power to indemnify the agent against that liability under the provisions of this Article. Section 11. FIDUCIARIES OF EMPLOYEE BENEFIT PLAN. This Article does not apply to any proceeding against any trustee, investment manager or other fiduciary of an employee benefit plan in that person's capacity as such, even though that person may also be an agent of the Trust as defined in Section 1 of this Article. Nothing contained in this Article shall limit any right to indemnification to which such a trustee, investment manager, or other fiduciary may be entitled by contract or otherwise which shall be enforceable to the extent permitted by applicable law other than this Article. ARTICLE VII RECORDS AND REPORTS Section 1. MAINTENANCE AND INSPECTION OF SHARE REGISTER. The Trust shall keep at its principal executive office or at the office of its transfer agent or registrar a record of its shareholders, providing the names and addresses of all shareholders and the number, series and classes of shares held by each shareholder. Section 2. MAINTENANCE AND INSPECTION OF BY-LAWS. The Trust shall keep at its principal executive office the original or a copy of these By-Laws as amended to date, which shall be open to inspection by the shareholders at all reasonable times during office hours. Section 3. MAINTENANCE AND INSPECTION OF OTHER RECORDS. The accounting books and records and minutes of proceedings of the shareholders and the Board of Trustees and any committee or committees of the Board of Trustees shall be kept at such place or places designated by the Board of Trustees or in the absence of such designation, at the principal executive office of the Trust. The 14 minutes shall be kept in written form and the accounting books and records shall be kept either in written form or in any other form capable of being converted into written form. The minutes and accounting books and records shall be open to inspection upon the written demand of any shareholder or holder of a voting trust certificate at any reasonable time during usual business hours for a purpose reasonably related to the holder's interests as a shareholder or as the holder of a voting trust certificate. The inspection may be made in person or by an agent or attorney and shall include the right to copy and make extracts. Section 4. INSPECTION BY TRUSTEES. Every trustee shall have the absolute right at any reasonable time to inspect all books, records, and documents of every kind and the physical properties of the Trust. This inspection by a trustee may be made in person or by an agent or attorney and the right of inspection includes the right to copy and make extracts of documents. ARTICLE VIII DIVIDENDS Section 1. DECLARATION OF DIVIDENDS. Dividends upon the shares of beneficial interest of the Trust may, subject to the provisions of the Declaration of Trust, if any, be declared by the Board of Trustees at any regular or special meeting, pursuant to applicable law. Dividends may be paid in cash, in property, or in shares of the Trust. Section 2. RESERVES. Before payment of any dividend there may be set aside out of any funds of the Trust available for dividends such sum or sums as the Board of Trustees may, from time to time, in its absolute discretion, think proper as a reserve fund to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Trust, or for such other purpose as the Board of Trustees shall deem to be in the best interests of the Trust, and the Board of Trustees may abolish any such reserve in the manner in which it was created. ARTICLE IX GENERAL MATTERS Section 1. CHECKS, DRAFTS, EVIDENCE OF INDEBTEDNESS. All checks, drafts, or other orders for payment of money, notes or other evidences of indebtedness issued in the name of or payable to the Trust shall be signed or endorsed by such person or persons and in such manner as from time to time shall be determined by resolution of the Board of Trustees. 15 Section 2. CONTRACTS AND INSTRUMENTS; HOW EXECUTED. The Board of Trustees, except as otherwise provided in these By-Laws, may authorize any officer or officers, agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the Trust and this authority may be general or confined to specific instances; and unless so authorized or ratified by the Board of Trustees or within the agency power of an officer, no officer, agent, or employee shall have any power or authority to bind the Trust by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount. Section 3. CERTIFICATES FOR SHARES. A certificate or certificates for shares of beneficial interest in any series of the Trust may be issued to a shareholder upon his request when such shares are fully paid. All certificates shall be signed in the name of the Trust by the chairperson of the board or the president or vice president and by the treasurer or an assistant treasurer or the secretary or any assistant secretary, certifying the number of shares and the series and class of shares owned by the shareholders. Any or all of the signatures on the certificate may be facsimile. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed on a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued by the Trust with the same effect as if such person were an officer, transfer agent or registrar at the date of issue. Notwithstanding the foregoing, the Trust may adopt and use a system of issuance, recordation and transfer of its shares by electronic or other means. Section 4. LOST CERTIFICATES. Except as provided in this Section 4, no new certificates for shares shall be issued to replace an old certificate unless the latter is surrendered to the Trust and cancelled at the same time. The Board of Trustees may in case any share certificate or certificate for any other security is lost, stolen, or destroyed, authorize the issuance of a replacement certificate on such terms and conditions as the Board of Trustees may require, including a provision for indemnification of the Trust secured by a bond or other adequate security sufficient to protect the Trust against any claim that may be made against it, including any expense or liability on account of the alleged loss, theft, or destruction of the certificate or the issuance of the replacement certificate. Section 5. REPRESENTATION OF SHARES OF OTHER ENTITIES HELD BY TRUST. The chairperson of the board, the president or any vice president or any other person authorized by resolution of the Board of Trustees or by any of the foregoing designated officers, is authorized to vote or represent on behalf of the Trust any and all shares of any corporation, partnership, trust, or other entity, foreign or domestic, standing in the name of the Trust. The authority granted may be exercised in person or by a proxy duly executed by such designated person. 16 Section 6. TRANSFER OF SHARES. Shares of the Trust shall be transferable only on the record books of the Trust by the Person in whose name such Shares are registered, or by his or her duly authorized attorney or representative. In all cases of transfer by an attorney-in-fact, the original power of attorney, or an official copy thereof duly certified, shall be deposited and remain with the Trust, its transfer agent or other duly authorized agent. In case of transfers by executors, administrators, guardians or other legal representatives, duly authenticated evidence of their authority shall be produced, and may be required to be deposited and remain with the Trust, its transfer agent or other duly authorized agent. No transfer shall be made unless and until the certificate issued to the transferor, if any, shall be delivered to the Trust, its transfer agent or other duly authorized agent, properly endorsed. Section 7. HOLDERS OF RECORD. The Trust shall be entitled to treat the holder of record of any share or shares as the owner thereof and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not the Trust shall have express or other notice thereof. Section 8. FISCAL YEAR. The fiscal year of the Trust and each series thereof shall end on the last day of August each year. The fiscal year of the Trust or any series thereof may be refixed or changed from time to time by resolution of the Board of Trustees. The fiscal year of the Trust shall be the taxable year of each series of the Trust. ARTICLE X AMENDMENTS Section 1. AMENDMENT. These By-laws may be restated and/or amended at any time, without the approval of the shareholders, by an instrument in writing signed by, or a resolution of, a majority of the then Board of Trustees. EX-99.D1 5 EXHIBIT-99.D1 INVESTMENT MANAGEMENT AGREEMENT AGREEMENT, made by and between VOYAGEUR MUTUAL FUNDS, a Delaware business trust (the "Trust") severally on behalf of each series of shares of beneficial interest of the Trust that is listed on Exhibit A to this Agreement, as that Exhibit may be amended from time to time (each such series of shares is hereinafter referred to as a "Fund" and, together with other series of shares listed on such Exhibit, the "Funds"), and DELAWARE MANAGEMENT COMPANY, a series of Delaware Management Business Trust (the "Investment Manager"). W I T N E S S E T H: WHEREAS, the Trust has been organized and operates as an investment company registered under the Investment Company Act of 1940, as amended (the "1940 Act"); WHEREAS, each Fund engages in the business of investing and reinvesting its assets in securities; and WHEREAS, the Investment Manager is registered under the Investment Advisers Act of 1940 as an investment adviser and engages in the business of providing investment management services; and WHEREAS, the Trust, severally on behalf of each Fund, and the Investment Manager desire to enter into this Agreement. NOW, THEREFORE, in consideration of the mutual covenants herein contained, and each of the parties hereto intending to be legally bound, it is agreed as follows: 1. The Trust hereby employs the Investment Manager to manage the investment and reinvestment of each Fund's assets and to administer the Trust's affairs, subject to the direction of the Trust's Board of Trustees and officers for the period and on the terms hereinafter set forth. The Investment Manager hereby accepts such employment and agrees during such period to render the services and assume the obligations herein set forth for the compensation herein provided. The Investment Manager shall for all purposes herein be deemed to be an independent contractor, and shall, unless otherwise expressly provided and authorized, have no authority to act for or represent the Trust in any way, or in any way be deemed an agent of the Trust. The Investment Manager shall regularly make decisions as to what securities and other instruments to purchase and sell on behalf of each Fund and shall effect the purchase and sale of such investments in furtherance of each Fund's objectives and policies and shall furnish the Board of Trustees of the Trust with such information and reports regarding each Fund's investments as the Investment Manager deems appropriate or as the Trustees of the Trust may reasonably request. 2. The Trust shall conduct its own business and affairs and shall bear the expenses and salaries necessary and incidental thereto, including, but not in limitation of the foregoing, the costs incurred in: the maintenance of its corporate existence; the maintenance of its own books, records and procedures; dealing with its own shareholders; the payment of dividends; transfer of shares, including issuance, redemption and repurchase of shares; preparation of share certificates; reports and notices to shareholders; calling and holding of shareholders' and Trustees' meetings; miscellaneous office expenses; brokerage commissions; custodian fees; legal and accounting fees; taxes; and federal and state registration fees. Directors, trustees, officers and employees of the Investment Manager may be directors, trustees, officers and employees of any of the investment companies within the Delaware Investments family (including the Trust). Directors, trustees, officers and employees of the Investment Manager who are directors, trustees, officers and/or employees of these investment companies shall not receive any compensation from such companies for acting in such dual capacity. In the conduct of the respective businesses of the parties hereto and in the performance of this Agreement, the Trust and Investment Manager may share facilities common to each, which may include legal and accounting personnel, with appropriate proration of expenses between them. 3. (a) Subject to the primary objective of obtaining the best execution, the Investment Manager will place orders for the purchase and sale of portfolio securities and other instruments with such broker/dealers selected who provide statistical, factual and financial information and services to the Trust, to the Investment Manager, to any sub-adviser (as defined in Paragraph 5 hereof, a "Sub-Adviser") or to any other fund for which the Investment Manager or any Sub-Adviser provides investment advisory services and/or with broker/dealers who sell shares of the Trust or who sell shares of any other investment company (or series thereof) for which the Investment Manager or any Sub-Adviser provides investment advisory services. Broker/dealers who sell shares of any investment companies or series thereof for which the Investment Manager or Sub-Adviser provide investment advisory services shall only receive orders for the purchase or sale of portfolio securities to the extent that the placing of such orders is in compliance with the Rules of the Securities and Exchange Commission and NASD Regulation, Inc. (b) Notwithstanding the provisions of subparagraph (a) above and subject to such policies and procedures as may be adopted by the Board of Trustees and officers of the Trust, the Investment Manager may cause a Fund to pay a member of an exchange, broker or dealer an amount of commission for effecting a securities transaction in excess of the amount of commission another member of an exchange, broker or dealer would have charged for effecting that transaction, in such instances where the Investment Manager has determined in good faith that such amount of commission was reasonable in relation to the value of the brokerage and research services provided by such member, broker or dealer, viewed in terms of either that particular transaction or the Investment Manager's overall responsibilities with respect to the Trust on behalf of the Funds and to other investment companies (or series thereof) and other advisory accounts for which the Investment Manager or any Sub-Adviser exercises investment discretion. 4. As compensation for the services to be rendered to a particular Fund by the Investment Manager under the provisions of this Agreement, that Fund shall pay monthly to the Investment Manager exclusively from that Fund's assets, a fee based on the average daily net assets of that Fund during the month. Such fee shall be calculated in accordance with the fee schedule applicable to that Fund as set forth in Exhibit A hereto, which Exhibit may be amended from time to time as provided in Paragraphs 10(b) and (c) of this Agreement. If this Agreement is terminated prior to the end of any calendar month with respect to a particular Fund, the management fee for such Fund shall be prorated for the portion of any month in which this Agreement is in effect with respect to such Fund according to the proportion which the number of calendar days during which the Agreement is in effect bears to the number of calendar days in the month, and shall be payable within 10 calendar days after the date of termination. 5. The Investment Manager may, at its expense, select and contract with one or more investment advisers registered under the Investment Advisers Act of 1940 ("Sub-Advisers") to perform some or all of the services for a Fund for which it is responsible under this Agreement. The Investment Manager will compensate any Sub-Adviser for its services to the Fund. The Investment Manager may terminate the services of any Sub-Adviser at any time in its sole discretion, and shall at such time assume the responsibilities of such Sub-Adviser unless and until a successor Sub-Adviser is selected and the -2- requisite approval of the Fund's shareholders is obtained. The Investment Manager will continue to have responsibility for all advisory services furnished by any Sub-Adviser. 6. The services to be rendered by the Investment Manager to the Trust on behalf of each Fund under the provisions of this Agreement are not to be deemed to be exclusive, and the Investment Manager shall be free to render similar or different services to others so long as its ability to render the services provided for in this Agreement shall not be impaired thereby. 7. The Investment Manager, its directors, trustees, officers, employees, agents and shareholders may engage in other businesses, may render investment advisory services to other investment companies, or to any other corporation, association, firm or individual, and may render underwriting services to the Trust or to any other investment company, corporation, association, firm or individual. 8. It is understood and agreed that so long as the Investment Manager and/or its advisory affiliates shall continue to serve as the investment adviser to any of the Trust's Funds, other investment companies as may be sponsored or advised by the Investment Manager or its affiliates shall have the right permanently to adopt and to use the words "Delaware," "Delaware Investments" or "Delaware Group" in their names and in the names of any series or class of shares of such funds. 9. In the absence of willful misfeasance, bad faith, gross negligence, or a reckless disregard of the performance of its duties as the Investment Manager to the Trust on behalf of any Fund, the Investment Manager shall not be subject to liability to the Trust or to any Fund or to any shareholder of the Trust for any action or omission in the course of, or connected with, rendering services hereunder or for any losses that may be sustained in the purchase, holding or sale of any security, or otherwise. 10. (a) This Agreement shall be executed and become effective as of the date written below, and shall become effective with respect to a particular Fund as of the effective date set forth in Exhibit A for that Fund, only if approved by the vote of a majority of the outstanding voting securities of that Fund. It shall continue in effect for an initial period of two years for each Fund and may be renewed thereafter only so long as such renewal and continuance is specifically approved at least annually by the Board of Trustees or by the vote of a majority of the outstanding voting securities of that Fund and only if the terms and the renewal hereof have been approved by the vote of a majority of the Trustees of the Trust who are not parties hereto or interested persons of any such party ("Independent Trustees"), cast in person at a meeting called for the purpose of voting on such approval. (b) Except as provided in Paragraph 10(c) below, no amendment to this Agreement (or to Exhibit A hereto) shall be effective with respect to any Fund unless approved by: (i) a majority of the Trustees of the Trust, including a majority of Independent Trustees; and (ii) a majority of the outstanding voting securities of the particular Fund. Any such amendment that pertains to a Fund will not change, or otherwise affect the applicability of, this Agreement with respect to other Funds. (c) The Agreement (and Exhibit A hereto) may be amended with respect to a Fund without the approval of a majority of the outstanding voting securities of that Fund if the amendment relates solely to a management fee reduction or other change that is permitted or not prohibited under federal law, rule, regulation or SEC staff interpretation thereof to be made without shareholder approval. This Agreement may be amended from time to time to add or remove one or more Funds, or to reflect changes in management fees, by an amendment to Exhibit A hereto executed by the Trust and the Investment Manager. Any such amendment that pertains to a Fund will not change, or otherwise affect the applicability of, this Agreement with respect to other Funds. -3- (d) This Agreement may be terminated as to any Fund by the Trust at any time, without the payment of a penalty, on sixty days' written notice to the Investment Manager of the Trust's intention to do so, pursuant to action by the Board of Trustees of the Trust or pursuant to the vote of a majority of the outstanding voting securities of the affected Fund. The Investment Manager may terminate this Agreement at any time, without the payment of a penalty, on sixty days' written notice to the Fund of its intention to do so. Upon termination of this Agreement, the obligations of all the parties hereunder shall cease and terminate as of the date of such termination, except for any obligation to respond for a breach of this Agreement committed prior to such termination, and except for the obligation of the Trust on behalf of a Fund to pay to the Investment Manager the fee provided in Paragraph 4 hereof, prorated to the date of termination. This Agreement shall automatically terminate in the event of its assignment. 11. This Agreement shall extend to and bind the heirs, executors, administrators and successors of the parties hereto. 12. For the purposes of this Agreement, the terms "vote of a majority of the outstanding voting securities"; "interested persons"; and "assignment" shall have the meaning defined in the 1940 Act. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed by their duly authorized officers and duly attested as of the ____ day of November, 1999.
DELAWARE MANAGEMENT COMPANY, VOYAGEUR MUTUAL FUNDS a series of Delaware Management Business Trust on behalf of the Funds listed on Appendix A By: _________________________________________ By: _________________________________________ Name: _______________________________________ Name: _______________________________________ Title: ______________________________________ Title: ______________________________________ Attest: _____________________________________ Attest: _____________________________________ Name: _______________________________________ Name: _______________________________________ Title: ______________________________________ Title: ______________________________________
-4- EXHIBIT A THIS EXHIBIT to the Investment Management Agreement between VOYAGEUR MUTUAL FUNDS and DELAWARE MANAGEMENT COMPANY, a series of Delaware Management Business Trust (the "Investment Manager") entered into as of the ____ day of November, 1999 (the "Agreement") lists the Funds for which the Investment Manager provides investment management services pursuant to this Agreement, along with the management fee rate schedule for each Fund and the date on which the Agreement became effective for each Fund.
Management Fee Schedule (as a percentage of average daily net assets) Fund Name Effective Date Annual Rate - --------- -------------- ------------------------- Delaware Tax-Free 0.55% on first $500 million Arizona Fund 0.50% on next $500 million 0.45% on next $1,500 million 0.425% on assets in excess of $2,500 million Delaware Tax-Free 0.55% on first $500 million California Fund 0.50% on next $500 million 0.45% on next $1,500 million 0.425% on assets in excess of $2,500 million Delaware Tax-Free 0.55% on first $500 million Idaho Fund 0.50% on next $500 million 0.45% on next $1,500 million 0.425% on assets in excess of $2,500 million Delaware Tax-Free 0.55% on first $500 million Iowa Fund 0.50% on next $500 million 0.45% on next $1,500 million 0.425% on assets in excess of $2,500 million Delaware Tax-Free 0.55% on first $500 million Montana Fund 0.50% on next $500 million 0.45% on next $1,500 million 0.425% on assets in excess of $2,500 million Delaware Minnesota 0.55% on first $500 million High Yield Municipal Bond Fund 0.50% on next $500 million 0.45% on next $1,500 million 0.425% on assets in excess of $2,500 million
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Management Fee Schedule (as a percentage of average daily net assets) Fund Name Effective Date Annual Rate - --------- -------------- ------------------------- Delaware National High 0.55% on first $500 million Yield Municipal Bond Fund 0.50% on next $500 million 0.45% on next $1,500 million 0.425% on assets in excess of $2,500 million Delaware Tax-Free 0.55% on first $500 million New York Fund 0.50% on next $500 million 0.45% on next $1,500 million 0.425% on assets in excess of $2,500 million Delaware Tax-Free 0.55% on first $500 million Wisconsin Fund 0.50% on next $500 million 0.45% on next $1,500 million 0.425% on assets in excess of $2,500 million
-6- EX-99.I 6 EXHIBIT 99.I Law Office Stradley, Ronon, Stevens & Young, LLP 2600 One Commerce Square Philadelphia, Pennsylvania 19103-7098 (215) 564-8000 Direct Dial: (215) 564-8115 August 5, 1999 Voyageur Mutual Funds 1818 Market Street Philadelphia, PA 19103 Re: Legal Opinion-Securities Act of 1933 ------------------------------------ Ladies and Gentlemen: We have examined the Agreement and Declaration of Trust, (the "Agreement"), of Voyageur Mutual Funds (the "Fund"), a series business trust organized under Delaware law, the By-Laws of the Fund, and its proposed form of Share Certificates (if any), and the various pertinent corporate proceedings we deem material. We have also examined the Notification of Registration and the Registration Statements filed under the Investment Company Act of 1940 as amended, (the "Investment Company Act") and the Securities Act of 1933 as amended, (the "Securities Act"), relating to the Fund and its predecessor, all as amended to date, as well as other items we deem material to this opinion. The Fund is authorized by the Agreement to issue an unlimited number of shares with no par value and, like its predecessor, has authorized shares of the Delaware-Voyageur Tax-Free Arizona Fund, the Delaware-Voyageur Tax-Free California Fund, the Delaware-Voyageur Tax-Free Idaho Fund, the Delaware-Voyageur Tax-Free Iowa Fund, the Delaware-Voyageur Minnesota High Yield Municipal Bond Fund, the National High-Yield Municipal Bond Fund, the Delaware-Voyageur Tax-Free New York Fund, the Delaware-Voyageur Tax-Free Wisconsin Fund and the Delaware Tax-Free Montana Fund series of shares. The Agreement also empowers the Board to designate any additional series or classes and allocate shares to such series or classes. The Fund has filed with the U.S. Securities and Exchange Commission, a registration statement under the Securities Act, which registration statement is deemed to register an indefinite number of shares of the Fund pursuant to the provisions of Section 24(f) of the Investment Company Act. You have further advised us that the Fund, and/or its predecessor, has filed, and each year hereafter will timely file, a Notice pursuant to Rule 24f-2 under the Investment Company Act perfecting the registration of the shares sold by the Fund during each fiscal year during which such registration of an indefinite number of shares remains in effect. Voyageur Mutual Funds August 5, 1999 Page 2 You have also informed us that the shares of the Fund's predecessor, have been, and will continue to be sold and the shares of the Fund will be sold in accordance with the Fund's usual method of distributing its registered shares, under which prospectuses are made available for delivery to offerees and purchasers of such shares in accordance with Section 5(b) of the Securities Act. Based upon the foregoing information and examination, so long as the Fund remains a valid and subsisting entity under the laws of its state of organization, and the registration of an indefinite number of shares of the Fund remains effective, the authorized shares of the Fund when issued for the consideration set by the Board of Trustees pursuant to the Agreement, and subject to compliance with Rule 24f-2, will be legally outstanding, fully-paid, and non-assessable shares, and the holders of such shares will have all the rights provided for with respect to such holding by the Agreement and the laws of the State of Delaware. We hereby consent to the use of this opinion, in lieu of any other, as an exhibit to the Registration Statement of the Fund, along with any amendments thereto, covering the registration of the shares of the Fund under the Securities Act and the applications, registration statements or notice filings, and amendments thereto, filed in accordance with the securities laws of the several states in which shares of the Fund are offered, and we further consent to reference in the registration statement of the Fund to the fact that this opinion concerning the legality of the issue has been rendered by us. Very truly yours, STRADLEY, RONON, STEVENS & YOUNG, LLP BY: /s/ Bruce G. Leto ---------------------------------- Bruce G. Leto EX-99.O 7 EXHIBIT 99.O POWER OF ATTORNEY Each of the undersigned, a member of the Boards of Directors/Trustees of the Delaware Investments Funds listed on Exhibit A to this Power of Attorney, hereby constitutes and appoints on behalf of each of the Funds listed on Exhibit A, David K. Downes, Wayne A. Stork and Walter P. Babich and any one of them acting singly, his or her true and lawful attorneys-in-fact, in his or her name, place, and stead, to execute and cause to be filed with the Securities and Exchange Commission and other federal or state government agency or body, such registration statements, and any and all amendments thereto as any of such designees may deem to be appropriate under the Securities Act of 1933, as amended, the Investment Company Act of 1940, as amended, and all other applicable federal and state securities laws. IN WITNESS WHEREOF, the undersigned have executed this instrument as of this 16th day of July, 1999. /s/Walter P. Babich /s/Thomas F. Madison - ----------------------------- ------------------------------ Walter P. Babich Thomas F. Madison /s/David K. Downes /s/Charles E. Peck - ----------------------------- ------------------------------ David K. Downes Charles E. Peck /a/Anthony D. Knerr /s/Wayne A. Stork - ----------------------------- ------------------------------ Anthony D. Knerr Wayne A. Stork /s/Ann R. Leven /s/Jan L. Yeomans - ----------------------------- ------------------------------ Ann R. Leven Jan L. Yeomans POWER OF ATTORNEY EXHIBIT A DELAWARE INVESTMENTS FUNDS DELAWARE GROUP EQUITY FUNDS I DELAWARE GROUP EQUITY FUNDS II DELAWARE GROUP EQUITY FUNDS III DELAWARE GROUP EQUITY FUNDS IV DELAWARE GROUP EQUITY FUNDS V DELAWARE GROUP INCOME FUNDS DELAWARE GROUP GOVERNMENT FUND DELAWARE GROUP CASH RESERVE DELAWARE GROUP LIMITED-TERM GOVERNMENT FUNDS DELAWARE GROUP TAX-FREE FUND DELAWARE GROUP TAX-FREE MONEY FUND DELAWARE GROUP GLOBAL & INTERNATIONAL FUNDS DELAWARE GROUP ADVISER FUNDS DELAWARE POOLED TRUST DELAWARE GROUP PREMIUM FUND DELAWARE GROUP STATE TAX-FREE INCOME TRUST DELAWARE GROUP DIVIDEND AND INCOME FUND, INC. DELAWARE GROUP GLOBAL DIVIDEND AND INCOME FUND, INC. DELAWARE GROUP FOUNDATION FUNDS VOYAGEUR FUNDS VOYAGEUR INSURED FUNDS VOYAGEUR INTERMEDIATE TAX FREE FUNDS VOYAGEUR INVESTMENT TRUST VOYAGEUR MUTUAL FUNDS VOYAGEUR MUTUAL FUNDS II VOYAGEUR MUTUAL FUNDS III VOYAGEUR TAX FREE FUNDS VOYAGEUR ARIZONA MUNICIPAL INCOME FUND, INC. VOYAGEUR COLORADO INSURED MUNICIPAL INCOME FUND, INC. VOYAGEUR FLORIDA INSURED MUNICIPAL INCOME FUND VOYAGEUR MINNESOTA MUNICIPAL INCOME FUND, INC. VOYAGEUR MINNESOTA MUNICIPAL INCOME FUND II, INC. VOYAGEUR MINNESOTA MUNICIPAL INCOME FUND III, INC. -----END PRIVACY-ENHANCED MESSAGE-----