<PAGE>
DELAWARE (SM)
INVESTMENTS
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Philadelphia o London
Delaware S&P 500 Index Fund
Consultant Class
Institutional Class
Prospectus December 30, 1999
(as revised February 18, 2000)
Total Return Fund
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.
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Table of contents
.................................................................
Fund profile page 2
Delaware S&P 500 Index Fund 2
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How we manage the Fund page 4
Our investment strategies 4
The securities we typically invest in 5
The risks of investing in the Fund 6
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Who manages the Fund page 7
Investment manager and sub-adviser 7
Portfolio manager 7
Fund administration (Who's who) 8
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About your account page 9
Investing in the Fund 9
How to buy shares 10
How to redeem shares 12
Account minimums 13
Special services 14
Dividends, distributions and taxes 14
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Certain management considerations page 15
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Financial highlights page 16
<PAGE>
Profile: Delaware S&P 500 Index Fund
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What is the Fund's goal?
Delaware S&P 500 Index Fund seeks to replicate the total return of the
Standard & Poor's 500 Composite Stock Price Index. Although the Fund will
strive to meet its goal, there is no assurance that it will.
Who should invest in the Fund
o Investors with long-term financial goals.
o Investors seeking an investment primarily in common stocks.
o Investors seeking total return.
Who should not invest in the Fund
o Investors with short-term financial goals.
o Investors whose primary goal is current income.
o Investors who are unwilling to accept share prices that may fluctuate.
What are the Fund's main investment strategies? Delaware S&P 500 Index Fund will
invest primarily in common stock. The Fund intends to invest in all 500 stocks
in the Index (commonly known as the S&P 500 Index) in proportion to their
weighting in the Index. To the extent that all 500 stocks cannot be purchased,
the Fund will purchase a representative sample of the stocks listed in the Index
in proportion to their weightings.
The Fund is not managed according to traditional methods of "active" investment
management, which involve the buying and selling of securities based upon
economic, financial and market analysis and investment judgment. Instead, the
Fund utilizes a "passive" investment approach, attempting to duplicate the
investment performance of its benchmark index through automated statistical
analytic procedures.
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 value of your investment in the Fund will increase and decrease
according to changes in the value of the securities in the Fund's portfolio. The
Fund will be affected by declines in stock prices. For a more complete
discussion of risk, please turn to "The risks of investing in the Fund."
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.
2
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What are the Fund's fees and expenses?
<TABLE>
<CAPTION>
CLASS Consultant Institutional
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<S> <C> <C> <C>
Sales charges are fees paid directly Maximum sales charge (load) imposed on
from your investments when you buy purchases as a percentage of offering price none none
or sell shares of the Fund. Maximum contingent deferred sales charge (load)
as a percentage of original purchase price or
redemption price, whichever is lower none none
Maximum sales charge (load) imposed on
reinvested dividends none none
Redemption fees none none
Exchange fees none(1) none(1)
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Annual fund operating expenses are Management fees 0.07% 0.00%
deducted from the Fund's assets. Distribution and service (12b-1) fees 0.12%(2) none
Other expenses 0.99% 0.99%
Total annual fund operating expenses 1.18% 1.06%
Fee waivers and payments(3) (0.66%) (0.66%)
Net expenses 0.52% 0.40%
CLASS Consultant Institutional
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This example is intended to help 1 year $53 $41
you compare the cost of investing 3 years $309 $271
in the Fund to the cost of
investing in other mutual funds
with similar investment
objectives. We show the cumulative
amount of Fund expenses on a
hypothetical investment of $10,000
with an annual 5% return over the
time shown.(4) This is an example
only, and does not represent
future expenses, which may be
greater or less than those shown
here.
</TABLE>
(1) Exchanges are subject to the requirements of each Delaware Investments
fund. A front-end sales charge may apply if you exchange your shares into a
fund that has a front-end sales charge.
(2) The Board of Trustees set the 12b-1 fee for the Consultant Class at 0.12%.
The maximum annual 12b-1 plan expenses permitted under the 12b-1 plan for
the Consultant Class are 0.30% of average daily net assets.
(3) The investment manager has contracted to waive fees and pay expenses
through November 30, 2000 in order to prevent total operating expenses
(excluding any 12b-1 expenses, taxes, interest, brokerage fees and
extraordinary expenses) from exceeding 0.40% of average daily net assets.
(4) The Fund's actual rate of return may be greater or less than the
hypothetical 5% return we use here. Also, this example reflects the net
operating expenses with expense waivers for the one-year period and the
total operating expenses without expense waivers for years two and three.
3
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How we manage the Fund
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Our investment strategies
Delaware S&P 500 Index Fund is a stock fund that seeks to track the performance
of the S&P 500 Index, which emphasizes large U.S. companies. We employ a passive
management strategy by normally investing in all 500 stocks included in the
Index. We generally invest in each stock in roughly the same proportion as
represented in the Index. We seek to replicate as closely as possible the
aggregate risk characteristics and industry diversification of the Index.
Although we intend to invest in all 500 stocks in the Index, there is no
predetermined number of stocks that the Fund must hold. S&P may change the
composition of the Index from time to time. We will attempt to reflect those
changes as soon as practical. The Fund is usually fully invested. We may buy and
sell stock index futures. We may also buy options on stock indexes and on stock
index futures to maintain market exposure and manage cash flow.
We do not anticipate that the Fund will be able to invest in all 500 stocks in
the Index until it has at least $50 million in assets under management. Until
that time, the Fund will purchase a representative sample of the stocks listed
in the Index in our effort to replicate the total return of the Index.
We may purchase other types of securities, such as Standard & Poor's Depositary
Receipts, American Depositary Receipts, high quality short-term debt securities,
and certain derivatives.
To the extent that the Fund seeks to replicate the S&P 500 Index using such
sampling techniques, a close correlation between the Fund's performance and the
performance of the Index is anticipated in both rising and falling markets. The
Fund will attempt to achieve a correlation of at least 0.95 between the
performance of its portfolio and that of the Index (before deduction of Fund
expenses). A correlation of 1.00 would represent perfect correlation between
portfolio and index performance. It is anticipated that the correlation of the
Fund's performance to that of the Index will increase as the size of the Fund
increases. The Fund's ability to achieve significant correlation between its
performance and that of the Index may be affected by changes in securities
markets, changes in the composition of the Index and the timing of purchases and
redemptions of Fund shares. We will monitor correlation.
Delaware S&P 500 Index Fund's investment objective - to seek to replicate the
total return of the Standard & Poor's 500 Composite Stock Price Index - is
non-fundamental. This means that the Board of Trustees may change the objective
without obtaining shareholder approval. If the objective were changed, we would
notify shareholders before the change in the objective became effective.
4
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The securities we typically invest in
<TABLE>
<CAPTION>
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Securities How we use them
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<S> <C>
Common stocks: Securities that represent We will invest primarily in common stocks. Generally, we will seek to
shares of ownership in a corporation. invest in all 500 stocks included in the S&P 500 Index.
Stockholders participate in the
corporation's profits and losses,
proportionate to the number of shares
they own.
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American Depositary Receipts: ADRs are We generally invest only in those ADRs included in the S&P 500 Index.
issued by a U.S. bank and represent the
bank's holdings of a stated number of
shares of a foreign corporation. An ADR
entitles the holder to all dividends and
capital gains earned by the underlying
foreign shares. ADRs are bought and sold
the same as U.S. securities.
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Futures contracts and options on futures For hedging purposes, we may have the Fund enter into futures
contracts: Futures contracts are contracts that relate to securities included in the S&P 500 Index or
agreements for the purchase or sale of a that relate to the Index. We may also purchase and write call and put
specified quantity of securities or the options on such contracts.
cash value of an index at a specified
future date at a price agreed upon when
the contract is made. Under such
contracts no delivery of the actual
securities making up the index takes
place. Rather, upon expiration of the
contract, settlement is made by
exchanging cash in an amount equal to
the difference between the contract
price and the closing price of the index
at expiration, after subtracting the
variation margin previously paid.
Options on futures contracts give the
purchaser the right to assume a position
at a specified price in a futures
contract at any time before expiration
of the option contract.
Certain options and futures may be
considered to be derivative securities.
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Options on securities and securities We may write and purchase covered put and call options on securities
indices: Options represent a right to included in the S&P 500 Index or that relate to the Index. Option
buy or sell a security at an agreed upon transactions of the Fund will be conducted so that the total amount
price at a future date. The purchaser of paid on premiums for all put and call options outstanding will not
an option may or may not choose to go exceed 5% of the value of the Fund's total assets. Further, we will
through with the transaction. not have the Fund write a put or call option or combination thereof
if, as a result, the aggregate value of all securities or collateral
Options on securities indices are used to cover its outstanding options would exceed 25% of the value of
similar to options on securities except the Fund's total assets.
there is no transfer of a security and
settlement is in cash. A call option on
a securities index grants the purchaser
of the call, for a premium paid to the
seller, the right to receive in cash an
amount equal to the difference between
the closing value of the index and the
exercise price of the option times a
multiplier established by the exchange
upon which the option is traded.
<PAGE>
Certain options may be considered to be
derivative securities.
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Repurchase agreements: An agreement Typically, we use repurchase agreements as a short-term investment for
between a buyer, such as the Fund, and a the Fund's cash position. In order to enter into these repurchase
seller of securities in which the seller agreements, the Fund must have collateral of at least 102% of the
agrees to buy the securities back within repurchase price. The Fund will only enter into repurchase agreements
a specified time at the same price the in which the collateral is composed of U.S. government securities.
buyer paid for them, plus an amount
equal to an agreed upon interest rate.
Repurchase agreements are often viewed
as equivalent to cash.
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Restricted securities: Privately placed We may invest in privately placed securities that are eligible for
securities whose resale is restricted resale only among certain institutional buyers without registration,
under securities law. including Rule 144A Securities. Restricted securities that are
determined to be illiquid may not exceed the Fund's 15% limit on
illiquid securities, which is described below.
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Illiquid securities: Securities that do We may invest up to 15% of net assets in illiquid securities.
not have a ready market, and cannot be
easily sold within seven days at
approximately the price that the Fund
has valued them.
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</TABLE>
5
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How we manage the Fund (continued)
The Fund may also invest in other securities, such as Standard & Poor's
Depositary Receipts, high quality short-term debt securities, and certain
derivatives. Please see the Statement of Additional Information for additional
descriptions and risk information on these securities as well as those listed in
the table above. You can find additional information about the investments in
the Fund's portfolio in the annual or semi-annual shareholder report.
Lending securities The Fund may lend up to one-third of its assets to qualified
dealers and institutional investors for their use in security transactions.
Purchasing securities on a when-issued or delayed delivery basis The Fund may
buy or sell securities on a when-issued or delayed delivery basis; that is,
paying for securities before delivery or taking delivery at a later date. The
Fund will designate cash or securities in amounts sufficient to cover its
obligations, and will value the designated assets daily.
Borrowing from banks The Fund may borrow money as a temporary measure for
extraordinary purposes or to facilitate redemptions. Borrowing money could
result in the Fund being unable to meet its investment objective.
Portfolio turnover We anticipate that securities will be sold from the Fund only
to reflect certain changes in its benchmark index (including mergers or changes
in the composition of the index) or to accommodate cash flows into and out of
the Fund while maintaining the similarity of the Fund to the benchmark index.
Accordingly, the turnover rate for the Fund is not expected to exceed 50%, a
turnover rate that is generally lower than that of most actively managed
investment companies.
The risks of investing in the Fund
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 the Fund you should
carefully evaluate the risks. An investment in the Fund typically provides the
best results when held for a number of years. The following are the chief risks
you assume when investing in the Fund. Please see the Statement of Additional
Information for further discussion of these risks and the other risks not
discussed here.
<TABLE>
<CAPTION>
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Risks How we strive to manage them
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<S> <C>
Market risk is the risk that all or a The Fund is passively managed and seeks to replicate the total return
majority of the securities in a certain of the S&P 500 Index. We expect that the Fund will move up and down
market--like the stock or bond with the performance of the Index. We do not try to predict overall
market--will decline in value because of stock market movements and though we may hold securities for any
factors such as economic conditions, amount of time, we typically do not trade for short-term purposes.
future expectations or investor
confidence.
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Industry and security risk is the risk The amount of the Fund's assets invested in any one industry and in
that the value of securities in a any individual security is limited.
particular industry or the value of an
individual stock or bond will decline
because of changing expectations for the
performance of that industry or for the
individual company issuing the stock.
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Futures and options risk is the We will use options and futures for hedging purposes. We will not use
possibility that the Fund may experience futures and option for speculative reasons.
a significant loss if it employs an
options or futures strategy related to a
securities or a market index and that
security or index moves in the opposite
direction from what the was anticipated.
Futures and options also involve
additional expenses, which could reduce
any benefit or increase any loss that
the Fund may gain from using the
strategy.
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Liquidity risk is the possibility that We limit exposure to illiquid securities.
securities cannot be readily sold within
seven days at approximately the price
that the Fund has valued them.
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</TABLE>
6
<PAGE>
Who manages the Fund
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Investment manager and sub-adviser
The Fund is managed by Delaware Management Company, a series of Delaware
Management Business Trust which is an indirect, wholly owned subsidiary of
Delaware Management Holdings, Inc. State Street Global Advisors, a division of
State Street Corporation, is the Fund's sub-adviser. As sub-adviser, State
Street Global Advisors is responsible for day-to-day management of the Fund's
assets. Delaware Management Company administers the Fund's business affairs and
has ultimate responsibility for all investment advisory services for the Fund.
Delaware Management Company also supervises the sub-adviser's performance. For
their services to the Fund, Delaware and State Street will be paid an aggregate
fee of 0.07% as a percentage of average daily net assets for the fiscal year.
Portfolio
manager
James B. May leads the portfolio management team that makes investment decisions
for the Fund. Mr. May is a Principal of State Street Global Advisors. He joined
the firm in 1991. He is a Senior Portfolio Manager in the U.S. Passive Equity
Group and currently manages a variety of portfolios, including several mutual
funds as well as several separately managed funds. Before joining the U.S
Passive Equity group, Mr. May worked in the firm's Passive U.S. Equity
Operations department as Senior Analyst. He has been working in the investment
management field since 1989 when he joined State Street's Custody operation. Mr.
May holds an MBA from Boston College and a BS in Finance from Bentley College.
He is a member of the Boston Security Analysts Society and the Association for
Investment Management Research (AIMR). Mr. May is a CFA charterholder.
7
<PAGE>
Who manages the Funds (continued)
Who's who?
The diagram shows the various organizations involved with managing,
administering, and servicing the Delaware Investments funds.
<TABLE>
<CAPTION>
<S> <C>
Board of Trustees
Investment manager Custodian
Delaware Management Company The Chase Manhattan Bank
One Commerce Square The Fund 4 Chase Metrotech Center
Philadelphia, PA 19103 Brooklyn, NY 11245
Sub-adviser Distributor Service agent
State Street Global Advisors Delaware Distributors, L.P. Delaware Service Company, Inc.
Two International Place 1818 Market Street 1818 Market Street
Boston, MA 02110 Philadelphia, PA 19103 Philadelphia, PA 19103
Portfolio manager Financial advisers
(see page 7 for details)
Shareholders
</TABLE>
Board of Trustees A mutual fund is governed by a Board of Trustees which has
oversight responsibility for the management of the fund's business affairs.
Trustees establish procedures and oversee and review the performance of the
investment manager, the distributor and others that perform services for the
fund. At least 40% of the Board of Trustees must be independent of the fund's
investment manager and 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.
Sub-adviser A sub-adviser is a company generally responsible for the management
of the fund's assets. They are selected and supervised by the investment
manager.
Portfolio managers Portfolio managers are employed by the investment manager or
sub-adviser 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 most funds place them with a qualified bank custodian who
segregates fund securities from other bank assets.
Distributor Most mutual funds continuously offer new shares to the public
through distributors who are regulated as broker-dealers and are subject to NASD
Regulation, Inc. (NASD) rules governing mutual fund sales practices.
Service agent Mutual fund companies employ service agents (sometimes called
transfer agents) to maintain records of shareholder accounts, calculate and
disburse dividends and capital gains and prepare and mail shareholder statements
and tax information, among other functions. Many service agents also provide
customer service to shareholders.
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.
8
<PAGE>
About your account
Investing in
the Fund
CONSULTANT
CLASS
o Consultant Class shares may be purchased through financial advisers, including
brokers, financial institutions and other entities that have a dealer
agreement with the Fund's distributor or a service agreement with the Fund. It
is available only to retirement plans administered by Retirement Financial
Services, Inc. and rollover individual retirement accounts from such plans.
o Consultant Class shares are not subject to a front-end or contingent deferred
sales charge.
o Consultant Class shares are subject to an annual 12b-1 fee no greater than
0.30% (currently set at 0.12%) of average daily net assets. The 12b-1 fee is
typically used to compensate your financial adviser for the ongoing guidance
and service he or she provides to you. The 12b-1 plan also allows the Class to
pay distribution fees for the sale 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.
INSTITUTIONAL
CLASS
o Institutional Class shares are not subject to a front-end or contingent
deferred sales charge.
o Institutional Class shares are not subject to an annual 12b-1 fee.
Institutional Class shares are available for purchase only by the following:
o retirement plans introduced by persons not associated with brokers or dealers
that are primarily engaged in the retail securities business and rollover
individual retirement accounts from such plans
o tax-exempt employee benefit plans of the Fund's manager or its affiliates and
of securities dealer firms with a selling agreement with the distributor
o institutional advisory accounts of the Fund's manager, or its affiliates and
those having client relationships with Delaware Investment Advisers, an
affiliate of the manager, or its affiliates and their corporate sponsors, as
well as subsidiaries and related employee benefit plans and rollover
individual retirement accounts from such institutional advisory accounts
o a bank, trust company or similar financial institution investing for its own
account or for the account of its trust customers for whom the financial
institution is exercising investment discretion in purchasing shares of the
Class, except where the investment is part of a program that requires payment
to the financial institution of a Rule 12b-1 Plan fee
o registered investment advisers investing on behalf of clients who consist
solely of institutions and high net-worth individuals having at least
$1,000,000 entrusted to the adviser for investment purposes. Use of
institutional class shares is restricted to advisers who are not affiliated or
associated with a broker or dealer and who derive compensation for their
services exclusively from their advisory clients
9
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About your account (continued)
How to buy shares
Through your financial adviser
[FINANCIAL ADVISER GRAPHIC]
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.
[ENVELOPE GRAPHIC]
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.
[WIRE GRAPHIC]
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.
[EXCHANGE GRAPHIC]
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 a Consultant Class account by exchange,
call the Shareholder Service Center at 800.523.1918. To open an Institutional
Class account by exchange, call a Client Services Representative at
800.510.4015.
[AUTOMATED GRAPHIC]
Through automated shareholder services
You can purchase or exchange Consultant Class 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.
10
<PAGE>
How to buy shares
(continued)
There is no minimum purchase requirements for retirement plans. If you are
buying Consultant Class shares in an IRA or Roth IRA, the minimum purchase is
$250, and you can make additional investments of only $25. The minimum for an
Education IRA is $500.
There are no minimum purchase requirements for the Institutional Class, but
certain eligibility requirements must be satisfied.
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 regular
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 regular
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 Fund's net asset value (NAV) per share at the close of regular
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 the 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. For all other
securities, we use methods approved by the board of trustees that are designed
to price securities at their fair market value.
11
<PAGE>
About your account (continued)
How to redeem shares
[FINANCIAL ADVISER GRAPHIC]
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.
[ENVELOPE GRAPHIC]
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 more than
$50,000, 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. Institutional Class shareholders
may also fax written requests to 215.255.8864.
[TELEPHONE GRAPHIC]
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.
[WIRE GRAPHIC]
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, a bank wire fee may be deducted from
your proceeds. Bank information must be on file before you request a wire
redemption.
[AUTOMATED GRAPHIC]
Through automated shareholder services
You can redeem Consultant Class 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.
12
<PAGE>
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 regular 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.
Account minimums
If you redeem Consultant Class shares and your account balance falls below
$1,000 ($250 for IRAs or $500 for Education IRAs) 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.
If you redeem Institutional Class shares and your account balance falls below
$250, the Fund may redeem your account after 60 days.
Exchanges
You can exchange all or part of your shares for shares of the same class in
another Delaware Investments fund. If you exchange shares to a fund that has a
sales charge you will pay any applicable sales charges on your new shares. You
don't pay sales charges on shares that are 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. You may exchange your shares for Class A shares of the funds in the
Delaware Investments family. You may not exchange your shares for Class B and
Class C shares of the funds in the Delaware Investments family.
In certain circumstances, Class A shares of the Delaware Investments funds may
be subject to a contingent deferred sales charge for up to two years after
purchase. This would occur if the fund normally had a front-end sales charge,
but the shares were purchased without paying a sales charge and a financial
adviser was paid a commission on the purchase. If you purchase Class A shares of
another fund in this manner, you may exchange them for shares of the Fund's
Consultant or Institutional Class. You will not have to pay the contingent
deferred sales charge at the time of the exchange. However, you may have to pay
the contingent deferred sales if you later redeem your shares of the Fund's A,
Consultant Class or Institutional Class or if you exchange them for shares of
another fund and then redeem those shares. The time that you are invested in the
Fund will count toward the fulfillment of the two-year holding period.
13
<PAGE>
Special Services
To help make investing with us as easy as possible, and to help you build your
investments, we offer the following special services to Consultant Class
shareholders.
Automatic Investing Plan
The Automatic Investing Plan allows you to make regular monthly or quarterly
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 above) 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.
MoneyLine(SM) On Demand Service
Through our MoneyLine(SM) On Demand Service, you or your financial adviser may
transfer money between your Fund account and your predesignated bank account by
telephone request. This service is not available for retirement plans, except
for purchases into IRAs. MoneyLine has a minimum transfer of $25 and a maximum
transfer of $50,000.
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
Dividends, if any, are paid quarterly. Capital gains, if any, are paid annually.
We automatically reinvest all dividends and any capital gains.
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 dividends from the Fund is the same whether you reinvest
your dividends or receive them in cash. Distributions from the Fund's long-term
capital gains are taxable as capital gains, while distributions from short-term
capital gains and net investment income 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.
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.
14
<PAGE>
Certain management considerations
About the S&P 500 Index
The S&P 500 Index is composed of 500 common stocks which are chosen by Standard
& Poor's to best capture the price performance of a large cross-section of the
U.S. publicly traded stock market. The Index is structured to approximate the
general distribution of industries in the U.S. economy. The inclusion of a stock
in the S&P 500 Index in no way implies that Standard & Poor's believes the stock
to be an attractive investment, nor is Standard & Poor's a sponsor or in any way
affiliated with the Fund. The 500 securities, most of which trade on the New
York Stock Exchange, represent approximately 75% of the market value of all U.S.
common stocks. Each stock in the S&P 500 Index is weighted by its market
capitalization. That is, each security is weighted by its total market value
relative to the total market values of all the securities in the Index.
Component stocks included in the S&P 500 Index are chosen with the aim of
achieving a distribution at the index level representative of the various
components of the U.S. GNP and therefore do not represent the 500 largest
companies. Aggregate market value and trading activity are also considered in
the selection process. A limited percentage of the Index may include foreign
securities.
"Standard & Poor's," "S&P 500," and "S&P," are trademarks of The McGraw Hill
Companies, Inc. and have been licensed for use by Delaware Management Holdings,
Inc. The Fund is not sponsored, endorsed, sold or promoted by Standard & Poor's
and Standard & Poor's makes no representation regarding the advisability of
investing in the Fund. For more information regarding Standard & Poor's, please
see the Statement of Additional Information.
Year 2000
As with other mutual funds, financial and business organizations and individuals
around the world, the Fund could be adversely affected if the computer systems
used by its service providers do not properly process and calculate date-related
information from and after January 1, 2000. This is commonly known as the "Year
2000 Problem." The Fund has taken steps to obtain satisfactory assurances that
its major service providers have taken 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 Fund. The Year 2000 Problem may also
adversely affect the issuers of securities in which the Fund invests. The
portfolio manager and investment professionals of the Fund consider Year 2000
compliance (including, but not limited to, any or all of the following: impact
on business, cost of compliance plan review and contingency planning, and vendor
compliance) in the securities selection and investment process. However, there
can be no guarantee that, even with their due diligence efforts, they will be
able to predict the effect of Year 2000 on any company or the performance of its
securities.
15
<PAGE>
Financial highlights
Financial highlights are not provided for the Fund because it commenced
operations after the close of its fiscal year.
16
<PAGE>
Delaware
S&P 500
Index Fund
Additional information about the Fund's investments will be available in the
Fund's annual and semi-annual report to shareholders. In the Fund's shareholder
report, you will find a discussion of the market conditions and investment
strategies that significantly affected the Fund's performance during the report
period. You can find more detailed information about the Fund 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 the Fund, you can write to us at 1818 Market Street, Philadelphia, PA 19103,
or call the toll-free numbers listed below. You may also obtain additional
information about the Fund from your financial adviser.
You can find reports and other information about the Fund on the EDGAR Database
on the SEC web site (http://www.sec.gov), or you can get copies of this
information, after payment of a duplicating fee, by e-mailing the SEC at
[email protected] or by writing to the Public Reference Section of the SEC,
Washington, D.C. 20549-0102. Information about the Fund, including its 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 1.202.942.8090.
Web site
www.delawareinvestments.com
E-mail
[email protected]
Shareholder Service Center (Consultant Class)
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.
Client Services Representative (Institutional Class)
800.510.4015
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.
Investment Company Act file number: 811- 08457
Delaware S&P 500 Index Fund Symbols
CUSIP
-----
Consultant Class 246366405
Institutional Class 246366504
DELAWARE INVESTMENTS(SM)
- ------------------------
Philadelphia o London
P-491 [-] pp 2/00
<PAGE>
Delaware Investments includes funds with a wide range of investment
objectives. Stock funds, income funds, national and state-specific tax-exempt
funds, money market funds, global and international funds and closed-end funds
give investors the ability to create a portfolio that fits their personal
financial goals. For more information, shareholders of the Fund Classes and
Consultant Class should contact their financial adviser or call Delaware
Investments at 800-523-1918, and shareholders of the Institutional Classes
should contact Delaware Investments at 800-510-4015.
INVESTMENT MANAGER
Delaware Management Company
One Commerce Square
Philadelphia, PA 19103
SUB-ADVISER
(Delaware S&P 500 Index Fund)
State Street Global Advisors
Two International Place
Boston, MA 02110
NATIONAL DISTRIBUTOR
Delaware Distributors, L.P.
1818 Market Street
Philadelphia, PA 19103
SHAREHOLDER SERVICING,
DIVIDEND DISBURSING,
ACCOUNTING SERVICES
AND TRANSFER AGENT
Delaware Service Company, Inc.
1818 Market Street
Philadelphia, PA 19103
LEGAL COUNSEL
Stradley, Ronon, Stevens & Young, LLP
One Commerce Square
Philadelphia, PA 19103
INDEPENDENT AUDITORS
Ernst & Young LLP
Two Commerce Square
Philadelphia, PA 19103
CUSTODIAN
The Chase Manhattan Bank
4 Chase Metrotech Center
Brooklyn, NY 11245
<PAGE>
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DELAWARE GROUP FOUNDATION FUNDS
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DELAWARE FOUNDATION FUNDS INCOME PORTFOLIO
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DELAWARE FOUNDATION FUNDS BALANCED PORTFOLIO
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DELAWARE FOUNDATION FUNDS GROWTH PORTFOLIO
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DELAWARE S&P 500 INDEX FUND
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PART B
STATEMENT OF
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
December 30, 1999
(as revised February 18, 2000)
DELAWARE(SM)
INVESTMENTS
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<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
December 30, 1999
(as revised February 18, 2000)
DELAWARE GROUP FOUNDATION FUNDS
Delaware Foundation Funds Income Portfolio
Delaware Foundation Funds Balanced Portfolio
Delaware Foundation Funds Growth Portfolio
Delaware S&P 500 Index Fund
1818 Market Street
Philadelphia, PA 19103
For more information about the Institutional Class: 800-510-4015
For Prospectus, Performance and Information on Existing Accounts of
Class A Shares, Class B Shares, Class C Shares and Consultant Class Shares:
Nationwide 800-523-1918
Dealer Services: (BROKER/DEALERS ONLY) Nationwide 800-362-7500
Delaware Group Foundation Funds ("Foundation Funds ") is a
professionally-managed mutual fund of the series type which currently offers the
four series of shares noted above. Each series is referred to individually as a
"Fund" or collectively as the "Funds." Each Fund offers Class A Shares, Class B
Shares and Class C Shares (together referred to as the "Fund Classes"). Each
Fund also offers an Institutional Class (the "Institutional Class"). In
addition, Delaware S&P 500 Index Fund offers Consultant Class Shares. All
references to "shares" in this Part B refer to all Classes of shares of
Foundation Funds, except where noted.
This Statement of Additional Information ("Part B" of the registration
statement) supplements the information contained in the current Prospectuses for
the Funds dated December 30, 1999, as they may be amended from time to time.
Part B should be read in conjunction with the respective Class' Prospectus. Part
B is not itself a prospectus but is, in its entirety, incorporated by reference
into each Class' Prospectus. A Prospectus may be obtained by writing or calling
your investment dealer or by contacting the Fund's national distributor,
Delaware Distributors, L.P. (the "Distributor"), at the above address or by
calling the above phone numbers. The Fund's financial statements, the notes
relating thereto, the financial highlights and the report of independent
auditors are incorporated by reference from the Annual Report into this Part B.
The Annual Report will accompany any request for Part B. The Annual Report can
be obtained, without charge, by calling 800-523-1918.
<TABLE>
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TABLE OF CONTENTS
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Page Page
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Cover Page 2 Redemption and Exchange 71
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Investment Objectives and Policies 3 Dividends and Realized Securities Profits Distributions 80
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Accounting and Tax Issues 36 Taxes 80
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Performance Information 40 Investment Management Agreement and Sub-Advisory Agreement 82
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Trading Practices and Brokerage 46 Officers and Trustees 84
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Purchasing Shares 48 General Information 99
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Investment Plans 62 Financial Statements 102
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Determining Offering Price and Appendix A - Investment Objectives of the Funds in the
Net Asset Value 70 Delaware Investments Family 103
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INVESTMENT OBJECTIVES AND POLICIES
Investment Restrictions
The following restrictions are fundamental policies, which may not be
amended without approval of a majority of the outstanding voting securities of
the affected Fund, which is the lesser of (i) more than 50% of the outstanding
voting securities, or (ii) 67% of the voting securities of the affected Fund
present at a shareholder meeting if 50% or more of the voting securities are
present in person or represented by proxy. The percentage limitations contained
in the restrictions and policies set forth herein apply at the time of purchase
of securities.
Each Fund shall not:
1. Make investments that will result in the concentration (as that term
may be defined in the Investment Company Act of 1940 ("1940 Act"), any rule or
order 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 tax-exempt securities or
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 (the "1933 Act").
4. Purchase or sell real estate, unless acquired as a result of
ownership of securities or other instruments and provided that this restriction
does not prevent the Fund from investing in issuers which invest, deal or
otherwise engage in transactions in real estate or interests therein, or
investing in securities that are secured by real estate or interests therein.
5. Purchase or sell physical commodities, unless acquired as a result
of ownership of securities or other instruments and provided that this
restriction does not prevent a Fund from engaging in transactions involving
futures contracts and options thereon or investing in securities that are
secured by physical commodities.
6. Make loans, provided that this restriction does not prevent a Fund
from purchasing debt obligations, entering into repurchase agreements, loaning
its assets to broker/dealers or institutional investors and investing in loans,
including assignments and participation interests.
In addition to the fundamental policies and investment restrictions
described above, and the various general investment policies described in the
prospectus, a Fund, except as noted, 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.
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<PAGE>
1. Delaware S&P 500 Index 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, Delaware S&P 500 Index 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. A 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.
The following are additional non-fundamental investment restrictions
for Income Portfolio, Balanced Portfolio and Growth Portfolio:
A Fund will not:
1. Invest more than 25% of its total assets in any one industry
(including investments in Delaware Investments funds that concentrate in that
industry) provided that there is no limitation with respect to investments in
obligations issued or guaranteed as to principal or interest by the U.S.
government, its agencies or instrumentalities. For purposes of this restriction,
investments in the Delaware Investments funds will not be deemed to be
investments in "investment company" industry.
2. Make loans other than by the purchase of all or a portion of a
publicly or privately distributed issue of bonds, debentures or other debt
securities of the types commonly offered publicly or privately and purchased by
financial institutions (including repurchase agreements and loan
participations), whether or not the purchase was made upon the original issuance
of the securities, and except that each Fund may loan its assets (other than
shares of the Delaware Investments funds) to qualified broker/dealers or
institutional investors.
3. Engage in underwriting of securities of other issuers, except that
portfolio securities, including securities purchased in private placements, may
be acquired under circumstances where, if sold, the Fund might be deemed to be
an underwriter under the 1933 Act. No limit is placed on the proportion of the
Fund's assets which may be invested in such securities.
4. Borrow money or issue senior securities, except to the extent
permitted by the 1940 Act or any rule or order thereunder or interpretation
thereof. Subject to the foregoing, each Fund may engage in short sales, purchase
securities on margin, and write put and call options.
5. Purchase or sell physical commodities or physical commodity
contracts, including physical commodity option or futures contracts in a
contract market or other futures market.
6. Purchase or sell real estate; provided that the Fund may invest in
securities secured by real estate or interests therein or issued by companies
which invest in real estate or interests therein.
7. Invest for the purpose of acquiring control of any company. This
policy will not prohibit acquisition of a controlling interest in a Delaware
Investments fund.
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<PAGE>
8. Invest in securities of other investment companies, except in
accordance with the provisions of the 1940 Act in effect at the time of the
investment or any rules, regulations, SEC orders or staff positions thereunder.
9. Invest in interests in oil, gas and other mineral leases or other
mineral exploration or development programs.
10. Purchase securities on margin except short-term credits that may be
necessary for the clearance of purchases and sales of securities. This
restriction does not apply to the purchase of futures or options contracts.
INVESTMENT POLICIES AND OTHER INVESTMENTS - Income Portfolio, Balanced Portfolio
and Growth Portfolio
The Funds will invest primarily in open-end investment companies
(mutual funds) that are members of the Delaware Investments Family of Funds
(individually, a "Delaware Investments fund" and collectively, the "Delaware
Investments funds") listed below. Pursuant to an Order received from the SEC on
April 6, 1998, the Portfolios may, to the extent consistent with their
respective investment objectives, invest directly in the same securities and
employ the same investment strategies as any of the Underlying Funds, to the
extent consistent with each Fund's investment objective stated in the
Prospectuses.
The Delaware Investments funds include funds investing in U.S. and
foreign stocks, bonds, and money market instruments. The list of Delaware
Investments funds set forth below may change from time to time, and Delaware
Investments funds may be added or deleted upon the recommendation of the
Delaware Management Company (the "Manager") without shareholder approval.
Delaware Investments funds available to the Income Portfolio, Balanced
Portfolio, and Growth Portfolio
<TABLE>
<CAPTION>
<S> <C>
U.S. Equities
Delaware Blue Chip Fund Delaware Small Cap Value Fund
Delaware DelCap Fund Delaware Trend Fund
Delaware Diversified Growth Fund Delaware U.S. Growth Fund
Delaware Diversified Value Fund Delaware REIT Fund
Delaware Select Growth Fund Delaware Research Fund
International Equities
Delaware Emerging Markets Fund Delaware International Small-Cap Fund
Delaware International Equity Fund Delaware New Pacific Fund
Fixed-Income Securities
Delaware American Government Bond Fund Delaware Extended Duration Bond Fund.
Delaware Delchester Fund Delaware Global Bond Fund
Delaware Corporate Bond Fund Delaware Limited-Term Government Fund
Delaware High-Yield Opportunities Fund
Money Market Securities
Delaware Cash Reserve Fund
</TABLE>
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<PAGE>
The following investment policies relate to the Delaware Investments
funds, consistent with each fund's investment objective as described in the
Prospectuses. In addition, each Fund may engage in these investment instruments
and strategies directly pursuant to an order that the Trust received from the
SEC.
U.S. Government Securities
Securities issued or guaranteed by the U.S. government or its agencies
or instrumentalities ("Government Securities") in which the Delaware Investments
funds may invest include debt obligations of varying maturities issued by the
U.S. Treasury or issued or guaranteed by an agency or instrumentality of the
U.S. government, including the Federal Housing Administration, Farmers Home
Administration, Export-Import Bank of the United States, Small Business
Administration, Government National Mortgage Association, General Services
Administration, Central Bank for Cooperatives, Federal Farm Credit Banks,
Federal Home Loan Banks, Federal Home Loan Mortgage Corporation, Federal
Intermediate Credit Banks, Federal Land Banks, Fannie Mae, Maritime
Administration, Tennessee Valley Authority, District of Columbia Armory Board,
Student Loan Marketing Association and Resolution Trust Corporation. Direct
obligations of the United States Treasury include a variety of securities that
differ in their interest rates, maturities and dates of issuance. Because the
U.S. government is not obligated by law to provide support to an instrumentality
that it sponsors, each Delaware Investments fund invests in obligations issued
by an instrumentality of the U.S. government only if its investment manager
determines that the instrumentality's credit risk does not make its securities
unsuitable for investment by a Delaware Investments fund.
Money Market Instruments
Money market instruments in which the Delaware Investments funds may
invest include U.S. government securities; certificates of deposit, time
deposits and bankers' acceptances issued by domestic banks (including their
branches located outside the U.S. and subsidiaries located in Canada), domestic
branches of foreign banks, savings and loan associations and similar
institutions; high grade commercial paper; and repurchase agreements with
respect to the foregoing types of instruments.
Certain types of money market instruments are described below.
U.S. Government Securities--Securities issued or guaranteed by the U.S.
government, including Treasury Bills, Notes and Bonds.
U.S. Government Agency Securities--Obligations issued or guaranteed by
agencies or instrumentalities of the U.S. government whether supported by the
full faith and credit of the U.S. Treasury or the credit of a particular agency
or instrumentality.
Bank Obligations--Certificates of deposit, bankers' acceptances and
other short-term obligations of U.S. commercial banks and their overseas
branches and foreign banks of comparable quality, provided each such bank
combined with its branches has total assets of at least one billion dollars. Any
obligations of foreign banks shall be denominated in U.S. dollars. Obligations
of foreign banks and obligations of overseas branches of U.S. banks are subject
to somewhat different regulations and risks than those of U.S. domestic banks.
In particular, a foreign country could impose exchange controls which might
delay the release of proceeds from that country. Such deposits are not covered
by the Federal Deposit Insurance Corporation. Because of conflicting laws and
regulations, an issuing bank could maintain that liability for an investment is
solely that of the overseas branch which could expose the Delaware Investments
fund to a greater risk of loss. The Delaware Investments funds will only buy
short-term instruments in nations where these risks are minimal. The Delaware
-6-
<PAGE>
Investments funds will consider these factors along with other appropriate
factors in making an investment decision to acquire such obligations and will
only acquire those which, in the opinion of management, are of an investment
quality comparable to other debt securities bought by the Delaware Investments
funds.
Commercial Paper--The Delaware Investments funds may invest in
short-term promissory notes issued by corporations which at the time of purchase
are rated P-1 and/or A-1. Commercial paper ratings P-1 by Moody's Investors
Service, Inc. ("Moody's") and A-1 by Standard & Poor's Ratings Group ("S&P") are
the highest investment grade category.
Corporate Debt--The Delaware Investments funds may invest in corporate
notes and bonds rated A or above. Excerpts from Moody's description of those
categories of bond ratings: Aaa--judged to be the best quality. They carry the
smallest degree of investment risk; Aa--judged to be of high quality by all
standards; A--possess favorable attributes and are considered "upper medium"
grade obligations.
Rule 144A Securities
The Delaware Investments funds may invest in restricted securities,
including unregistered securities eligible for resale without registration
pursuant to Rule 144A ("Rule 144A Securities") under the 1933 Act. Rule 144A
Securities may be freely traded among qualified institutional investors without
registration under the 1933 Act.
Investing in Rule 144A Securities could have the effect of increasing
the level of a Delaware Investments fund's illiquidity to the extent that
qualified institutional buyers become, for a time, uninterested in purchasing
these securities. After the purchase of a Rule 144A Security, however, the
directors/trustees of a Delaware Investments fund and its investment manager
will continue to monitor the liquidity of that security to ensure that a
Delaware Investments fund's holdings of illiquid securities does not exceed its
limit on investments in such securities.
Repurchase Agreements
A repurchase agreement is a short-term investment by which the
purchaser acquires ownership of a debt security and the seller agrees to
repurchase the obligation at a future time and set price, thereby determining
the yield during the purchaser's holding period. Should an issuer of a
repurchase agreement fail to repurchase the underlying security, the loss to the
Delaware Investments funds, if any, would be the difference between the
repurchase price and the market value of the security. A Delaware Investments
fund will limit its investments in repurchase agreements to those which the
respective investment manager, under the guidelines of the Board of
Directors/Trustees of such Delaware Investments fund, determines to present
minimal credit risks and which are of high quality. In addition, each Delaware
Investments fund must have collateral of at least 102% of the repurchase price,
including the portion representing a Delaware Investments fund's yield under
such agreements which is monitored on a daily basis. While the Delaware
Investments funds are permitted to do so, they normally do not invest in
repurchase agreements, except to invest cash balances.
The funds available from the Delaware Investments family have obtained
an exemption from the joint-transaction prohibitions of Section 17(d) of the
1940 Act to allow the funds in the Delaware Investments family jointly to invest
cash balances. The Delaware Investments 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.
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<PAGE>
Reverse Repurchase Agreements
Certain Delaware Investments funds are authorized to enter into reverse
repurchase agreements. A reverse repurchase agreement is the sale of a security
by a Delaware Investments fund and its agreement to repurchase the security at a
specified time and price. A Delaware Investments fund will maintain in a
segregated account with the Custodian cash, cash equivalents or U.S. government
securities in an amount sufficient to cover its obligations under reverse
repurchase agreements with broker/dealers (but no collateral is required on
reverse repurchase agreements with banks). Under the 1940 Act, reverse
repurchase agreements may be considered borrowings by a Delaware Investments
fund; accordingly, a Delaware Investments fund will limit its investments in
reverse repurchase agreements, together with any other borrowings, to no more
than one-third of its total assets. The use of reverse repurchase agreements by
a Delaware Investments fund creates leverage which increases the Delaware
Investments fund's investment risk. If the income and gains on securities
purchased with the proceeds of reverse repurchase agreements exceed the costs of
the agreements, a Delaware Investments fund's earnings or net asset value will
increase faster than otherwise would be the case; conversely, if the income and
gains fail to exceed the costs, earnings or net asset value would decline faster
than otherwise would be the case.
Portfolio Loan Transactions
It is the understanding of the respective investment manager that the
staff of the SEC permits portfolio lending by registered investment companies if
certain conditions are met. These conditions are as follows: 1) each transaction
must have 100% collateral in the form of cash, short-term U.S. government
securities, or irrevocable letters of credit payable by banks acceptable to a
Delaware Investments fund involved from the borrower; 2) this collateral must be
valued daily and should the market value of the loaned securities increase, the
borrower must furnish additional collateral to the Delaware Investments fund
involved; 3) the Delaware Investments fund must be able to terminate the loan
after notice, at any time; 4) the Delaware Investments fund must receive
reasonable interest on any loan, and any dividends, interest or other
distributions on the lent securities, and any increase in the market value of
such securities; 5) the Delaware Investments fund may pay reasonable custodian
fees in connection with the loan; and 6) the voting rights on the lent
securities may pass to the borrower; however, if the Board of Directors/Trustees
of the Delaware Investments funds know that a material event will occur
affecting an investment loan, they must either terminate the loan in order to
vote the proxy or enter into an alternative arrangement with the borrower to
enable the directors to vote the proxy.
The major risk to which a Delaware Investments fund would be exposed on
a portfolio loan transaction is the risk that the borrower would go bankrupt at
a time when the value of the security goes up. Therefore, a Delaware Investments
fund will only enter into loan arrangements after a review of all pertinent
facts by the respective investment manager, under the supervision of the Board
of Trustees, including the creditworthiness of the borrowing broker, dealer or
institution and then only if the consideration to be received from such loans
would justify the risk. Creditworthiness will be monitored on an ongoing basis
by the respective investment manager.
High-Yield Securities
Certain Delaware Investments funds may invest in, high risk, high yield
securities, commonly known as "junk bonds." These securities entail the
following risks:
Volatility of the High-Yield Market. Although the market for high-yield
bonds has been in existence for many years, including periods of economic
downturns, the high-yield market grew rapidly during the long economic expansion
which took place in the United States during the 1980s. During that economic
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expansion, the use of high-yield debt securities to fund highly leveraged
corporate acquisitions and restructurings increased dramatically. As a result,
the high-yield market grew substantially during that economic expansion.
Although experts disagree on the impact recessionary periods have had and will
have on the high-yield market, some analysts believe a protracted economic
downturn would severely disrupt the market for high-yield bonds, would adversely
affect the value of outstanding bonds and would adversely affect the ability of
high-yield issuers to repay principal and interest. Those analysts cite
volatility experienced in the high-yield market in the past as evidence for
their position. It is likely that protracted periods of economic uncertainty
would result in increased volatility in the market prices of high-yield bonds,
an increase in the number of high-yield bond defaults and corresponding
volatility in a Delaware Investments Fund's net asset value. At times in the
past, uncertainty and volatility in the high-yield market resulted in volatility
in certain Delaware Investments Funds' net asset value.
Redemptions. If, as a result of volatility in the high-yield market or
other factors, a Delaware Investments Fund experiences substantial net
redemptions of its shares for a sustained period of time (i.e., more shares are
redeemed than are purchased), it may be required to sell securities without
regard to the investment merits of the securities to be sold. If such Underlying
Fund sells a substantial number of securities to generate proceeds for
redemptions, its asset base will decrease and its expense ratio may increase.
Liquidity and Valuation. The secondary market for high-yield securities
is currently dominated by institutional investors, including mutual funds and
certain financial institutions. There is generally no established retail
secondary market for high-yield securities. As a result, the secondary market
for high-yield securities is more limited and less liquid than other secondary
securities markets. The high-yield secondary market is particularly susceptible
to liquidity problems when the institutions which dominate it temporarily cease
buying bonds for regulatory, financial or other reasons, such as the savings and
loan crisis. A less liquid secondary market may have an adverse affect on an
Underlying Fund's ability to dispose of particular issues, when necessary, to
meet it's liquidity needs or in response to a specific economic event, such as
the deterioration in the creditworthiness of the issuer. In addition, a less
liquid secondary market makes it more difficult for the Fund to obtain precise
valuations of the high-yield securities in its portfolio. During periods
involving such liquidity problems, judgment plays a greater role in valuing
high-yield securities than is normally the case. The secondary market for
high-yield securities is also generally considered to be more likely to be
disrupted by adverse publicity and investor perceptions than the more
established secondary securities markets. Such Underlying Fund's privately
placed high-yield securities are particularly susceptible to the liquidity and
valuation risks outlined above.
Legislative and Regulatory Action and Proposals. There are a variety of
legislative actions which have been taken or which are considered from time to
time by the United States Congress that could adversely affect the market for
high-yield bonds. For example, Congressional legislation limited the
deductibility of interest paid on certain high-yield bonds used to finance
corporate acquisitions. Also, Congressional legislation has, with some
exceptions, generally prohibited federally-insured savings and loan institutions
from investing in high-yield securities. Regulatory actions have also affected
the high-yield market. For example, many insurance companies have restricted or
eliminated their purchases of high-yield bonds as a result of, among other
factors, actions taken by the National Association of Insurance Commissioners.
If similar legislative and regulatory actions are taken in the future, they
could result in further tightening of the secondary market for high-yield
issues, could reduce the number of new high-yield securities being issued and
could make it more difficult for a Portfolio to attain its investment objective.
Zero-Coupon Bonds and Pay-in-Kind Bonds. Certain Delaware Investments
funds may invest in zero-coupon bonds or pay-in-kind ("PIK) bonds. Zero-coupon
bonds and PIK bonds are generally considered to be more interest-sensitive than
income-bearing bonds, to be more speculative than interest-bearing bonds, and to
have certain tax consequences which could, under certain circumstances, be
adverse to a Delaware Investments fund. For example, a Delaware Investments Fund
accrues, and is required to distribute to shareholders, income on its
zero-coupon bonds. However, a Delaware Investments Fund may not receive the cash
associated with this income until
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the bonds are sold or mature. If a Delaware Investments Fund did not have
sufficient cash to make the required distribution of accrued income, then it
could be required to sell other securities in its portfolio or to borrow to
generate the cash required.
Investment Company Securities
Any investments that certain Delaware Investments funds make in either
closed-end or open-end investment companies will be limited by the 1940 Act, and
would involve an indirect payment of a portion of the expenses, including
advisory fees, of such other investment companies. Under the 1940 Act's current
limitations, a Delaware Investments fund may not (1) own more than 3% of the
voting stock of another investment company; (2) invest more than 5% of the
Delaware Investments fund's total assets in the shares of any one investment
company; nor (3) invest more than 10% of the Delaware Investments fund's total
assets in shares of other investment companies. If a Delaware Investments fund
elects to limit its investment in other investment companies to closed-end
investment companies, the 3% limitation described above is increased to 10%.
These percentage limitations also apply to and Delaware Investments fund's
investments in unregistered investment companies. The Delaware Investments funds
may not acquire securities of registered open-end investment companies or
registered unit investment trusts in reliance on sections 12(d)(1)(F) or (G) of
the 1940 Act.
Small to Medium-Sized Companies
Certain Delaware Investments Funds invest their assets in equity
securities of small to medium-sized companies. These stocks have historically
been more volatile in price than larger capitalization stocks, such as those
included in the S&P 500. This is because, among other things, smaller companies
have a lower degree of liquidity and tend to have a greater sensitivity to
changing economic conditions. These companies may have narrow product lines,
markets or financial resources, or may depend on a limited management group. The
companies' securities may trade less frequently and have a smaller trading
volume. The securities may be traded only in the over-the-counter markets or on
a regional securities exchange. In addition to exhibiting greater volatility,
smaller capitalization securities may, to some degree, fluctuate independently
of the stocks of larger capitalization companies. For example, the stocks of
smaller capitalization companies may decline in price as the price of larger
company stocks rise, or vice versa.
Unseasoned Companies
Certain Delaware Investments funds may invest in relatively new or
unseasoned companies which are in their early stages of development, or small
companies positioned in new and emerging industries where the opportunity for
rapid growth is expected to be above average. Securities of unseasoned companies
present greater risks than securities of larger, more established companies. The
companies in which a Delaware Investments fund may invest may have relatively
small revenues, limited product lines, and may have a small share of the market
for their products or services. Small companies may lack depth of management,
they may be unable to internally generate funds necessary for growth or
potential development or to generate such funds through external financing or
favorable terms, or they may be developing or marketing new products or services
for which markets are not yet established and may never become established. Due
to these and other factors, small companies may suffer significant losses as
well as realize substantial growth, and investments in such companies tend to be
volatile and are therefore speculative.
Mortgage-Backed Securities
In addition to mortgage-backed securities issued or guaranteed by the
U.S. government, its agencies or instrumentalities, certain Delaware Investments
funds may also invest its assets in securities issued by certain private,
nongovernment corporations, such as financial institutions, if the securities
are fully collateralized at the
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time of issuance by securities or certificates issued or guaranteed by the U.S.
government, its agencies or instrumentalities. Two principal types of
mortgage-backed securities are collateralized mortgage obligations (CMOs) and
real estate mortgage investment conduits (REMICs).
CMOs are debt securities issued by U.S. government agencies or by
financial institutions and other mortgage lenders and collateralized by a pool
of mortgages held under an indenture. CMOs are issued in a number of classes or
series with different maturities. The classes or series are retired in sequence
as the underlying mortgages are repaid. Prepayment may shorten the stated
maturity of the obligation and can result in a loss of premium, if any has been
paid. Certain of these securities may have variable or floating interest rates
and others may be stripped (securities which provide only the principal or
interest feature of the underlying security).
Stripped mortgage securities are usually structured with two classes
that receive different proportions of the interest and principal distributions
on a pool of mortgage assets. A common type of stripped mortgage security will
have one class receiving some of the interest and most of the principal from the
mortgage assets, while the other class will receive most of the interest and the
remainder of the principal. In the most extreme case, one class will receive all
of the interest (the "interest-only" class), while the other class will receive
all of the principal (the "principal-only" class). The yield to maturity on an
interest-only class is extremely sensitive not only to changes in prevailing
interest rates but also to the rate of principal payments (including
prepayments) on the related underlying mortgage assets, and a rapid rate of
principal payments may have a material adverse effect on a Delaware Investments
fund's yield to maturity. If the underlying mortgage assets experience greater
than anticipated prepayments of principal, a Delaware Investments fund may fail
to fully recoup its initial investment in these securities even if the
securities are rated in the highest rating categories.
Although stripped mortgage securities are purchased and sold by
institutional investors through several investment banking firms acting as
brokers or dealers, these securities were only recently developed. As a result,
established trading markets have not yet been fully developed and, accordingly,
these securities are generally illiquid and to such extent, together with any
other illiquid investments, will not exceed its limit in such securities.
REMICs, which were authorized under the Tax Reform Act of 1986, are
private entities formed for the purpose of holding a fixed pool of mortgages
secured by an interest in real property. REMICs are similar to CMOs in that they
issue multiple classes of securities and certain REMICs also may be stripped.
CMOs and REMICs issued by private entities are not government
securities and are not directly guaranteed by any government agency. They are
secured by the underlying collateral of the private issuer. Certain Delaware
Investments funds will invest in such private-backed securities only if they are
100% collateralized at the time of issuance by securities issued or guaranteed
by the U.S. government, its agencies or instrumentalities.
Mortgage Dollar Rolls
Certain Delaware Investments funds may enter into mortgage "dollar
rolls" in which the Delaware Investments fund sells mortgage-backed securities
for delivery in the current month and simultaneously contracts to repurchase
substantially similar (same type, coupon and maturity) securities on a specified
future date. Dollar roll transactions consist of the sale by a Fund of
mortgage-backed securities, together with a commitment to purchase similar, but
not necessarily identical, securities at a future date. Any difference between
the sale price and the purchase price is netted against the interest income
foregone on the securities to
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arrive at an implied borrowing (reverse repurchase) rate. Alternatively, the
sale and purchase transactions which constitute the dollar roll can be executed
at the same price, with a Delaware Investments fund being paid a fee as
consideration for entering into the commitment to purchase. Dollar rolls may be
renewed prior to cash settlement and initially may involve only a firm
commitment agreement by a Delaware Investments fund to buy a security. If the
broker/dealer to whom a Delaware Investments fund sells the security becomes
insolvent, such Delaware Investments fund's right to purchase or repurchase the
security may be restricted; the value of the security may change adversely over
the term of the dollar roll; the security that a Delaware Investments fund is
required to repurchase may be worth less than the security that the Delaware
Investments fund originally held, and the return earned by the Delaware
Investments fund with the proceeds of a dollar roll may not exceed transaction
costs. The Delaware Investments fund will place U.S. government or other liquid,
high quality assets in a segregated account in an amount sufficient to cover its
repurchase obligation.
Asset-Backed Securities
Certain Delaware Investments funds may invest a portion of its assets
in asset-backed securities. The rate of principal payment on asset-backed
securities generally depends on the rate of principal payments received on the
underlying assets. Such rate of payments may be affected by economic and various
other factors such as changes in interest rates or, in the case of certain
Delaware Investments funds, the concentration of collateral in a particular
geographic area. Therefore, the yield may be difficult to predict and actual
yield to maturity may be more or less than the anticipated yield to maturity.
The credit quality of most asset-backed securities depends primarily on the
credit quality of the assets underlying such securities, how well the entities
issuing the securities are insulated from the credit risk of the originator or
affiliated entities, and the amount of credit support provided to the
securities.
Asset-backed securities are often backed by a pool of assets
representing the obligations of a number of different parties. To lessen the
effect of failures by obligors on underlying assets to make payments, such
securities may contain elements of credit support. Such credit support falls
into two categories: (i) liquidity protection, and (ii) protection against
losses resulting from ultimate default by an obligor on the underlying assets.
Liquidity protection refers to the provision of advances, generally by the
entity administering the pool of assets, to ensure that the receipt of payments
due on the underlying pool is timely. Protection against losses resulting from
ultimate default enhances the likelihood of payments of the obligations on at
least some of the assets in the pool. Such protection may be provided through
guarantees, insurance policies or letters of credit obtained by the issuer or
sponsor from third parties, through various means of structuring the transaction
or through a combination of such approaches. The Delaware Investments funds will
not pay any additional fees for such credit support, although the existence of
credit support may increase the price of a security.
Examples of credit support arising out of the structure of the
transaction include "senior-subordinated securities" (multiple class securities
with one or more classes subordinate to other classes as to the payment of
principal thereof and interest thereon, with the result that defaults on the
underlying assets are borne first by the holders of the subordinated class),
creation of "reserve funds" (where cash or investments, sometimes funded from a
portion of the payments on the underlying assets, are held in reserve against
future losses) and "over collateralization" (where the scheduled payments on, or
the principal amount of, the underlying assets exceeds that required to make
payments of the securities and pay any servicing or other fees). The degree of
credit support provided for each issue is generally based on historical
information respecting the level of credit information and respecting the level
of credit risk associated with the underlying assets. Delinquencies or losses in
excess of those anticipated could adversely affect the return on an investment
in such issue.
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Convertible Securities
Certain Delaware Investments funds may invest in convertible
securities, including corporate debentures, bonds, notes and preferred stocks
that may be converted into or exchanged for common stock. While providing a
fixed-income stream (generally higher in yield than the income derivable from a
common stock but lower than that afforded by a non-convertible debt security), a
convertible security also affords the investor an opportunity, through its
conversion feature, to participate in the capital appreciation of the common
stock into which it is convertible. As the market price of the underlying common
stock declines, convertible securities tend to trade increasingly on a yield
basis and so may not experience market declines to the same extent as the
underlying common stock. When the market price of the underlying common stock
increases, the price of a convertible security tends to rise as a reflection of
the value of the underlying common stock. To obtain such a higher yield, a
Delaware Investments fund may be required to pay for a convertible security an
amount in excess of the value of the underlying common stock. Common stock
acquired by a Delaware Investments fund upon conversion of a convertible
security will generally be held for so long as the respective manager
anticipates such stock will provide a Delaware Investments fund with
opportunities which are consistent with a Delaware Investments fund's investment
objectives and policies.
A Delaware Investments fund may invest not more than 5% of its assets
in convertible debentures that are rated below investment grade or are unrated
but are determined by its investment manager to be of comparable quality.
Investing in convertible debentures that are rated below investment grade or
unrated but of comparable quality entails certain risks, including the risk of
loss of principal, which may be greater than the risks involved in investing in
investment grade convertible debentures. Under rating agency guidelines, lower
rated securities and comparable unrated securities will likely have some quality
and protective characteristics that are outweighed by large uncertainties or
major risk exposures to adverse conditions.
A Delaware Investments fund may have difficulty disposing of such lower
rated convertible debentures because the trading market for such securities may
be thinner than the market for higher rated convertible debentures. To the
extent a secondary trading market for these securities does exist, it generally
is not as liquid as the secondary trading market for higher rated securities.
The lack of a liquid secondary market as well as adverse publicity with respect
to these securities, may have an adverse impact on market price and a Delaware
Investments fund's ability to dispose of particular issues in response to a
specific economic event such as a deterioration in the creditworthiness of the
issuer. The lack of a liquid secondary market for certain securities also may
make it more difficult for a Delaware Investments fund to obtain accurate market
quotations for purposes of pricing such Delaware Investments fund's portfolio
and calculating its net asset value. The market behavior of convertible
securities in lower rating categories is often more volatile than that of higher
quality securities. Lower quality convertible securities are judged by Moody's
and S&P to have speculative elements or characteristics; their future cannot be
considered as well assured and earnings and asset protection may be moderate or
poor in comparison to investment grade securities.
In addition, such lower quality securities face major ongoing
uncertainties or exposure to adverse business, financial or economic conditions,
which could lead to inadequate capacity to meet timely payments. The market
values of securities rated below investment grade tend to be more sensitive to
company specific developments and changes in economic conditions than higher
rated securities. Issuers of these securities are often highly leveraged, so
that their ability to service their debt obligations during an economic downturn
or during sustained periods of rising interest rates may be impaired. In
addition, such issuers may not have more traditional methods of financing
available to them, and may be unable to repay debt at maturity by refinancing.
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Certain Delaware Investments funds may invest in convertible preferred
stocks that offer enhanced yield features, such as Preferred Equity Redemption
Cumulative Stock ("PERCS"), which provide an investor with the opportunity to
earn higher dividend income than is available on a company's common stock. A
PERCS is a preferred stock which generally features a mandatory conversion date,
as well as a capital appreciation limit which is usually expressed in terms of a
stated price. Upon the conversion date, most PERCS convert into common stock of
the issuer (PERCS are generally not convertible into cash at maturity). Under a
typical arrangement, if after a predetermined number of years the issuer's
common stock is trading at a price below that set by the capital appreciation
limit, each PERCS would convert to one share of common stock. If, however, the
issuer's common stock is trading at a price above that set by the capital
appreciation limit, the holder of the PERCS would receive less than one full
share of common stock. The amount of that fractional share of common stock
received by the PERCS holder is determined by dividing the price set by the
capital appreciation limit of the PERCS by the market price of the issuer's
common stock. PERCS can be called at any time prior to maturity, and hence do
not provide call protection. However, if called early, the issuer may pay a call
premium over the market price to the investor. This call premium declines at a
preset rate daily, up to the maturity date of the PERCS.
Certain Delaware Investments Funds may also invest in other enhanced
convertible securities. These include but are not limited to ACES (Automatically
Convertible Equity Securities), PEPS (Participating Equity Preferred Stock),
PRIDES (Preferred Redeemable Increased Dividend Equity Securities), SAILS (Stock
Appreciation Income Linked Securities), TECONS (Term Convertible Notes), QICS
(Quarterly Income Cumulative Securities) and DECS (Dividend Enhanced Convertible
Securities). ACES, PEPS, PRIDES, SAILS, TECONS, QICS and DECS generally have the
following features: they are company-issued convertible preferred stock; unlike
PERCS, they do not have capital appreciation limits; they seek to provide the
investor with high current income, with some prospect of future capital
appreciation; they are typically issued with three to four-year maturities; they
typically have some built-in call protection for the first two to three years;
investors have the right to convert them into shares of common stock at a preset
conversion ratio or hold them until maturity; and upon maturity, they will
automatically convert to either cash or a specified number of shares of common
stock.
When-Issued and Delayed Delivery Securities
Certain Delaware Investments funds may purchase securities on a
when-issued or delayed delivery basis. In such transactions, instruments are
purchased with payment and delivery taking place in the future in order to
secure what is considered to be an advantageous yield or price at the time of
the transaction. Delivery of and payment for these securities may take as long
as a month or more after the date of the purchase commitment. A Delaware
Investments Fund will designate cash or securities in amounts sufficient to
cover its obligations, and will value the designated assets daily. The payment
obligation and the interest rates that will be received are each fixed at the
time a Delaware Investments fund enters into the commitment and no interest
accrues to such Delaware Investments fund until settlement. Thus, it is possible
that the market value at the time of settlement could be higher or lower than
the purchase price if the general level of interest rates has changed.
Combined Transactions
Certain Delaware Investments funds may enter into multiple
transactions, including multiple options transactions, multiple futures
transactions, multiple currency transactions (including forward currency
contracts) and multiple interest rate transactions and any combination of
futures, options, currency and interest rate transactions ("component
transactions"), instead of a single transaction, as part of a single or combined
strategy when, in the opinion of the investment manager, it is in the best
interests of a Delaware Investments fund to do so. A combined transaction will
usually contain elements of risk that are present in each of its component
transactions. Although combined transactions are normally entered into based on
the investment manager's judgment that the combined strategies will reduce risk
or otherwise more effectively achieve the desired
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portfolio management goal, it is possible that the combination will instead
increase such risks or hinder achievement of the portfolio management objective.
Swaps, Caps, Floors and Collars
Certain Delaware Investments funds may enter into interest rate,
currency and index swaps and the purchase or sale of related caps, floors and
collars. The Delaware Investments funds expect to enter into these transactions
primarily to preserve a return or spread on a particular investment or portion
of its portfolio, to protect against currency fluctuations, as a duration
management technique or to protect against any increase in the price of
securities a Delaware Investments fund anticipates purchasing at a later date.
The Delaware Investments funds intend to use these transactions as hedges and
not speculative investments and will not sell interest rate caps or floors where
it does not own securities or other instruments providing the income stream a
Delaware Investments fund may be obligated to pay. Interest rate swaps involve
the exchange by a Delaware Investments fund with another party of their
respective commitments to pay or receive interest, e.g., an exchange of floating
rate payments for fixed rate payments with respect to a nominal amount of
principal. A currency swap is an agreement to exchange cash flows on a notional
amount of two or more currencies based on the relative value differential among
them and an index swap is an agreement to swap cash flows on a notional amount
based on changes in the values of the reference indices. The purchase of a cap
entitles the purchaser to receive payments on a notional principal amount from
the party selling such cap to the extent that a specified index exceeds a
predetermined interest rate or amount. The purchase of a floor entitles the
purchaser to receive payments on a notional principal amount from the party
selling such floor to the extent that a specified index falls below a
predetermined interest rate or amount. A collar is a combination of a cap and a
floor that preserves a certain return within a predetermined range of interest
rates or values.
A Delaware Investments fund will usually enter into swaps on a net
basis, i.e., the two payment streams are netted out in a cash settlement on the
payment date or dates specified in the instrument, with such Delaware
Investments fund receiving or paying, as the case may be, only the net amount of
the two payments. Inasmuch as these swaps, caps, floors and collars are entered
into for good faith hedging purposes, the investment managers and the Delaware
Investments funds believe such obligations do not constitute senior securities
under the 1940 Act and, accordingly, will not treat them as being subject to its
borrowing restrictions. A Delaware Investments fund will not enter into any
swap, cap, floor or collar transaction unless, at the time of entering into such
transaction, the unsecured long-term debt of the counterparty, combined with any
credit enhancements, is rated at least A by S&P or Moody's or is determined to
be of equivalent credit quality by the investment manager. If there is a default
by the counterparty, a Delaware Investments fund may have contractual remedies
pursuant to the agreements related to the transaction. The swap market has grown
substantially in recent years with a large number of banks and investment
banking firms acting both as principals and as agent utilizing standardized swap
documentation. As a result, the swap market has become relatively liquid. Caps,
floors and collars are more recent innovations for which standardized
documentation has not yet been fully developed and, accordingly, they are less
liquid than swaps.
Eurodollar Instruments
Certain Delaware Investments funds may make investments in Eurodollar
instruments. Eurodollar instruments are U.S. dollar-denominated futures
contracts or options thereon which are linked to the London Interbank Offered
Rate ("LIBOR"), although foreign currency-denominated instruments are available
from time to time. Eurodollar futures contracts enable purchasers to obtain a
fixed rate for the lending of funds and sellers to obtain a fixed rate for
borrowings. A Delaware Investments fund might use Eurodollar futures contracts
and options thereon to hedge against changes in LIBOR, to which many interest
rate swaps and fixed-income instruments are linked.
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"Roll" Transactions
Certain Delaware Investments funds may engage in "roll" transactions. A
"roll" transaction is the sale of securities together with a commitment (for
which a Delaware Investments fund may receive a fee) to purchase similar, but
not identical, securities at a future date. Under the 1940 Act, these
transactions may be considered borrowings by a Delaware Investments fund;
accordingly, a Delaware Investments fund will limit its use of these
transactions, together with any other borrowings, to no more than one-third of
its total assets. A Delaware Investments fund will segregate liquid assets such
as cash, U.S. government securities or other high grade debt obligations in an
amount sufficient to meet their payment obligations in these transactions.
Although these transactions will not be entered into for leveraging purposes, to
the extent an Underlying Fund's aggregate commitments under these transactions
exceed its holdings of cash and securities that do not fluctuate in value (such
as short-term money market instruments), a Delaware Investments fund temporarily
will be in a leveraged position (i.e., it will have an amount greater than its
net assets subject to market risk). Should the market value of a Delaware
Investments fund's portfolio securities decline while such Delaware Investments
fund is in a leveraged position, greater depreciation of its net assets would
likely occur than were it not in such a position. As a Delaware Investments
fund's aggregate commitments under these transactions increase, the opportunity
for leverage similarly increases.
Variable and Floating Rate Notes
Variable rate master demand notes, in which certain Delaware
Investments 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. A Delaware Investments
fund will not invest over 5% of its assets in variable rate master demand notes.
Because master demand notes are direct lending arrangements between a Delaware
Investments fund and the issuer, they are not normally traded. Although there is
no secondary market in the notes, a Delaware Investments 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 Delaware Investments fund will
be determined by such Delaware Investments fund's investment manager under
guidelines established by the Board of Directors/Trustees to be of comparable
quality at the time of purchase to rated instruments eligible for purchase under
a Delaware Investments fund's investment policies. In making such
determinations, the investment 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 Delaware Investments fund, such Delaware Investments 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 Delaware Investments
fund to dispose of the variable or floating rate note involved in the event the
issuer of the note defaulted on its payment obligations, and the Delaware
Investments fund could, for this or other
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reasons, suffer a loss to the extent of the default. Variable or floating rate
notes may be secured by bank letters of credit.
Variable and floating rate notes for which no readily available market
exists will be purchased in an amount which, together with securities with legal
or contractual restrictions on resale or for which no readily available market
exists (including repurchase agreements providing for settlement more than seven
days after notice), exceed 10% of a Delaware Investments fund's total assets
only if such notes are subject to a demand feature that will permit such
Delaware Investments fund to demand payment of the principal within seven days
after demand by a Delaware Investments fund. If not rated, such instruments must
be found by a Delaware Investments fund's investment manager under guidelines
established by the Board of Directors/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. For a
description of the rating symbols of S&P and Moody's used in this paragraph, see
the Prospectuses. A Delaware Investments fund may also invest in Canadian
Commercial Paper which is commercial paper issued by a Canadian corporation or a
Canadian counterpart of a U.S. corporation and in Europaper which is U.S. dollar
denominated commercial paper of a foreign issuer.
Municipal Securities
Municipal Securities are issued to obtain funds for various public
purposes, including the construction of a wide range of public facilities such
as bridges, highways, roads, schools, water and sewer works, and other
utilities. Other public purposes for which Municipal Securities may be issued
include refunding outstanding obligations, obtaining funds for general operating
expenses and obtaining funds to lend to other public institutions and
facilities. In addition, certain debt obligations known as "private activity
bonds" may be issued by or on behalf of municipalities and public authorities to
obtain funds to provide certain water, sewage and solid waste facilities,
qualified residential rental projects, certain local electric, gas and other
heating or cooling facilities, qualified hazardous waste facilities, high-speed
intercity rail facilities, government-owned airports, docks and wharves and mass
commuting facilities, certain qualified mortgages, student loan and
redevelopment bonds and bonds used for certain organizations exempt from federal
income taxation. Certain debt obligations known as "industrial development
bonds" under prior federal tax law may have been issued by or on behalf of
public authorities to obtain funds to provide certain privately-operated housing
facilities, sports facilities, industrial parks, convention or trade show
facilities, airport, mass transit, port or parking facilities, air or water
pollution control facilities, sewage or solid waste disposal facilities, and
certain facilities for water supply. Other private activity bonds and industrial
development bonds issued to finance the construction, improvement, equipment or
repair of privately-operated industrial, distribution, research, or commercial
facilities may also be Municipal Securities, but the size of such issues is
limited under current and prior federal tax law.
Information about the financial condition of issuers of Municipal
Securities may be less available than about corporations with a class of
securities registered under the Securities Exchange Act of 1934 (the "1934
Act").
Foreign Securities
Investors should recognize that investing in foreign issuers involves
certain considerations, including those set forth in the Prospectuses, which are
not typically associated with investing in United States issuers. Since the
stocks of foreign companies are frequently denominated in foreign currencies,
and since a Delaware Investments fund may temporarily hold uninvested reserves
in bank deposits in foreign currencies, a Delaware Investments fund will be
affected favorably or unfavorably by changes in currency rates and in exchange
control regulations, and may incur costs in connection with conversions between
various currencies. The
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investment policies of certain Delaware Investments funds permit it to enter
into forward foreign currency exchange contracts in order to hedge those
Delaware Investments funds' holdings and commitments against changes in the
level of future currency rates. Such contracts involve an obligation to purchase
or sell a specific currency at a future date at a price set at the time of the
contract.
There has been in the past, and there may be again in the future, an
interest equalization tax levied by the United States in connection with the
purchase of foreign securities such as those purchased by a Delaware Investments
fund. Payment of such interest equalization tax, if imposed, would reduce a
Delaware Investments fund's rate of return on its investment. Dividends paid by
foreign issuers may be subject to withholding and other foreign taxes which may
decrease the net return on such investments as compared to dividends paid to a
Delaware Investments fund by United States corporations. Special rules govern
the federal income tax treatment of certain transactions denominated in terms of
a currency other than the U.S. dollar or determined by reference to the value of
one or more currencies other than the U.S. dollar. The types of transactions
covered by the special rules generally include the following: (i) the
acquisition of, or becoming the obligor under, a bond or other debt instrument
(including, to the extent provided in Treasury Regulations, preferred stock);
(ii) the accruing of certain trade receivables and payables; and (iii) the
entering into or acquisition of any forward contract, futures contract, option
and similar financial instruments other than any "regulated futures contract" or
"nonequity option" marked to market. The disposition of a currency other than
the U.S. dollar by a U.S. taxpayer is also treated as a transaction subject to
the special currency rules. However, foreign currency-related regulated futures
contracts and nonequity options are generally not subject to the special
currency rules, if they are or would be treated as sold for their fair market
value at year-end under the marking to market rules applicable to other futures
contracts, unless an election is made to have such currency rules apply. With
respect to transactions covered by the special rules, foreign currency gain or
loss is calculated separately from any gain or loss on the underlying
transaction and is normally taxable as ordinary gain or loss. A taxpayer may
elect to treat as capital gain or loss foreign currency gain or loss arising
from certain identified forward contracts, futures contracts and options that
are capital assets in the hands of the taxpayer and which are not part of a
straddle. Certain transactions subject to the special currency rules that are
part of a "section 988 hedging transaction" (as defined in the Internal Revenue
Code of 1986, as amended, (the "Code") and the Treasury Regulations) will be
integrated and treated as a single transaction or otherwise treated consistently
for purposes of the Code. The income tax effects of integrating and treating a
transaction as a single transaction are generally to create a synthetic debt
instrument that is subject to the original discount provisions. It is
anticipated that some of the non-U.S. dollar denominated investments and foreign
currency contracts a Delaware Investments fund may make or enter into will be
subject to the special currency rules described above.
Foreign Currency Transactions
Certain Delaware Investments funds may purchase or sell currencies
and/or engage in forward foreign currency transactions in order to expedite
settlement of portfolio transactions and to minimize currency value
fluctuations.
Forward foreign currency contracts are traded in the interbank market
conducted directly between currency traders (usually large commercial banks) and
their customers. A forward contract generally has no deposit requirement, and no
commissions are charged at any stage for trades. A Delaware Investments fund
will account for forward contracts by marking to market each day at daily
exchange rates.
When a Delaware Investments fund enters into a forward contract to
sell, for a fixed amount of U.S. dollars or other appropriate currency, the
amount of foreign currency approximating the value of some or all of a Fund's
assets denominated in such foreign currency, a Delaware Investments fund's
Custodian Bank or
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subcustodian will place cash or liquid high grade debt securities in a separate
account of such Delaware Investments fund in an amount not less than the value
of such Delaware Investments fund's total assets committed to the consummation
of such forward contracts. If the additional cash or securities placed in the
separate account declines, additional cash or securities will be placed in the
account on a daily basis so that the value of the account will equal the amount
of a Delaware Investments fund's commitments with respect to such contracts.
Depositary Receipts
Certain Delaware Investments funds may make foreign investments through
the purchase and sale of sponsored or unsponsored American Depositary Receipts
("ADRs") and European and Global Depositary Receipts ("Depositary Receipts").
ADRs are receipts typically issued by a U.S. bank or trust company, while
Depositary Receipts are issued by a foreign bank or trust company. ADRs and
Depositary Receipts evidence ownership of underlying securities issued by a
foreign corporation. "Sponsored" ADRs and Depositary Receipts are issued jointly
by the issuer of the underlying security and a depository, whereas "unsponsored"
ADRs and Depositary Receipts are issued without participation of the issuer of
the deposited security. Holders of unsponsored ADRs and Depositary Receipts
generally bear all the costs of such facilities and the depository of an
unsponsored facility frequently is under no obligation to distribute shareholder
communications received from the issuer of the deposited security or to pass
through voting rights to the holders of such receipts in respect of the
deposited securities. Therefore, there may not be a correlation between
information concerning the issuer of the security and the market value of an
unsponsored ADR or Depositary Receipt.
Options
Certain Delaware Investments funds may write call options on a covered
basis only, purchase call options, write secured put options and purchase put
options, and will not engage in option writing strategies for speculative
purposes.
Certain Delaware Investments funds may invest in options that are
either listed on U.S. or recognized foreign exchanges or traded
over-the-counter. Certain over-the-counter options may be illiquid. Thus, it may
not be possible to close options positions and this may have an adverse impact
on a Delaware Investments fund's ability to effectively hedge its securities.
Covered Call Writing -- Certain Delaware Investments funds may write
covered call options from time to time on such portion of its portfolio, without
limit, as the investment manager determines is appropriate in seeking to obtain
a Delaware Investments fund's investment objective. A call option gives the
purchaser of such option the right to buy, and the writer, in this case a
Delaware Investments fund, has the obligation to sell the underlying security at
the exercise price during the option period. The advantage to a Delaware
Investments fund of writing covered calls is that the Delaware Investments fund
receives additional income, in the form of a premium, which may offset any
capital loss or decline in market value of the security. However, if the
security rises in value, a Delaware Investments fund may not fully participate
in the market appreciation.
During the option period, a covered call option writer may be assigned
an exercise notice by the broker/dealer through whom such call option was sold
requiring the writer to deliver the underlying security against payment of the
exercise price. This obligation is terminated upon the expiration of the option
period or at such earlier time in which the writer effects a closing purchase
transaction. A closing purchase transaction cannot be effected with respect to
an option once the option writer has received an exercise notice for such
option.
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With respect to both options on actual portfolio securities owned by a
Delaware Investments fund and options on stock indices, a Delaware Investments
fund may enter into closing purchase transactions. A closing purchase
transaction is one in which a Delaware Investments fund, when obligated as a
writer of an option, terminates its obligation by purchasing an option of the
same series as the option previously written.
Closing purchase transactions will ordinarily be effected to realize a
profit on an outstanding call option, to prevent an underlying security from
being called, to permit the sale of the underlying security or to enable a
Delaware Investments fund to write another call option on the underlying
security with either a different exercise price or expiration date or both. A
Delaware Investments fund may realize a net gain or loss from a closing purchase
transaction depending upon whether the net amount of the original premium
received on the call option is more or less than the cost of effecting the
closing purchase transaction. Any loss incurred in a closing purchase
transaction may be partially or entirely offset by the premium received from a
sale of a different call option on the same underlying security. Such a loss may
also be wholly or partially offset by unrealized appreciation in the market
value of the underlying security. Conversely, a gain resulting from a closing
purchase transaction could be offset in whole or in part by a decline in the
market value of the underlying security.
If a call option expires unexercised, a Delaware Investments fund will
realize a short-term capital gain in the amount of the premium on the option,
less the commission paid. Such a gain, however, may be offset by depreciation in
the market value of the underlying security during the option period. If a call
option is exercised, a Delaware Investments fund will realize a gain or loss
from the sale of the underlying security equal to the difference between the
cost of the underlying security, and the proceeds of the sale of the security
plus the amount of the premium on the option, less the commission paid.
The market value of a call option generally reflects the market price
of an underlying security. Other principal factors affecting market value
include supply and demand, interest rates, the price volatility of the
underlying security and the time remaining until the expiration date.
A Delaware Investments fund will write call options only on a covered
basis, which means that the Delaware Investments fund will own the underlying
security subject to the call option at all times during the option period.
Unless a closing purchase transaction is effected, a Delaware Investments fund
would be required to continue to hold a security which it might otherwise wish
to sell, or deliver a security it would want to hold. Options written by a
Delaware Investments fund will normally have expiration dates between one and
nine months from the date written. The exercise price of a call option may be
below, equal to or above the current market value of the underlying security at
the time the option is written.
Purchasing Call Options--Certain Delaware Investments funds may
purchase call options to the extent that premiums paid by a Delaware Investments
fund do not aggregate more than 2% of that Delaware Investments fund's total
assets. When a Delaware Investments fund purchases a call option, in return for
a premium paid by a Delaware Investments fund to the writer of the option, such
Delaware Investments fund obtains the right to buy the security underlying the
option at a specified exercise price at any time during the term of the option.
The writer of the call option, who receives the premium upon writing the option,
has the obligation, upon exercise of the option, to deliver the underlying
security against payment of the exercise price. The advantage of purchasing call
options is that a Delaware Investments fund may alter portfolio characteristics
and modify portfolio maturities without incurring the cost associated with
portfolio transactions.
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A Delaware Investments fund may, following the purchase of a call
option, liquidate its position by effecting a closing sale transaction. This is
accomplished by selling an option of the same series as the option previously
purchased. A Delaware Investments fund will realize a profit from a closing sale
transaction if the price received on the transaction is more than the premium
paid to purchase the original call option; a Delaware Investments fund will
realize a loss from a closing sale transaction if the price received on the
transaction is less than the premium paid to purchase the original call option.
Although a Delaware Investments fund will generally purchase only those
call options for which there appears to be an active secondary market, there is
no assurance that a liquid secondary market on an Exchange will exist for any
particular option, or at any particular time, and for some options no secondary
market on an Exchange may exist. In such event, it may not be possible to effect
closing transactions in particular options, with the result that a Delaware
Investments fund would have to exercise its options in order to realize any
profit and would incur brokerage commissions upon the exercise of such options
and upon the subsequent disposition of the underlying securities acquired
through the exercise of such options. Further, unless the price of the
underlying security changes sufficiently, a call option purchased by a Delaware
Investments fund may expire without any value to the Delaware Investments fund.
Writing Put Options--A Delaware Investments fund may also write put
options on a secured basis which means that such Delaware Investments 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 a Delaware Investments fund. Secured put options will generally be written in
circumstances where the investment manager wishes to purchase the underlying
security for a Delaware Investments fund's portfolio at a price lower than the
current market price of the security. In such event, the Delaware Investments
fund would write a secured put option at an exercise price which, reduced by the
premium received on the option, reflects the lower price it is willing to pay.
Following the writing of a put option, a Delaware Investments fund may
wish to terminate the obligation to buy the security underlying the option by
effecting a closing purchase transaction. This is accomplished by buying an
option of the same series as the option previously written. A Delaware
Investments fund may not, however, effect such a closing transaction after it
has been notified of the exercise of the option.
Purchasing Put Options--Certain Delaware Investments funds may invest
in put options. A Delaware Investments fund will, at all times during which it
holds a put option, own the security covered by such option.
Certain Delaware Investments funds may purchase put options in order to
protect against a decline in the market value of the underlying security below
the exercise price less the premium paid for the option ("protective puts"). The
ability to purchase put options will allow a Delaware Investments fund to
protect an unrealized gain in an appreciated security in its portfolio without
actually selling the security. If the security does not drop in value, a
Delaware Investments fund will lose the value of the premium paid. A Delaware
Investments fund may sell a put option which it has previously purchased prior
to the sale of the securities underlying such option. Such sales will result in
a net gain or loss depending on whether the amount received on the sale is more
or less than the premium and other transaction costs paid on the put option
which is sold.
A Delaware Investments fund may sell a put option purchased on
individual portfolio securities or stock indices. Additionally, a Delaware
Investments fund may enter into closing sale transactions. A closing sale
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transaction is one in which a Delaware Investments fund, when it is the holder
of an outstanding option, liquidates its position by selling an option of the
same series as the option previously purchased.
Over-the-Counter Options and Illiquid Securities -- Certain Delaware
Investments funds may deal in over-the-counter ("OTC") options. The Delaware
Investments funds understand the position of the staff of the SEC to be that
purchased OTC options and the assets used as "cover" for written OTC options are
illiquid securities. Certain Delaware Investments funds and their investment
managers disagree with this position and have found the dealers with which they
engage in OTC options transactions generally agreeable to and capable of
entering into closing transactions. The Delaware Investments funds have adopted
procedures for engaging in OTC options for the purpose of reducing any potential
adverse impact of such transactions upon the liquidity of the portfolio.
As part of these procedures certain Delaware Investments funds will
engage in OTC options transactions only with primary dealers that have been
specifically approved by the Board of Directors/Trustees, and the investment
managers believe that the approved dealers should be agreeable and able to enter
into closing transactions if necessary and, therefore, present minimal credit
risks to a Delaware Investments fund. A Delaware Investments fund anticipates
entering into written agreements with those dealers to whom such Delaware
Investments fund may sell OTC options, pursuant to which such Delaware
Investments fund would have the absolute right to repurchase the OTC options
from such dealers at any time at a price determined pursuant to a formula set
forth in certain no action letters published by the SEC staff. A Delaware
Investments fund will not engage in OTC options transactions if the amount
invested by the Delaware Investments fund in OTC options plus, with respect to
OTC options written by the Delaware Investments fund, the amounts required to be
treated as illiquid pursuant to the terms of such letters (and the value of the
assets used as cover with respect to OTC option sales which are not within the
scope of such letters), plus the amount invested by the Delaware Investments
fund in illiquid securities, would exceed 15% of the Delaware Investments fund's
total assets. OTC options on securities other than U.S. government securities
may not be within the scope of such letters and, accordingly, the amount
invested by a Delaware Investments fund in OTC options on such other securities
and the value of the assets used as cover with respect to OTC option sales
regarding such non-U.S. government securities will be treated as illiquid and
subject to the limitation on a Delaware Investments fund's net assets that may
be invested in illiquid securities.
Options on Foreign Currencies--Certain Delaware Investments funds may
purchase and write options on foreign currencies for hedging purposes in a
manner similar to that in which futures contracts on foreign currencies, or
forward contracts, will be utilized. For example, a decline in the dollar value
of a foreign currency in which portfolio securities are denominated will reduce
the dollar value of such securities, even if their value in the foreign currency
remains constant. In order to protect against such diminutions in the value of
portfolio securities, a Delaware Investments fund may purchase put options on
the foreign currency. If the value of the currency does decline, a Delaware
Investments fund will have the right to sell such currency for a fixed amount in
dollars and will thereby offset, in whole or in part, the adverse effect on its
portfolio which otherwise would have resulted.
Conversely, where a rise in the dollar value of a currency in which
securities to be acquired are denominated is projected, thereby increasing the
cost of such securities, a Delaware Investments fund may purchase call options
thereon. The purchase of such options could offset, at least partially, the
effects of the adverse movement in exchange rates. As in the case of other types
of options, however, the benefit to a Delaware Investments fund deriving from
purchases of foreign currency options will be reduced by the amount of the
premium and related transaction costs. In addition, where currency exchange
rates do not move in the
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direction or to the extent anticipated, a Delaware Investments fund could
sustain losses on transactions in foreign currency options which would require
it to forego a portion or all of the benefits of advantageous changes in such
rates.
A Delaware Investments fund may write options on foreign currencies for
the same types of hedging purposes. For example, where a Delaware Investments
fund anticipates a decline in the dollar value of foreign currency denominated
securities due to adverse fluctuations in exchange rates, it could, instead of
purchasing a put option, write a call option on the relevant currency. If the
expected decline occurs, the option will most likely not be exercised, and the
diminution in the value of portfolio securities will be offset by the amount of
the premium received.
Similarly, instead of purchasing a call option to hedge against an
anticipated increase in the dollar cost of securities to be acquired, a Delaware
Investments fund could write a put option on the relevant currency which, if
rates move in the manner projected, will expire unexercised and allow the
Delaware Investments fund to hedge such increased cost up to the amount of the
premium. As in the case of other types of options, however, the writing of a
foreign currency option will constitute only a partial hedge up to the amount of
the premium, and only if rates move in the expected direction. If this does not
occur, the option may be exercised and a Delaware Investments fund would be
required to purchase or sell the underlying currency at a loss which may not be
offset by the amount of the premium. Through the writing of options on foreign
currencies, a Delaware Investments fund also may be required to forego all or a
portion of the benefit which might otherwise have been obtained from favorable
movements in exchange rates.
Certain Delaware Investments funds intend to write covered call options
on foreign currencies. A call option written on a foreign currency by a Delaware
Investments fund is "covered" if the Delaware Investments fund owns the
underlying foreign currency covered by the call or has an absolute and immediate
right to acquire that foreign currency without additional cash consideration (or
for additional cash consideration held in a segregated account by the Custodian
Bank) upon conversion or exchange of other foreign currency held in its
portfolio. A call option is also covered if a Delaware Investments fund has a
call on the same foreign currency and in the same principal amount as the call
written where the exercise price of the call held (a) is equal to or less than
the exercise price of the call written, or (b) is greater than the exercise
price of the call written if the difference is maintained by a Delaware
Investments fund in cash, U.S. government securities or other high-grade liquid
debt securities in a segregated account with its Custodian Bank.
With respect to writing put options, at the time the put is written, a
Delaware Investments fund will establish a segregated account with its Custodian
Bank consisting of cash, U.S. government securities or other high-grade liquid
debt securities in an amount equal in value to the amount the Delaware
Investments fund will be required to pay upon exercise of the put. The account
will be maintained until the put is exercised, has expired, or a Delaware
Investments fund has purchased a closing put of the same series as the one
previously written.
In order to comply with the securities laws of one state, a Delaware
Investments fund will not write put or call options if the aggregate value of
the securities underlying the calls or obligations underlying the puts
determined as of the date the options are sold exceed 25% of the Delaware
Investments fund's net assets. Should state laws change or a Delaware
Investments fund receives a waiver of their application for, the Delaware
Investments funds reserve the right to increase this percentage.
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Options on Stock Indices--A stock index assigns relative values to the
common stocks included in the index with the index fluctuating with changes in
the market values of the underlying common stock.
Options on stock indices are similar to options on stocks but have
different delivery requirements. Stock options provide the right to take or make
delivery of the underlying stock at a specified price. A stock index option
gives the holder the right to receive a cash "exercise settlement amount" equal
to (i) the amount by which the fixed exercise price of the option exceeds (in
the case of a put) or is less than (in the case of a call) the closing value of
the underlying index on the date of exercise, multiplied by (ii) a fixed "index
multiplier." Receipt of this cash amount will depend upon the closing level of
the stock index upon which the option is based being greater than (in the case
of a call) or less than (in the case of a put) the exercise price of the option.
The amount of cash received will be equal to such difference between the closing
price of the index and exercise price of the option expressed in dollars times a
specified multiple. The writer of the option is obligated, in return for the
premium received, to make delivery of this amount. Gain or loss to a Delaware
Investments fund on transactions in stock index options will depend on price
movements in the stock market generally (or in a particular industry or segment
of the market) rather than price movements of individual securities.
As with stock options, a Delaware Investments fund may offset its
position in stock index options prior to expiration by entering into a closing
transaction on an Exchange or it may let the option expire unexercised.
A stock index fluctuates with changes in the market values of the stock
so included. Some stock index options are based on a broad market index such as
the Standard & Poor's 500 (R) Composite Stock Price Index ("S&P 500") or the New
York Stock Exchange Composite Index, or a narrower market index such as the
Standard & Poor's 100 (R) Composite Stock Price Index ("S&P 100"). Indices are
also based on an industry or market segment such as the AMEX Oil and Gas Index
or the Computer and Business Equipment Index. Options on stock indices are
currently traded on the following Exchanges among others: The Chicago Board
Options Exchange, New York Stock Exchange and American Stock Exchange.
The effectiveness of purchasing or writing stock index options as a
hedging technique will depend upon the extent to which price movements in a
Delaware Investments fund's portfolio correlate with price movements of the
stock 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 stock,
whether a Delaware Investments fund will realize a gain or loss from the
purchase or writing of options on an index depends upon movements in the level
of stock prices in the stock market generally or, in the case of certain
indices, in an industry or market segment, rather than movements in the price of
a particular stock. Since a Delaware Investments fund's portfolio will not
duplicate the components of an index, the correlation will not be exact.
Consequently, a Delaware Investments fund bears the risk that the prices of the
securities being hedged will not move in the same amount as the hedging
instrument. It is also possible that there may be a negative correlation between
the index or other securities underlying the hedging instrument and the hedged
securities which would result in a loss on both such securities and the hedging
instrument. Accordingly, successful use of options on stock indices will be
subject to the investment manager's ability to predict correctly movements in
the direction of the stock market generally or of a particular industry. This
requires different skills and techniques than predicting changes in the price of
individual stocks.
Positions in stock index options may be closed out only on an Exchange
which provides a secondary market. There can be no assurance that a liquid
secondary market will exist for any particular stock index option. Thus, it may
not be possible to close such an option. The inability to close options
positions could have an adverse impact on a Delaware Investments fund's ability
to effectively hedge its securities. A Delaware
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Investments fund will enter into an option position only if there appears to be
a liquid secondary market for such options.
The Delaware Investments funds will not engage in transactions in
options on stock indices for speculative purposes but only to protect
appreciation attained, to offset capital losses and to take advantage of the
liquidity available in the option markets.
Futures
Certain Delaware Investments funds may enter into contracts for the
purchase or sale for future delivery of securities or foreign currencies. While
futures contracts provide for the delivery of securities, deliveries usually do
not occur. Contracts are generally terminated by entering into an offsetting
transaction. When a Delaware Investments fund enters into a futures transaction,
it must deliver to the futures commission merchant selected by the Delaware
Investments fund an amount referred to as "initial margin." This amount is
maintained by the futures commission merchant in an account at a Delaware
Investments fund's Custodian Bank. Thereafter, a "variation margin" may be paid
by a Delaware Investments fund to, or drawn by the Delaware Investments fund
from, such account in accordance with controls set for such accounts, depending
upon changes in the price of the underlying securities subject to the futures
contract.
In addition, when a Delaware Investments fund engages in futures
transactions, to the extent required by the SEC, it will maintain with its
Custodian Bank, assets in a segregated account to cover its obligations with
respect to such contracts, which assets will consist of cash, cash equivalents
or high quality debt securities from its portfolio in an amount equal to the
difference between the fluctuating market value of such futures contracts and
the aggregate value of the margin payments made by the Delaware Investments fund
with respect to such futures contracts.
Certain Delaware Investments funds may enter into such futures
contracts to protect against the adverse affects of fluctuations in interest or
foreign exchange rates without actually buying or selling the securities or
foreign currency. For example, if interest rates are expected to increase, a
Delaware Investments fund might enter into futures contracts for the sale of
debt securities. Such a sale would have much the same effect as selling an
equivalent value of the debt securities owned by a Delaware Investments fund. If
interest rates did increase, the value of the debt securities in the portfolio
would decline, but the value of the futures contracts to a Delaware Investments
fund would increase at approximately the same rate, thereby keeping the net
asset value of such Delaware Investments fund from declining as much as it
otherwise would have. Similarly, when it is expected that interest rates may
decline, futures contracts may be purchased to hedge in anticipation of
subsequent purchases of securities at higher prices. Since the fluctuations in
the value of futures contracts should be similar to those of debt securities, a
Delaware Investments fund could take advantage of the anticipated rise in value
of debt securities without actually buying them until the market had stabilized.
At that time, the futures contracts could be liquidated and such Delaware
Investments fund could then buy debt securities on the cash market.
With respect to options on futures contracts, when a Delaware
Investments fund is not fully invested, it may purchase a call option on a
futures contract to hedge against a market advance due to declining interest
rates. The purchase of a call option on a futures contract is similar in some
respects to the purchase of a call option on an individual security. Depending
on the pricing of the option compared to either the price of the futures
contract upon which it is based, or the price of the underlying debt securities,
it may or may not be less risky than ownership of the futures contract or
underlying debt securities. As with the purchase of futures
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contracts, when a Delaware Investments fund is not fully invested, it may
purchase a call option on a futures contract to hedge against a market advance
due to declining interest rates.
The writing of a call option on a futures contract constitutes a
partial hedge against the declining price of the security or foreign currency
which is deliverable upon exercise of the futures contract. If the futures price
at the expiration of the option is below the exercise price, a Delaware
Investments fund will retain the full amount of the option premium which
provides a partial hedge against any decline that may have occurred in such
Delaware Investments fund's portfolio holdings. The writing of a put option on a
futures contract constitutes a partial hedge against the increasing price of the
security or foreign currency which is deliverable upon exercise of the futures
contract. If the futures price at the expiration of the option is higher than
the exercise price, a Delaware Investments fund will retain the full amount of
the option premium which provides a partial hedge against any increase in the
price of securities which such Delaware Investments fund intends to purchase.
If a put or call option a Delaware Investments fund has written is
exercised, such Delaware Investments fund will incur a loss which will be
reduced by the amount of the premium it receives. Depending on the degree of
correlation between changes in the value of its portfolio securities and changes
in the value of its futures positions, a Delaware Investments fund's losses from
existing options on futures may, to some extent, be reduced or increased by
changes in the value of portfolio securities. The purchase of a put option on a
futures contract is similar in some respects to the purchase of protective puts
on portfolio securities. For example, a Delaware Investments fund will purchase
a put option on a futures contract to hedge such Delaware Investments fund's
portfolio against the risk of rising interest rates.
To the extent that interest rates move in an unexpected direction, a
Delaware Investments fund may not achieve the anticipated benefits of futures
contracts or options on futures contracts or may realize a loss. For example, if
a Delaware Investments fund is hedged against the possibility of an increase in
interest rates which would adversely affect the price of securities held in its
portfolio and interest rates decrease instead, the Delaware Investments fund
will lose part or all of the benefit of the increased value of its securities
which it has because it will have offsetting losses in its futures position. In
addition, in such situations, if the Delaware Investments fund had insufficient
cash, it may be required to sell securities from its portfolio to meet daily
variation margin requirements. Such sales of securities may, but will not
necessarily, be at increased prices which reflect the rising market. A Delaware
Investments fund may be required to sell securities at a time when it may be
disadvantageous to do so.
Further, with respect to options on futures contracts, a Delaware
Investments fund may seek to close out an option position by writing or buying
an offsetting position covering the same securities or contracts and have the
same exercise price and expiration date. The ability to establish and close out
positions on options will be subject to the maintenance of a liquid secondary
market, which cannot be assured.
Futures Contracts and Options on Futures Contracts
Certain Delaware Investments funds may enter into futures contracts on
stocks and stock indices, purchase and sell options on such futures, and enter
into closing transactions with respect to those activities. A futures contract
may be purchased and sold only on an exchange, known as a "contract market,"
designated by the Commodity Futures Trading Commission for the trading of such
contract, and only through a registered futures commission merchant which is a
member of such contract market. A commission must be paid on each completed
purchase and sale transaction.
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When a Delaware Investments fund enters into a futures transaction, it
must deliver to the futures commission merchant selected an amount referred to
as "initial margin." This amount is maintained by the futures commission
merchant in an account at a Delaware Investments fund's custodian bank.
Thereafter, a "variation margin" may be paid by a Delaware Investments fund to,
or drawn by the Delaware Investments fund from, such account in accordance with
controls set for such accounts, depending upon changes in the price of the
underlying securities subject to the futures contract.
Although futures contracts by their terms generally call for the actual
delivery or acquisition of underlying securities or the cash value of the index,
in most cases the contractual obligation is fulfilled before the date of the
contract without having to make or take such delivery. The contractual
obligation is offset 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, as the case may be, delivery of the securities
or cash value of the index underlying the contractual obligations. At the time
such transaction is effected, a final determination of variation margin is made
and any loss experienced by a Delaware Investments fund must be paid to the
contract market clearing house while any profit due to the Delaware Investments
fund must be delivered to it.
Positions taken in futures markets are not normally held to maturity,
but instead liquidated through offsetting transactions which may result in a
profit or a loss. While a Delaware Investments fund's futures contracts on
securities will usually be liquidated in this manner, the Delaware Investments
fund may instead make or take delivery of the underlying securities whenever it
appears economically advantageous to do so. The clearing house associated with
the market on which futures on the securities are traded guarantees that, if
still open, the sale or purchase will be performed on settlement date.
A Delaware Investments fund may enter into such futures contracts to
protect against the adverse affects of fluctuations in security prices or
interest rates without actually buying or selling the securities. For example,
if interest rates are expected to increase, a Delaware Investments fund might
enter into futures contracts for the sale of debt securities. Such a sale would
have much the same effect as selling an equivalent value of the debt securities
in the portfolio owned by a Delaware Investments fund. If interest rates did
increase, the value of the debt securities in the portfolio would decline, but
the value of the futures contracts to a Delaware Investments fund would increase
at approximately the same rate, thereby keeping the net asset value of the
Delaware Investments fund from declining as much as it otherwise would have.
Similarly, when it is expected that interest rates may decline, futures
contracts may be purchased to hedge in anticipation of subsequent purchases of
securities at higher prices. Since the fluctuations in the value of futures
contracts should be similar to those of debt securities, a Delaware Investments
fund could take advantage of the anticipated rise in value of debt securities
without actually buying them until the market had stabilized. At that time, the
futures contracts could be liquidated and a Delaware Investments fund could then
buy debt securities on the cash market.
With respect to options on futures contracts, when a Delaware
Investments fund is not fully invested, it may purchase a call option on a
futures contract to hedge against a market advance due to declining interest
rates. The purchase of a call option on a futures contract is similar in some
respects to the purchase of a call option on an individual security. Depending
on the pricing of the option compared to either the price of the futures
contract upon which it is based, or the price of the underlying debt securities,
it may or may not be less risky than ownership of the futures contract or
underlying debt securities.
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The writing of a call option on a futures contract constitutes a
partial hedge against the declining price of the security which is deliverable
upon exercise of the futures contract. If the futures price at the expiration of
the option is below the exercise price, a Delaware Investments fund will retain
the full amount of the option premium which provides a partial hedge against any
decline that may have occurred in such Delaware Investments fund's portfolio
holdings. The writing of a put option on a futures contract constitutes a
partial hedge against the increasing price of the security which is deliverable
upon exercise of the futures contract. If the futures price at the expiration of
the option is higher than the exercise price, a Delaware Investments fund will
retain the full amount of the option premium which provides a partial hedge
against any increase in the price of securities which such Delaware Investments
fund intends to purchase.
Call and put options on stock index futures are similar to options on
securities except that, rather than the right to purchase or sell stock at a
specified price, options on a stock index future give the holder the right to
receive cash. Upon exercise of the option, the delivery of the futures position
by the writer of the option to the holder of the option will be accompanied by
delivery of the accumulated balance in the writer's futures margin account which
represents the amount by which the market price of the futures contract, at
exercise, exceeds, in the case of a call, or is less than, in the case of a put,
the exercise price of the futures contract. If an option is exercised on the
last trading day prior to the expiration date of the option, the settlement will
be made entirely in cash equal to the difference between the exercise price of
the option and the closing price of the futures contract on the expiration date.
If a put or call option which a Delaware Investments fund has written
is exercised, such Delaware Investments fund will incur a loss which will be
reduced by the amount of the premium it receives. Depending on the degree of
correlation between changes in the value of its portfolio securities and changes
in the value of its futures positions, a Delaware Investments fund's losses from
existing options on futures may, to some extent, be reduced or increased by
changes in the value of portfolio securities. The purchase of a put option on a
futures contract is similar in some respects to the purchase of protective puts
on portfolio securities. For example, a Delaware Investments fund will purchase
a put option on a futures contract to hedge such Delaware Investments fund's
portfolio against the risk of rising interest rates.
To the extent that interest rates move in an unexpected direction, a
Delaware Investments fund may not achieve the anticipated benefits of futures
contracts or options on futures contracts or may realize a loss. For example, if
a Delaware Investments fund is hedged against the possibility of an increase in
interest rates which would adversely affect the price of securities held in its
portfolio and interest rates decrease instead, such Delaware Investments fund
will lose part or all of the benefit of the increased value of its securities
which it has because it will have offsetting losses in its futures position. In
addition, in such situations, if a Delaware Investments fund had insufficient
cash, it may be required to sell securities from its portfolio to meet daily
variation margin requirements. Such sales of securities may, but will not
necessarily, be at increased prices which reflect the rising market. A Delaware
Investments fund may be required to sell securities at a time when it may be
disadvantageous to do so.
Further, with respect to options on futures contracts, a Delaware
Investments fund may seek to close out an option position by writing or buying
an offsetting position covering the same securities or contracts and have the
same exercise price and expiration date. The ability to establish and close out
positions on options will be subject to the maintenance of a liquid secondary
market, which cannot be assured.
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Short Sales Against the Box
Whereas a short sale is the sale of a security a Delaware Investments
fund does not own, a short sale is "against the box" if at all times during
which the short position is open, such Delaware Investments fund owns at least
an equal amount of the securities or securities convertible into, or
exchangeable without further consideration for, securities of the same issue as
the securities sold short. Short sales against the box are typically used by
sophisticated investors to defer recognition of capital gains or losses.
Forward Foreign Currency Exchange Contracts
The Delaware Investments funds' dealings in forward contracts will be
limited to hedging involving either specific transactions or portfolio
positions. Transaction hedging is the purchase or sale of forward contracts with
respect to specific receivables or payables of a Delaware Investments fund
generally arising in connection with the purchase or sale of its portfolio
securities and accruals of interest or dividends receivable and fund expenses.
Position hedging is the sale of a foreign currency with respect to portfolio
security positions denominated or quoted in that currency. A Delaware
Investments fund may not position hedge with respect to a particular currency
for an amount greater than the aggregate market value (determined at the time of
making any sale of a forward contract) of securities held in its portfolio
denominated or quoted in, or currently convertible into, such currency.
When a Delaware Investments fund enters into a contract for the
purchase or sale of a security denominated in a foreign currency, or when a
Delaware Investments fund anticipates the receipt in a foreign currency of
dividends or interest payments on a security which it holds, such Delaware
Investments fund may desire to "lock in" the U.S. dollar price of the security
or the U.S. dollar equivalent of such dividend or interest payment as the case
may be. By entering into a forward contract for a fixed amount of dollars for
the purchase or sale of the amount of foreign currency involved in the
underlying transactions, a Delaware Investments fund will be able to protect
itself against a possible loss resulting from an adverse change in the
relationship between the U.S. dollar and the subject foreign currency during the
period between the date on which the security is purchased or sold, or on which
the dividend or interest payment is declared, and the date on which such
payments are made or received.
Additionally, when the investment adviser believes that the currency of
a particular foreign country may suffer a substantial decline against the U.S.
dollar, a Delaware Investments fund may enter into a forward contract for a
fixed amount of dollars, to sell the amount of foreign currency approximating
the value of some or all of the securities of the Delaware Investments fund
denominated in such foreign currency.
Certain Delaware Investments funds may use currency forward contracts
to manage currency risks and to facilitate transactions in foreign securities.
The following discussion summarizes the principal currency management strategies
involving forward contracts that could be used by these Funds.
In connection with purchases and sales of securities denominated in
foreign currencies, a Delaware Investments fund may enter into currency forward
contracts to fix a definite price for the purchase or sale in advance of the
trade's settlement date. This technique is sometimes referred to as a
"settlement hedge" or "transaction hedge." The investment manager expects to
enter into settlement hedges in the normal course of managing the Delaware
Investments funds' foreign investments. The Delaware Investments funds could
also enter into forward contracts to purchase or sell a foreign currency in
anticipation of future purchases or sales of securities denominated in foreign
currency, even if the specific investments have not yet been selected by the
investment manager.
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Certain Delaware Investments funds may also use forward contracts to
hedge against a decline in the value of existing investments denominated in
foreign currency. For example, if a Delaware Investments fund owned securities
denominated in pounds sterling, it could enter into a forward contract to sell
pounds sterling in return for U.S. dollars to hedge against possible declines in
the pound's value. Such a hedge (sometimes referred to as a "position hedge")
would tend to offset both positive and negative currency fluctuations, but would
not offset changes in security values caused by other factors. A Delaware
Investments fund could also hedge the position by selling another currency
expected to perform similarly to the pound sterling -- for example, by entering
into a forward contract to sell Deutschemarks or European Currency Units in
return for U.S. dollars. This type of hedge, sometimes referred to as a "proxy
hedge," could offer advantages in terms of cost, yield, or efficiency, but
generally will not hedge currency exposure as effectively as a simple hedge into
U.S. dollars. Proxy hedges may result in losses if the currency used to hedge
does not perform similarly to the currency in which the hedged securities are
denominated.
Under certain conditions, SEC guidelines require mutual funds to set
aside cash and appropriate liquid assets in a segregated custodian account to
cover currency forward contracts. As required by SEC guidelines, certain
Delaware Investments funds will segregate assets to cover currency forward
contracts, if any, whose purpose is essentially speculative. The Delaware
Investments funds will not segregate assets to cover forward contracts,
including settlement hedges, position hedges, and proxy hedges. Successful use
of forward currency contracts will depend on the investment manager's skill in
analyzing and predicting currency values. Forward contracts may substantially
change a Delaware Investments fund's investment exposure to changes in currency
exchange rates, and could result in losses to a Delaware Investments fund if
currencies do not perform as the investment manager anticipates. For example, if
a currency's value rose at a time when the investment manager had hedged a
Delaware Investments fund by selling that currency in exchange for dollars, the
Delaware Investments fund would be unable to participate in the currency's
appreciation. If the investment manager hedges currency exposure through proxy
hedges, a Delaware Investments fund could realize currency losses from the hedge
and the security position at the same time if the two currencies do not move in
tandem. Similarly, if the investment manager increases a Delaware Investments
fund's exposure to a foreign currency, and that currency's value declines, a
Delaware Investments fund will realize a loss. There is no assurance that the
investment manager's use of forward currency contracts will be advantageous to
the Delaware Investments funds or that it will hedge at an appropriate time.
Foreign Currency Conversion
Although foreign exchange dealers do not charge a fee for currency
conversion, they do realize a profit based on the difference (the "spread")
between prices at which they are buying and selling various currencies. Thus, a
dealer may offer to sell a foreign currency to a Delaware Investments fund at
one rate, while offering a lesser rate of exchange should such Delaware
Investments fund desire to resell that currency to the dealer.
Concentration
In applying a Fund's fundamental policy concerning concentration that
is described above, it is a matter of non-fundamental policy that: (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; (iii) asset
backed securities will be classified according to the underlying assets securing
such securities; and (iv) investments in the Delaware Investments funds will not
be deemed to be investments in the "investment company" industry.
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OTHER INVESTMENTS - DELAWARE S&P 500 INDEX FUND
U.S. Government Securities
U.S. Government securities include U.S. Treasury bills, notes, and
bonds and other obligations issued or guaranteed as to interest and principal by
the U.S. Government and its agencies or instrumentalities. Obligations issued or
guaranteed as to interest and principal by the U.S. Government, its agencies or
instrumentalities include securities that are supported by the full faith and
credit of the United States Treasury, securities that are supported by the right
of the issuer to borrow from the United States Treasury, discretionary authority
of the U.S. Government agency or instrumentality, and securities supported
solely by the creditworthiness of the issuer.
Repurchase Agreements
The Fund may enter into repurchase agreements with banks and other
financial institutions, such as broker-dealers. In substance, a repurchase
agreement is a loan for which the Fund receives securities as collateral. Under
a repurchase agreement, the Fund purchases securities from a financial
institution that agrees to repurchase the securities at the Fund's original
purchase price plus interest within a specified time (normally one business
day). The Fund will limit repurchase transactions to those member banks of the
Federal Reserve System and broker-dealers whose creditworthiness the Fund's
sub-adviser considers satisfactory. Should the counterparty to a transaction
fail financially, the Fund may encounter delay and incur costs before being able
to sell the securities. Further, the amount realized upon the sale of the
securities may be less than that necessary to fully compensate the Fund.
Reverse Repurchase Agreements
The Fund may enter into reverse repurchase agreements under the
circumstances. In substance, a reverse repurchase agreement is a borrowing for
which the Fund provides securities as collateral. Under a reverse repurchase
agreement, the Fund sells portfolio securities to a financial institution in
return for cash in an amount equal to a percentage of the portfolio securities'
market value and agrees to repurchase the securities at a future date at a
prescribed repurchase price equal to the amount of cash originally received plus
interest on such amount. The Fund retains the right to receive interest and
principal payments with respect to the securities while they are in the
possession of the financial institutions. Reverse repurchase agreements involve
the risk of default by the counterparty, which may adversely affect the Fund's
ability to reacquire the underlying securities.
Forward Commitments
The Fund may contract to purchase securities for a fixed price at a
future date beyond customary settlement time. When effecting such transactions,
cash or marketable securities held by the Fund of a dollar amount sufficient to
make payment for the portfolio securities to be purchased will be segregated on
the Fund's records at the trade date and maintained until the transaction is
settled. The failure of the other party to the transaction to complete the
transaction may cause the Fund to miss an advantageous price or yield. Forward
commitments involve a risk of loss if the value of the security to be purchased
declines prior to the settlement date, or if the other party fails to complete
the transaction.
When-Issued Transactions
The Fund may purchase securities on a when-issued basis. In these
transactions, the Fund purchases securities with payment and delivery scheduled
for a future time. Until settlement, the Fund segregates cash and marketable
securities equal in value to its when-issued commitments. Between the trade and
settlement dates, the Fund bears the risk of any fluctuation in the value of the
securities. These transactions involve the additional risk that the other party
may fail to complete the transaction and cause the Fund to miss a price or yield
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considered advantageous. The Fund will engage in when-issued transactions only
for the purpose of acquiring portfolio securities consistent with its investment
objective and policies and not for investment leverage. The Fund will invest no
more than 25% of its net assets in when-issued securities.
Illiquid Securities
The Fund will not invest more than 15% of its net assets in illiquid
securities or securities that are not readily marketable, including repurchase
agreements and time deposits of more than seven days' duration. The absence of a
regular trading market for illiquid securities imposes additional risks on
investments in these securities. Illiquid securities may be difficult to value
and may often be disposed of only after considerable expense and delay.
Variable Amount Master Demand Notes
Variable amount master demand notes are unsecured obligations that are
redeemable upon demand and are typically unrated. These instruments are issued
pursuant to written agreements between their issuers and holders. The agreements
permit the holders to increase (subject to an agreed maximum) and the holders
and issuers to decrease the principal amount of the notes, and specify that the
rate of interest payable on the principal fluctuates according to an agreed
formula.
Securities Lending
The Fund may lend portfolio securities with a value of up to 33 1/3% of
its total assets. For these purposes, total assets shall include the value of
all assets received as collateral for the loan. Such loans may be terminated at
any time. The Fund will receive cash or U.S. Treasury bills, notes and bonds in
an amount equal to at least 100% of the current market value (on a daily
marked-to-market basis) of the loaned securities plus accrued interest. In a
loan transaction, as compensation for lending its securities, the Fund will
receive a portion of the dividends or interest accrued on the securities held as
collateral or, in the case of cash collateral, a portion of the income from the
investment of such cash. In addition, the Fund will receive the amount of all
dividends, interest and other distributions on the loaned securities. However,
the borrower has the right to vote the loaned securities. The Fund will call
loans to vote proxies if a material issue affecting the investment is to be
voted upon. Should the borrower of the securities fail financially, the Fund may
experience delays in recovering the securities or exercising its rights in the
collateral. Loans are made only to borrowers that are deemed by the Fund's
sub-adviser to be of good financial standing. In a loan transaction, the Fund
will also bear the risk of any decline in value of securities acquired with cash
collateral. The Fund will minimize this risk by limiting the investment of cash
collateral to high quality instruments of short maturity.
Futures Contracts and Options on Futures
For hedging purposes, including protecting the price or interest rate
of a security that the Fund intends to buy, the Fund may enter into futures
contracts that relate to securities in which it may directly invest and indices
comprised of such securities and may purchase and write call and put options on
such contracts.
A financial futures contract is a contract to buy or sell a specified
quantity of financial instruments such as U.S. Treasury bills, notes and bonds,
commercial paper and bank certificates of deposit or the cash value of a
financial instrument index at a specified future date at a price agreed upon
when the contract is made. Under such contracts no delivery of the actual
securities making up the index takes place. Rather, upon expiration of the
contract, settlement is made by exchanging cash in an amount equal to the
difference between the contract price and the closing price of the index at
expiration, net of variation margin previously paid.
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Substantially all futures contracts are closed out before settlement
date or called for cash settlement. A futures contract is closed out by buying
or selling an identical offsetting futures contract. Upon entering into a
futures contract, the Fund is required to deposit an initial margin with its
custodian for the benefit of the futures broker. The initial margin serves as a
"good faith" deposit that the Fund will honor its futures commitments.
Subsequent payments (called "variation margin") to and from the broker are made
on a daily basis as the price of the underlying investment fluctuates.
Options on futures contracts give the purchaser the right to assume a
position at a specified price in a futures contract at any time before
expiration of the option contract.
When trading futures contracts, the Fund will not commit more than 5%
of the market value of its total assets to initial margin deposits on futures
and premiums paid for options on futures.
There are certain investment risks in using futures contracts and
options as a hedging technique. Such risks may include: (1) the inability to
close out a futures contract or option caused by the non-existence of a liquid
secondary market; and (2) an imperfect correlation between price movements of
the futures contracts or option with price movements of the portfolio securities
or securities index subject to the hedge.
Options on Securities and Securities Indices
The Fund may write and purchase covered put and call options on
securities in which it may directly invest. Option transactions of the Fund will
be conducted so that the total amount paid on premiums for all put and call
options outstanding will not exceed 5% of the value of the Fund's total assets.
Further, the Fund will not write a put or call option or combination thereof if,
as a result, the aggregate value of all securities or collateral used to cover
its outstanding options would exceed 25% of the value of the Fund's total
assets.
The Fund may purchase or sell options on securities indices that are
comprised of securities in which the Fund may directly invest, subject to the
limitations set forth above and provided such options are traded on a national
securities exchange or in the over-the-counter market. Options on securities
indices are similar to options on securities except there is no transfer of a
security and settlement is in cash. A call option on a securities index grants
the purchaser of the call, for a premium paid to the seller, the right to
receive in cash an amount equal to the difference between the closing value of
the index and the exercise price of the option times a multiplier established by
the exchange upon which the option is traded.
Cash Reserves
For defensive purposes, the Fund may temporarily invest, without
limitation, in high quality short-term fixed income securities. These securities
include obligations issued or guaranteed as to principal and interest by the
U.S. Government, its agencies or instrumentalities and repurchase agreements
collateralized by these obligations, commercial paper, bank certificates of
deposit, bankers' acceptances and time deposits. When using this strategy, the
weighted average maturity of securities held by the Fund will decline, and
thereby possibly cause its yield to decline as well.
American Depositary Receipts (ADRs)
The Fund may invest in securities of foreign issuers in the form of
ADRs and similar instruments, or other securities convertible into securities of
eligible issuers. These securities may not necessarily be denominated in the
same currency as the securities for which they may be exchanged. Generally,
ADRs, in registered form, are designed for use in the U.S. securities markets.
ADRs are receipts typically issued by a U.S. bank or trust company evidencing
ownership of the underlying securities. ADRs represent the right to receive
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securities of foreign issuers deposited in a domestic bank or a correspondent
bank. ADRs do not eliminate the risk inherent in investing in the securities of
foreign issuers. In general, there is a large liquid market in the U.S. for many
ADRs. The information available for ADRs is subject to the accounting, auditing
and financial reporting standards of the domestic market or exchange on which
they are traded, which standards are more uniform and more exacting than those
to which many foreign issuers are subject. For purposes of the Fund's investment
policies, the Fund's investments in ADRs and similar instruments will be deemed
to be investments in the equity securities representing securities of foreign
issuers into which they may be converted.
Investment in securities of non-U.S. issuers and securities involve
investment risks that are different from those of U.S. issuers, including:
uncertain future political, diplomatic and economic developments; possible
imposition of exchange controls or other governmental restrictions; less
publicly available information; lack of uniform accounting, auditing and
financial reporting standards, practices and requirements; lower trading volume,
less liquidity and more volatility for securities; less government regulation of
securities exchanges, brokers and listed companies; political or social
instability; and the possibility of expropriation or confiscatory taxation, each
of which could adversely affect investments in such securities. ADRs are subject
to all of the above risks, except the imposition of exchange controls, and
currency fluctuations during the settlement period.
Preferred Stocks
Preferred stock, unlike common stock, generally confers a stated
dividend rate payable from the corporation's earnings. Such preferred stock
dividends may be cumulative or non-cumulative, fixed, participating, auction
rate or other. If interest rates rise, a fixed dividend on preferred stocks may
be less attractive, causing the price of preferred stocks to decline either
absolutely or relative to alternative investments. Preferred stock may have
mandatory sinking fund provisions, as well as provisions that allow the issuer
to call or redeem the stock. The rights to payment of preferred stocks are
generally subordinate to rights associated with a corporation's debt securities.
Equity Swaps
Equity swap agreements are contracts between parties in which one party
agrees to make payments to the other party based on the change in market value
of a specified index or asset. In return, the other party agrees to make
payments to the first party based on the return of a different specified index
or asset. Although swap agreements entail the risk that a party will default on
its payment obligations, the portfolios will minimize this risk by entering into
agreements only with counterparties that the Advisor deems creditworthy. The
Fund's sub-adviser will cause the Fund to enter into swap agreements only with
counterparties that would be eligible for consideration as repurchase agreement
counterparties under the Fund's repurchase agreement guidelines.
Investment-Grade Bonds
The Fund may invest in corporate notes and bonds which are rated
investment-grade by a Nationally Recognized Statistical Rating Organization
("NRSRO") or, if unrated, are determined by the Fund's sub-adviser to be of
comparable quality. Investment-grade securities include securities rated Baa3 by
Moody's or BBB- by S&P (and securities of comparable quality), which securities
have speculative characteristics.
Total Rate of Return Swaps
The Fund may contract with a counterparty to pay a stream of cash flows
and receive the total return of an index or a security for purposes of
attempting to obtain a particular desired return at a lower cost to the Fund
than if the Fund had invested directly in an instrument that yielded that
desired return. The Advisor will cause
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the Fund to enter into swap agreements only with
counterparties that would be eligible for consideration as repurchase agreement
counterparties under the Fund's repurchase agreement guidelines.
Debt Securities
The Fund may also invest temporarily in investment grade debt
securities for defensive purposes. The Fund may invest in convertible debt
securities.
Purchase of Other Investment Company Funds
To the extent permitted under the 1940 Act and exemptive rules and
orders thereunder, the Fund may seek to achieve its investment objective by
investing solely in the shares of other investment companies that have
substantially similar investment objectives and policies.
Concentration
In applying the Fund's fundamental policy concerning concentration that
is described above, it is a matter of non-fundamental policy that: (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.
Information about Standard & Poor's
The Fund is not sponsored, endorsed, sold or promoted by Standard &
Poor's, a division of The McGraw-Hill Companies, Inc. ("S&P"). S&P makes no
representation or warranty, express or implied, to shareholders of the Fund or
any member of the public regarding the advisability of investing in securities
generally or in the Fund particularly or the ability of the S&P 500 Index to
track general stock market performance. S&P's only relationship to Delaware
Management Holdings, Inc. is the licensing of certain trademarks and trade names
of S&P and of the S&P 500 Index which is determined, composed and calculated by
S&P without regard to Delaware Management Holdings, Inc. or the Fund. S&P has no
obligation to take the needs of Delaware Management Holdings, Inc. or
shareholders of the Fund into consideration in determining, composing or
calculating the S&P 500 Index. S&P is not responsible for and has not
participated in the determination of share prices of the Fund or the timing of
the issuance or sale of Fund shares or in the determination or calculation of
the equation by which the Fund is to be converted into cash. S&P has no
obligation or liability in connection with the administration, marketing or
trading of the Fund.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P
500 INDEX OR ANY DATA INCLUDED THEREIN AND S&P SHALL HAVE NO LIABILITY FOR ANY
ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY, EXPRESS OR
IMPLIED, AS TO RESULTS TO BE OBTAINED BY DELAWARE MANAGEMENT HOLDINGS, INC.,
SHAREHOLDERS OF THE FUND, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P
500 INDEX OR ANY DATA INCLUDED THEREIN. S&P MAKES NO EXPRESS OR IMPLIED
WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS
FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE S&P 500 INDEX OR ANY DATA
INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL S&P
HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES
(INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
-35-
<PAGE>
ACCOUNTING AND TAX ISSUES
When a Fund writes a call, or purchases a put option, an amount equal
to the premium received or paid by it is included in the section of the Fund's
assets and liabilities as an asset and as an equivalent liability.
In writing a call, the amount of the liability is subsequently "marked
to market" to reflect the current market value of the option written. The
current market value of a written option is the last sale price on the principal
Exchange on which such option is traded or, in the absence of a sale, the mean
between the last bid and asked prices. If an option which a Fund has written
expires on its stipulated expiration date, the Fund reports a realized gain. If
a Fund enters into a closing purchase transaction with respect to an option
which the Fund has written, the Fund realizes a gain (or loss if the cost of the
closing transaction exceeds the premium received when the option was sold)
without regard to any unrealized gain or loss on the underlying security, and
the liability related to such option is extinguished. Any such gain or loss is a
short-term capital gain or loss for federal income tax purposes. If a call
option which a Fund has written is exercised, the Fund realizes a capital gain
or loss (long-term or short-term, depending on the holding period of the
underlying security) from the sale of the underlying security and the proceeds
from such sale are increased by the premium originally received.
The premium paid by a Fund for the purchase of a put option is recorded
in the section of the Fund's assets and liabilities as an investment and
subsequently adjusted daily to the current market value of the option. For
example, if the current market value of the option exceeds the premium paid, the
excess would be unrealized appreciation and, conversely, if the premium exceeds
the current market value, such excess would be unrealized depreciation. The
current market value of a purchased option is the last sale price on the
principal Exchange on which such option is traded or, in the absence of a sale,
the mean between the last bid and asked prices. If an option which a Fund has
purchased expires on the stipulated expiration date, the Fund realizes a
short-term or long-term capital loss for federal income tax purposes in the
amount of the cost of the option. If a Fund sells the put option, it realizes a
short-term or long-term capital gain or loss, depending on whether the proceeds
from the sale are greater or less than the cost of the option. If a Fund
exercises a put option, it realizes a capital gain or loss (long-term or
short-term, depending on the holding period of the underlying security) from the
sale of the underlying security and the proceeds from such sale will be
decreased by the premium originally paid. However, since the purchase of a put
option is treated as a short sale for federal income tax purposes, the holding
period of the underlying security will be affected by such a purchase.
Options on Certain Stock Indices--Accounting for options on certain
stock indices will be in accordance with generally accepted accounting
principles. The amount of any realized gain or loss on closing out such a
position will result in a realized gain or loss for tax purposes. Such options
held by a Fund at the end of each fiscal year will be required to be "marked to
market" for federal income tax purposes. Sixty percent of any net gain or loss
recognized on such deemed sales or on any actual sales will be treated as
long-term capital gain or loss, and the remainder will be treated as short-term
capital gain or loss.
Other Tax Requirements--Each Fund has qualified or intends to qualify
as a regulated investment company under Subchapter M of the Code. As such, a
Fund will not be subject to federal income tax, or to any excise tax, to the
extent its earnings are distributed as provided in the Code and it satisfies
other requirements relating to the sources of its income and diversification of
its assets.
In order to qualify as a regulated investment company for federal
income tax purposes, each Fund must meet certain specific requirements,
including:
-36-
<PAGE>
(i) A Fund must maintain a diversified portfolio of securities, wherein
no security (other than U.S. government securities and securities of other
regulated investment companies) can exceed 25% of the Fund's total assets, and,
with respect to 50% of the Fund's total assets, no investment (other than cash
and cash items, U.S. government securities and securities of other regulated
investment companies) can exceed 5% of the Fund's total assets;
(ii) A Fund must derive at least 90% of its gross income from
dividends, interest, payments with respect to securities loans, and gains from
the sale or disposition of stock and securities or foreign currencies, or other
income derived with respect to its business of investing in such stock,
securities, or currencies; and
(iii) A Fund must distribute to its shareholders at least 90% of its
investment company taxable income and net tax-exempt income for each of its
fiscal years.
The Code requires the Funds to distribute at least 98% of its taxable
ordinary income earned during the calendar year and 98% of its capital gain net
income earned during the 12 month period ending October 31 (in addition to
amounts from the prior year that were neither distributed nor taxed to a Fund)
to you by December 31 of each year in order to avoid federal excise taxes. The
Funds intend as a matter of policy to declare and pay sufficient dividends in
December or January (which are treated by you as received in December) but does
not guarantee and can give no assurances that its distributions will be
sufficient to eliminate all such taxes.
The straddle rules of Section 1092 may apply. Generally, the straddle
provisions require the deferral of losses to the extent of unrecognized gains
related to the offsetting positions in the straddle. Excess losses, if any, can
be recognized in the year of loss. Deferred losses will be carried forward and
recognized in the year that unrealized losses exceed unrealized gains.
The 1997 Act has also added new provisions for dealing with
transactions that are generally called "Constructive Sale Transactions." Under
these rules, a Fund must recognize gain (but not loss) on any constructive sale
of an appreciated financial position in stock, a partnership interest or certain
debt instruments. A Fund will generally be treated as making a constructive sale
when it: 1) enters into a short sale on the same or substantially identical
property; 2) enters into an offsetting notional principal contract; or 3) enters
into a futures or forward contract to deliver the same or substantially
identical property. Other transactions (including certain financial instruments
called collars) will be treated as constructive sales as provided in Treasury
regulations to be published. There are also certain exceptions that apply for
transactions that are closed before the end of the 30th day after the close of
the taxable year.
Investment in Foreign Currencies and Foreign Securities--The Funds are
authorized to invest certain limited amounts in foreign securities. Such
investments, if made, will have the following additional tax consequences to
each Fund:
Under the Code, gains or losses attributable to fluctuations in foreign
currency exchange rates which occur between the time a Fund accrues income
(including dividends), or accrues expenses which are denominated in a foreign
currency, and the time a Fund actually collects such income or pays such
expenses generally are treated as ordinary income or loss. Similarly, on the
disposition of debt securities denominated in a foreign currency and on the
disposition of certain options, futures, forward contracts, gain or loss
attributable to fluctuations in the value of foreign currency between the date
of acquisition of the security or contract and the date of its disposition are
also treated as ordinary gain or loss. These gains or losses, referred to under
the Code
-37-
<PAGE>
as "Section 988" gains or losses, may increase or decrease the amount of a
Fund's net investment company taxable income, which, in turn, will affect the
amount of income to be distributed to you by a Fund.
If a Fund's Section 988 losses exceed a Fund's other investment company
taxable income during a taxable year, a Fund generally will not be able to make
ordinary dividend distributions to you for that year, or distributions made
before the losses were realized will be recharacterized as return of capital
distributions for federal income tax purposes, rather than as an ordinary
dividend or capital gain distribution. If a distribution is treated as a return
of capital, your tax basis in your Fund shares will be reduced by a like amount
(to the extent of such basis), and any excess of the distribution over your tax
basis in your Fund shares will be treated as capital gain to you.
The 1997 Act generally requires that foreign income be translated into
U.S. dollars at the average exchange rate for the tax year in which the
transactions are conducted. Certain exceptions apply to taxes paid more than two
years after the taxable year to which they relate. This new law may require a
Fund to track and record adjustments to foreign taxes paid on foreign securities
in which it invests. Under a Fund's current reporting procedure, foreign
security transactions are recorded generally at the time of each transaction
using the foreign currency spot rate available for the date of each transaction.
Under the new law, a Fund will be required to record at fiscal year end (and at
calendar year end for excise tax purposes) an adjustment that reflects the
difference between the spot rates recorded for each transaction and the year-end
average exchange rate for all of a Fund's foreign securities transactions. There
is a possibility that the mutual fund industry will be given relief from this
new provision, in which case no year-end adjustments will be required.
The Funds may be subject to foreign withholding taxes on income from
certain of its foreign securities. If more than 50% of the total assets of a
Fund at the end of its fiscal year are invested in securities of foreign
corporations, a Fund may elect to pass-through to you your pro rata share of
foreign taxes paid by a Fund. If this election is made, you will be: (i)
required to include in your gross income your pro rata share of foreign source
income (including any foreign taxes paid by a Fund); and (ii) entitled to either
deduct your share of such foreign taxes in computing your taxable income or to
claim a credit for such taxes against your U.S. income tax, subject to certain
limitations under the Code. You will be informed by a Fund at the end of each
calendar year regarding the availability of any such foreign tax credits and the
amount of foreign source income (including any foreign taxes paid by a Fund). If
a Fund elects to pass-through to you the foreign income taxes that it has paid,
you will be informed at the end of the calendar year of the amount of foreign
taxes paid and foreign source income that must be included on your federal
income tax return. If a Fund invests 50% or less of its total assets in
securities of foreign corporations, it will not be entitled to pass-through to
you your pro-rata shares of foreign taxes paid by a Fund. In this case, these
taxes will be taken as a deduction by a Fund, and the income reported to you
will be the net amount after these deductions. The 1997 Act also simplifies the
procedures by which investors in funds that invest in foreign securities can
claim tax credits on their individual income tax returns for the foreign taxes
paid by a Fund. These provisions will allow investors who pay foreign taxes of
$300 or less on a single return or $600 or less on a joint return during any
year (all of which must be reported on IRS Form 1099-DIV from a Fund to the
investor) to claim a tax credit against their U.S. federal income tax for the
amount of foreign taxes paid by a Fund. This process will allow you, if you
qualify, to bypass the burdensome and detailed reporting requirements on the
foreign tax credit schedule (Form 1116) and report your foreign taxes paid
directly on page 2 of Form 1040.
Investment in Passive Foreign Investment Company Securities--The Funds
may invest in shares of foreign corporations which may be classified under the
Code as passive foreign investment companies ("PFICs"). In general, a foreign
corporation is classified as a PFIC if at least one-half of its assets
constitute
-38-
<PAGE>
investment-type assets or 75% or more of its gross income is investment-type
income. If a Fund receives an "excess distribution" with respect to PFIC stock,
the Fund itself may be subject to U.S. federal income tax on a portion of the
distribution, whether or not the corresponding income is distributed by a Fund
to you. In general, under the PFIC rules, an excess distribution is treated as
having been realized ratably over the period during which a Fund held the PFIC
shares. A Fund itself will be subject to tax on the portion, if any, of an
excess distribution that is so allocated to prior Fund taxable years, and an
interest factor will be added to the tax, as if the tax had been payable in such
prior taxable years. In this case, you would not be permitted to claim a credit
on your own tax return for the tax paid by a Fund. Certain distributions from a
PFIC as well as gain from the sale of PFIC shares are treated as excess
distributions. Excess distributions are characterized as ordinary income even
though, absent application of the PFIC rules, certain distribution might have
been classified as capital gain. This may have the effect of increasing Fund
distributions to you that are treated as ordinary dividends rather than
long-term capital gain dividends.
A Fund may be eligible to elect alternative tax treatment with respect
to PFIC shares. Under an election that currently is available in some
circumstances, a Fund generally would be required to include in its gross income
its share of the earnings of a PFIC on a current basis, regardless of whether
distributions are received from the PFIC during such period. If this election
were made, the special rules, discussed above, relating to the taxation of
excess distributions, would not apply. In addition, the 1997 Act provides for
another election that would involve marking-to-market a Fund's PFIC shares at
the end of each taxable year (and on certain other dates as prescribed in the
Code), with the result that unrealized gains would be treated as though they
were realized. A Fund would also be allowed an ordinary deduction for the
excess, if any, of the adjusted basis of its investment in the PFIC stock over
its fair market value at the end of the taxable year. This deduction would be
limited to the amount of any net mark-to-market gains previously included with
respect to that particular PFIC security. If a Fund were to make this second
PFIC election, tax at a Fund level under the PFIC rules would generally be
eliminated.
The application of the PFIC rules may affect, among other things, the
amount of tax payable by a Fund (if any), the amounts distributable to you by a
Fund, the time at which these distributions must be made, and whether these
distributions will be classified as ordinary income or capital gain
distributions to you.
You should be aware that it is not always possible at the time shares
of a foreign corporation are acquired to ascertain that the foreign corporation
is a PFIC, and that there is always a possibility that a foreign corporation
will become a PFIC after a Fund acquires shares in that corporation. While a
Fund will generally seek to avoid investing in PFIC shares to avoid the tax
consequences detailed above, there are no guarantees that it will do so and it
reserves the right to make such investments as a matter of its fundamental
investment policy.
Most foreign exchange gains are classified as ordinary income which
will be taxable to you as such when distributed. Similarly, you should be aware
that any foreign exchange losses realized by a Fund, including any losses
realized on the sale of foreign debt securities, are generally treated as
ordinary losses for federal income tax purposes. This treatment could increase
or reduce a Fund's income available for distribution to you, and may cause some
or all of a Fund's previously distributed income to be classified as a return of
capital.
-39-
<PAGE>
PERFORMANCE INFORMATION
From time to time, each Fund may state its Classes' total return in
advertisements and other types of literature. Any statement of total return
performance data for a Class will be accompanied by information on the average
annual compounded rate of return for that Class over, as relevant, the most
recent one-, five- and ten-year, or life-of-fund, periods, as applicable. Each
Fund may also advertise aggregate and average total return information of its
Classes over additional periods of time. In addition, each Fund may include
illustrations showing the power of compounding in advertisements and other types
of literature.
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
Fund Classes for a description of the Limited CDSC, or other 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 each Class is based on a
hypothetical $1,000 investment that includes capital appreciation and
depreciation during the stated periods. The following formula will be used for
the actual computations:
n
P(1 + T) = ERV
Where: P = a hypothetical initial purchase order of $1,000 from which, in
the case of 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.
Total return performance for each Class will be computed by adding all
reinvested income and realized securities profits distributions plus the change
in net asset value during a specific period and dividing by the offering price
at the beginning of the period. It will reflect, as applicable, the maximum
sales charge, or CDSC, paid with respect to the illustrated investment amount,
but not any income taxes payable by shareholders on the reinvested distributions
included in the calculation. Because securities prices fluctuate, past
performance should not be considered as a representative of the results which
may be realized from an investment in the Funds in the future.
Aggregate or cumulative total return is calculated in a similar manner,
except that the results are not annualized. Each calculation assumes the maximum
front-end sales charge, if any, is deducted from the initial $1,000 investment
at the time it is made with respect to Class A Shares 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.
-40-
<PAGE>
The performance of the Classes shown below, is the average annual total
return quotations through September 30, 1999, computed as described above. The
average annual total return for Class A Shares at offer reflects the maximum
front-end sales charge of 5.75% paid on the purchase of shares. The average
annual total return for the Class A Shares at net asset value (NAV) does not
reflect the payment of any front-end sales charge. The average annual total
return for Class B and C Shares including deferred sales charge reflects the
deduction of the applicable CDSC that would be paid if the shares were redeemed
at September 30, 1999. The average annual total return for Class B and C Shares
excluding deferred sales charge assumes the shares were not redeemed at
September 30, 1999, and therefore does not reflect the deduction of a CDSC.
Stock prices fluctuated during the periods covered and past results should not
be considered as representative of future performance. Average annual total
return is not shown for Delaware S&P 500 Index Fund since the Fund has not
commenced operations as of the date of this Part B.
------------------------------------------------------------------
Average Annual Returns(1)
------------------------------------------------------------------
Period
12/31/97(2)
1 year ended through
9/30/99 9/30/99
----------------------------------- --------------- --------------
Income Portfolio
----------------------------------- --------------- --------------
A Class (at offer) 0.66% -0.30%
----------------------------------- --------------- --------------
A Class (at nav) 6.85% 3.14%
----------------------------------- --------------- --------------
B Class (including CDSC) 1.18% 0.30%
----------------------------------- --------------- --------------
B Class (excluding CDSC) 6.18% 2.56%
----------------------------------- --------------- --------------
C Class (including CDSC) 5.06% 2.50%
----------------------------------- --------------- --------------
C Class (excluding CDSC) 6.06% 2.50%
----------------------------------- --------------- --------------
Institutional Class 7.16% 3.37%
----------------------------------- --------------- --------------
----------------------------------- --------------- --------------
Growth Portfolio
----------------------------------- --------------- --------------
A Class (at offer) 10.56% 3.54%
----------------------------------- --------------- --------------
A Class (at nav) 17.33% 7.11%
----------------------------------- --------------- --------------
B Class (including CDSC) 11.41% 4.20%
----------------------------------- --------------- --------------
B Class (excluding CDSC) 16.41% 6.40%
----------------------------------- --------------- --------------
C Class (including CDSC) 15.53% 6.47%
----------------------------------- --------------- --------------
C Class (excluding CDSC) 16.53% 6.47%
----------------------------------- --------------- --------------
Institutional Class 17.71% 7.38%
----------------------------------- --------------- --------------
----------------------------------- --------------- --------------
Balanced Portfolio
----------------------------------- --------------- --------------
A Class (at offer) 6.01% 1.22%
----------------------------------- --------------- --------------
A Class (at nav) 12.52% 4.71%
----------------------------------- --------------- --------------
B Class (including CDSC) 6.66% 1.80%
----------------------------------- --------------- --------------
B Class (excluding CDSC) 11.66% 4.04%
----------------------------------- --------------- --------------
C Class (including CDSC) 10.77% 4.17%
----------------------------------- --------------- --------------
C Class (excluding CDSC) 11.77% 4.17%
----------------------------------- --------------- --------------
Institutional Class 12.83% 4.94%
------------------------------------------------------------------
(1) Performance reflects expense limitations in effect during the periods.
(2) Date of commencement of operations.
From time to time, a Fund may also quote each Class' actual total
return performance, dividend results and other performance information in
advertising and other types of literature. This information may be compared to
that of other mutual funds with similar investment objectives and to stock, bond
and other relevant
-41-
<PAGE>
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. ("Lipper"), Morningstar, Inc. or to the S&P 500 or the
Dow Jones Industrial Average.
Lipper 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 a 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 S&P 500 and the Dow Jones
Industrial Average are industry-accepted unmanaged indices of
generally-conservative securities used for measuring general market performance.
The Russell 2000 Index TR is a total return weighted index which is comprised of
2,000 of the smallest stocks (on the basis of capitalization) in the Russell
3000 Index and is calculated on a monthly basis. The NASDAQ Composite Index is a
market capitalization price only index that tracks the performance of domestic
common stocks traded on the regular NASDAQ market as well as National Market
System traded foreign common stocks and American Depositary Receipts. 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.
In addition, the performance of multiple indices compiled and
maintained by statistical research firms, such as Salomon Brothers and Lehman
Brothers may be combined to create a blended performance result for comparative
performances. 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 a Fund. A Fund may also compare performance to that of other compilations or
indices that may be developed and made available in the future.
The Funds may include discussions or illustrations of the potential
investment goals of a prospective investor (including materials that describe
general principles of investing, such as asset allocation, diversification, risk
tolerance, and goal setting, questionnaires designed to help create a personal
financial profile, worksheets used to project savings needs based on assumed
rates of inflation and hypothetical rates of return and action plans offering
investment alternatives), investment management techniques, policies or
investment suitability of a Fund (such as value investing, market timing, dollar
cost averaging, asset allocation, constant ratio transfer, automatic account
rebalancing, the advantages and disadvantages of investing in tax-deferred and
taxable investments), 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,
-42-
<PAGE>
investment strategies and related matters believed to be of relevance to a Fund.
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, stocks, bonds,
treasury bills and shares of a Fund. In addition, advertisements, sales
literature, communications to shareholders or other materials may include a
discussion of certain attributes or benefits to be derived by an investment in a
Fund and/or other mutual funds, shareholder profiles and hypothetical investor
scenarios, timely information on financial management, tax and retirement
planning (such as information on Roth IRAs and Education IRAs) and investment
alternative 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. A Fund may advertise its current interest rate sensitivity,
duration, weighted average maturity or similar maturity characteristics.
Advertisements and sales materials relating to a Fund may include information
regarding the background and experience of its portfolio managers.
-43-
<PAGE>
The following table present examples, for purposes of illustration
only, of cumulative total return performance for the Classes shown below through
September 30, 1999. For these purposes, the calculations assume the reinvestment
of any capital gains distributions and income dividends paid during the
indicated periods. The performance does not reflect any income taxes payable by
shareholders on the reinvested distributions included in the calculations. The
performance of Class A Shares reflects the maximum front-end sales charge of
5.75% paid on the purchase of shares but may also be shown without reflecting
the impact of any front-end sales charge. The performance of Class B Shares and
Class C Shares is calculated both with the applicable CDSC included and
excluded. Past performance is no guarantee of future results. Cumulative total
return is not shown for Delaware S&P 500 Index Fund since the Fund has not
commenced operations as of the date of this Part B.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
Cumulative Total Returns(1)
--------------------------------------------------------------------------------------------------------
Period
3 months 6 months 9 months 1 year 12/31/97(2)
ended ended ended ended through
9/30/99 9/30/99 9/30/99 9/30/99 9/30/99
------------------------------ ------------- ------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Income Portfolio
------------------------------ ------------- ------------- --------------- ------------- ---------------
A Class (at offer) -7.97% -6.49% -6.40% 0.66% -0.53%
------------------------------ ------------- ------------- --------------- ------------- ---------------
A Class (at nav) -2.33% -0.82% -0.65% 6.85% 5.56%
------------------------------ ------------- ------------- --------------- ------------- ---------------
B Class (including CDSC) -7.34% -6.15% -6.12% 1.18% 0.53%
------------------------------ ------------- ------------- --------------- ------------- ---------------
B Class (excluding CDSC) -2.49% -1.27% -1.27% 6.18% 4.53%
------------------------------ ------------- ------------- --------------- ------------- ---------------
C Class (including CDSC) -3.46% -2.13% -2.13% 5.06% 4.41%
------------------------------ ------------- ------------- --------------- ------------- ---------------
C Class (excluding CDSC) -2.50% -1.15% -1.15% 6.06% 4.41%
------------------------------ ------------- ------------- --------------- ------------- ---------------
Institutional Class -2.27% -0.70% -0.47% 7.16% 5.98%
------------------------------ ------------- ------------- --------------- ------------- ---------------
------------------------------ ------------- ------------- --------------- ------------- ---------------
Growth Portfolio
------------------------------ ------------- ------------- --------------- ------------- ---------------
A Class (at offer) -9.80% -4.53% -3.66% 10.56% 6.28%
------------------------------ ------------- ------------- --------------- ------------- ---------------
A Class (at nav) -4.34% 1.28% 2.27% 17.33% 12.78%
------------------------------ ------------- ------------- --------------- ------------- ---------------
B Class (including CDSC) -9.32% -4.15% -3.39% 11.41% 7.48%
------------------------------ ------------- ------------- --------------- ------------- ---------------
B Class (excluding CDSC) -4.55% 0.85% 1.61% 16.41% 11.48%
------------------------------ ------------- ------------- --------------- ------------- ---------------
C Class (including CDSC) -5.50% -0.15% 0.72% 15.53% 11.60%
------------------------------ ------------- ------------- --------------- ------------- ---------------
C Class (excluding CDSC) -4.54% 0.85% 1.72% 16.53% 11.60%
------------------------------ ------------- ------------- --------------- ------------- ---------------
Institutional Class -4.23% 1.39% 2.48% 17.71% 13.28%
------------------------------ ------------- ------------- --------------- ------------- ---------------
------------------------------ ------------- ------------- --------------- ------------- ---------------
Balanced Portfolio
------------------------------ ------------- ------------- --------------- ------------- ---------------
A Class (at offer) -9.04% -5.58% -4.96% 6.01% 2.14%
------------------------------ ------------- ------------- --------------- ------------- ---------------
A Class (at nav) -3.45% 0.21% 0.88% 12.52% 8.39%
------------------------------ ------------- ------------- --------------- ------------- ---------------
B Class (including CDSC) -8.51% -5.19% -4.70% 6.66% 3.17%
------------------------------ ------------- ------------- --------------- ------------- ---------------
B Class (excluding CDSC) -3.71% -0.23% 0.27% 11.66% 7.17%
------------------------------ ------------- ------------- --------------- ------------- ---------------
C Class (including CDSC) -4.56% -1.22% -0.73% 10.77% 7.41%
------------------------------ ------------- ------------- --------------- ------------- ---------------
C Class (excluding CDSC) -3.60% -0.23% 0.27% 11.77% 7.41%
------------------------------ ------------- ------------- --------------- ------------- ---------------
Institutional Class -3.40% 0.32% 1.05% 12.83% 8.81%
--------------------------------------------------------------------------------------------------------
</TABLE>
(1) Performance reflects expense limitations in effect during the periods.
(2) Date of commencement of operations.
Because every investor's goals and risk threshold are different, the
Distributor, as distributor for the Trust and other mutual funds available from
the Delaware Investments family, will provide general information about
investment alternatives and scenarios that will allow investors to assess their
personal goals. This information will include general material about investing
as well as materials reinforcing various
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industry-accepted principles of prudent and responsible personal financial
planning. One typical way of addressing these issues is to compare an
individual's goals and the length of time the individual has to attain these
goals to his or her risk threshold. In addition, the Distributor will provide
information that discusses the Manager's overriding investment philosophy and
how that philosophy impacts the investment disciplines employed in seeking the
objectives of the Portfolios and 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's affiliates,
including the number of such clients serviced by such affiliates.
Dollar-Cost Averaging
For many people, deciding when to invest can be a difficult decision.
Security prices tend to move up and down over various market cycles and logic
says to invest when prices are low. However, even experts can't always pick the
highs and the lows. By using a strategy known as dollar-cost averaging, you
schedule your investments ahead of time. If you invest a set amount on a regular
basis, that money will always buy more shares when the price is low and fewer
when the price is high. You can choose to invest at any regular interval--for
example, monthly or quarterly--as long as you stick to your regular schedule.
Dollar-cost averaging looks simple and it is, but there are important things to
remember.
Dollar-cost averaging works best over longer time periods, and it
doesn't guarantee a profit or protect against losses in declining markets. If
you need to sell your investment when prices are low, you may not realize a
profit no matter what investment strategy you utilize. That's why dollar-cost
averaging can make sense for long-term goals. Since the potential success of a
dollar-cost averaging program depends on continuous investing, even through
periods of fluctuating prices, you should consider your dollar-cost averaging
program a long-term commitment and invest an amount you can afford and probably
won't need to withdraw. You also should consider your financial ability to
continue to purchase shares during periods of high fund share prices. Delaware
Investments offers three services -- Automatic Investing Plan, Direct Deposit
Purchase Plan and the Wealth Builder Option -- that can help to keep your
regular investment program on track. See Direct Deposit Purchase Plan, Automatic
Investing Plan and Wealth Builder Option under Purchasing Shares - Investing by
Electronic Fund Transfer for a complete description of these services, including
restrictions or limitations.
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The example below illustrates how dollar-cost averaging can work. In a
fluctuating market, the average cost per share of a stock or bond fund over a
period of time will be lower than the average price per share of a Fund for the
same time period.
Number
Investment Price Per of Shares
Amount Share Purchased
Month 1 $100 $10.00 10
Month 2 $100 $12.50 8
Month 3 $100 $ 5.00 20
Month 4 $100 $10.00 10
-----------------------------------------------------------
$400 $37.50 48
Total Amount Invested: $400
Total Number of Shares Purchased: 48
Average Price Per Share: $9.38 ($37.50/4)
Average Cost Per Share: $8.33 ($400/48 shares)
This example is for illustration purposes only. It is not intended to
represent the actual performance of the Funds or 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. The Funds may include illustrations showing the power
of compounding in advertisements and other types of literature.
TRADING PRACTICES AND BROKERAGE
Each Fund selects banks, brokers or dealers to execute transactions for
the purchase or sale of portfolio securities on the basis of its 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, the Fund involved pays reasonably competitive brokerage
commission rates based upon the professional knowledge of the Manager 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. A number of trades are made on a net
basis where the Funds either buy the securities directly from the dealer or sell
them to the dealer. In these instances, there is no direct commission charged
but there is a spread (the difference between the buy and sell price) which is
the equivalent of a commission.
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During the period December 31, 1997 (date of initial public offering)
through September 30, 1998 and the fiscal year ended September 30, 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 processes 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 September 30, 1999, there were portfolio
transactions resulting in brokerage commissions directed to brokers for
brokerage and research services provided.
As provided in the 1934 Act and the Funds' Investment Management
Agreement higher commissions are permitted to be paid to broker/dealers who
provide brokerage and research services than to broker/dealers who do not
provide such services if such higher commissions are deemed reasonable in
relation to the value of the brokerage and research services provided. Although
transactions are directed to broker/dealers who provide such brokerage and
research services, 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.
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 Trust's
Board of Trustees that the advantages of combined orders outweigh the possible
disadvantages of separate transactions.
Consistent with the Conduct Rules of the NASD Regulation, Inc. (the
"NASD"), and subject to seeking best execution, the 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,
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give consideration to sales of shares of funds in the
Delaware Investments family as a factor in the selection of brokers and dealers
to execute portfolio transactions of the Funds.
Portfolio Turnover
The rate of portfolio turnover will not be a limiting factor when
portfolio changes are deemed appropriate. Given the Funds' investment
objectives, their annual portfolio turnover rates are not expected to exceed
100%. A turnover rate of 100% would occur, for example, if all the investments
held by a Fund at the beginning of the year were replaced by the end of the
year. The degree of portfolio activity may affect taxes payable by the Funds'
shareholders. To the extent a Fund realizes gains on securities held for less
than six months, such gains are taxable to the shareholder or to the Fund at
ordinary income tax rates. The turnover rates also may be affected by cash
requirements from redemptions and repurchases of Fund shares.
The portfolio turnover rate of a Fund is calculated by dividing the
lesser of purchases or sales of portfolio securities for the particular fiscal
year by the monthly average of the value of the portfolio securities owned by
the Fund during the particular fiscal year, exclusive of securities whose
maturities at the time of acquisition are one year or less.
During the fiscal period December 31, 1997 (date of initial public
offering) through September 30, 1998 and the fiscal year ended September 30,
1999, portfolio turnover of the Funds were as follows:
- --------------------------------------------------------------
1998* 1999
- ------------------------- ------------------ -----------------
Income Portfolio 81% 73%
- ------------------------- ------------------ -----------------
Balanced Portfolio 73% 93%
- ------------------------- ------------------ -----------------
Growth Portfolio 77% 104%
- --------------------------------------------------------------
* Annualized
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 the Funds. See
the Prospectuses for information on how to invest. Shares of the Funds are
offered on a continuous basis and may be purchased through authorized investment
dealers or directly by contacting Foundation Funds or the Distributor.
The minimum initial investment generally is $1,000 for Class A Shares,
Class B Shares, Class C Shares and Consultant Class Shares. Subsequent purchases
of such Classes generally must be at least $100. The initial and subsequent
investment minimums for Class A Shares will be waived for purchases by officers,
directors and employees of any Delaware Investments fund, the Manager or any of
the Manager's affiliates if the purchases are made pursuant to a payroll
deduction program. Shares purchased pursuant to the Uniform Gifts to Minors Act
or Uniform Transfers to Minors Act and shares purchased in connection with an
Automatic Investing Plan are subject to a minimum initial purchase of $250 and a
minimum subsequent purchase of $25. Accounts opened under the Delaware
Investments Asset Planner service are subject to a minimum initial investment of
$2,000 per Asset Planner Strategy selected. There are no minimum purchase
requirements for the Institutional Classes, but certain eligibility requirements
must be satisfied.
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. See Investment Plans for purchase
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<PAGE>
limitations applicable to retirement plans. Foundation Funds will reject any
purchase order for more than $250,000 of Class B Shares and $1,000,000 or more
of Class C Shares. An investor may exceed these limitations by making cumulative
purchases over a period of time. In doing so, an investor should keep in mind,
however, that reduced front-end sales charges apply to investments of $50,000 or
more in Class A Shares, and that Class A Shares are subject to lower annual
12b-1 Plan expenses than Class B Shares and Class C Shares and generally are not
subject to a CDSC.
Selling dealers are responsible for transmitting orders promptly.
Foundation Funds reserves the right to reject any order for the purchase of its
shares of a Fund if in the opinion of management such rejection is the 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.
A 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.
A Fund also reserves the right, following shareholder notification, to
charge a service fee on non-retirement accounts that, as a result of redemption,
have remained below the minimum stated account balance for a period of three or
more consecutive months. Holders of such accounts may be notified of their
insufficient account balance and advised that they have until the end of the
current calendar quarter to raise their balance to the stated minimum. If the
account has not reached the minimum balance requirement by that time, a Fund
will charge a $9 fee for that quarter and each subsequent calendar quarter until
the account is brought up to the minimum balance. The service fee will be
deducted from the account during the first week of each calendar quarter for the
previous quarter, and will be used to help defray the cost of maintaining
low-balance accounts. No fees will be charged without proper notice, and no CDSC
will apply to such assessments.
Each Fund also reserves the right, upon 60 days' written notice, to
involuntarily redeem accounts that remain under the minimum initial purchase
amount as a result of redemptions. An investor making the minimum initial
investment may be subject to involuntary redemption without the imposition of a
CDSC or Limited CDSC if he or she redeems any portion of his or her account.
The NASD has adopted amendments to its Conduct Rules, as amended,
relating to investment company sales charges. Foundation Funds and the
Distributor intend to operate in compliance with these rules.
Class A Shares of Income Portfolio, Balanced Portfolio and Growth
Portfolio are purchased at the offering price which reflects a maximum front-end
sales charge of 5.75% and Class A Shares of Delaware S&P 500 Index Fund are
purchased at the offering price which reflects a maximum front-end sales charge
of 2.75%; however, lower front-end sales charges apply for larger purchases.
Class A Shares are subject to 12b-1 Plan expenses for the life of the
investment. See the table in the Fund Classes' Prospectus.
Class B Shares of Income Portfolio, Balanced Portfolio and Growth
Portfolio are purchased at net asset value and are subject to a CDSC of: (i) 5%
if shares are redeemed within one year of purchase; (ii) 4% if shares are
redeemed within two years of purchase; (iii) 3% if shares are redeemed during
the third or fourth year following purchase; (iv) 2% if shares are redeemed
during the fifth year following purchase; and (v) 1% if shares are redeemed
during the sixth year following purchase. Class B Shares are also subject to
annual 12b-1 Plan expenses which are higher than those to which Class A Shares
are subject and are assessed against Class B Shares for approximately eight
years after purchase. Class B Shares of Delaware S&P 500 Index Fund are
purchased at net asset value and are subject to a CDSC of: (i) 2% if shares are
redeemed within two years of purchase; and (ii) 1% if shares are redeemed during
the third year following purchase. Class B Shares are also
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<PAGE>
subject to annual 12b-1 Plan expenses which are higher than those to which
Class A Shares are subject and are assessed against the Class B Shares for
approximately five years after purchase. See Automatic Conversion of Class B
Shares, below.
Class C Shares are purchased at net asset value and are subject to a
CDSC of 1% if shares are redeemed within 12 months following purchase. Class C
Shares are also subject to annual 12b-1 Plan expenses for the life of the
investment which are equal to those to which Class B Shares are subject.
Institutional Class shares are purchased at the net asset value per
share without the imposition of a front-end or contingent deferred sales charge
or 12b-1 Plan expenses.
Consultant Class Shares of Delaware S&P 500 Index Fund are purchased at
net asset value without the imposition of a front-end or contingent deferred
sales charge. Consultant Class Shares are subject to 12b-1 Plan expenses for the
life of the investment.
See Plans Under Rule 12b-1 for the Fund Classes and Consultant Class
under Purchasing Shares, and Determining Offering Price and Net Asset Value in
this Part B.
Certificates representing shares purchased are not ordinarily issued
unless, in the case of Class A Shares, Institutional Class shares or Consultant
Class Shares, a shareholder submits a specific request. Certificates are not
issued in the case of Class B Shares or Class C Shares or in the case of any
retirement plan account including self-directed IRAs. However, purchases not
involving the issuance of certificates are confirmed to the investor and
credited to the shareholder's account on the books maintained by Delaware
Service Company, Inc. (the "Transfer Agent"). The investor will have the same
rights of ownership with respect to such shares as if certificates had been
issued. An investor that is permitted to obtain a certificate may receive a
certificate representing full share denominations purchased by sending a letter
signed by each owner of the account to the Transfer Agent requesting the
certificate. No charge is assessed by Foundation 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 a Fund for further
information. Investors who hold certificates representing any of their shares
may only redeem those shares by written request. The investor's certificate(s)
must accompany such request.
Alternative Purchase Arrangements - Class A, Class B and Class C Shares
The alternative purchase arrangements of Class A Shares, Class B Shares
and Class C Shares permit investors to choose the method of purchasing shares
that is most suitable for their needs given the amount of their purchase, the
length of time they expect to hold their shares and other relevant
circumstances. Investors should determine whether, given their particular
circumstances, it is more advantageous to purchase Class A Shares and incur a
front-end sales charge and annual 12b-1 Plan expenses of up to a maximum of
0.30% of the average daily net assets of Class A Shares, or to purchase either
Class B 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 Plan
expenses. Class B Shares are subject to a CDSC if the shares are redeemed within
six years of purchase (three years for Delaware S&P 500 Index Fund), and Class C
Shares are subject to a CDSC if the shares are redeemed within 12 months of
purchase. Class B and Class C Shares are each subject to annual 12b-1 Plan
expenses of up to a maximum of 1% (0.25% of which are service fees to be paid to
the Distributor, dealers or others for providing personal service and/or
maintaining shareholder accounts) of average daily net assets of the respective
Class. Class B Shares will automatically convert to Class A Shares at the end of
approximately eight years after purchase (five years for Delaware S&P 500 Index
Fund) and, thereafter, be subject to annual 12b-1 Plan expenses of up to a
maximum of 0.30% of average daily net assets of such shares. Unlike Class B
Shares, Class C Shares do not convert to another Class.
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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 and 12b-1
Plan expenses applicable to Consultant Class Shares in that such fees and
charges are used to finance the distribution of the respective Classes. See
Plans Under Rule 12b-1 for the Fund Classes.
Dividends, if any, paid on each Class of a Fund 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 each Class will bear the amount of 12b-1 Plan expenses
payable under its respective 12b-1 Plan. See Determining Offering Price and Net
Asset Value.
Class A Shares
Purchases of $50,000 or more of Class A Shares ($100,000 or more for
Delaware S&P 500 Index Fund) at the offering price carry reduced front-end sales
charges as shown in the table in the Fund Classes' Prospectuses, and may include
a series of purchases over a 13-month period under a Letter of Intention signed
by the purchaser. See Special Purchase Features - Class A Shares, below for more
information on ways in which investors can avail themselves of reduced front-end
sales charges and other purchase features.
From time to time, upon written notice to all of its dealers, the
Distributor may hold special promotions for specified periods during which the
Distributor may reallow to dealers up to the full amount of the front-end sales.
In addition, certain dealers who enter into an agreement to provide extra
training and information on Delaware Investments products and services and who
increase sales of Delaware Investments funds may receive an additional
commission of up to 0.15% of the offering price in connection with 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. Dealers who receive 90% or more of
the sales charge may be deemed to be underwriters under the 1933 Act.
Dealer's Commission
As described in the Prospectuses, 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
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<PAGE>
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 six years of purchase (three years
for Delaware S&P 500 Index Fund) may be subject to a CDSC at the rates set forth
above, and Class C Shares redeemed within 12 months of purchase may be subject
to a CDSC of 1%. CDSCs are charged as a percentage of the dollar amount subject
to the CDSC. The charge will be assessed on an amount equal to the lesser of the
net asset value at the time of purchase of the shares being redeemed or the net
asset value of those shares at the time of redemption. No CDSC will be imposed
on increases in net asset value above the initial purchase price, nor will a
CDSC be assessed on redemptions of shares acquired through reinvestment of
dividends or capital gains distributions. 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.
During the seventh year after purchase (fourth year for Delaware S&P
500 Index Fund) and, thereafter, until converted automatically into Class A
Shares, Class B Shares will still be subject to the annual 12b-1 Plan expenses
of up to 1% of average daily net assets of those shares. At the end of
approximately eight years after purchase (five years for Delaware S&P 500 Index
Fund), the investor's Class B Shares will be automatically converted into Class
A Shares of a Fund. See Automatic Conversion of Class B Shares below. Investors
are reminded that the Class A Shares into which Class B Shares will convert are
subject to ongoing annual 12b-1 Plan expenses of up to a maximum of 0.30% of
average daily net assets of such shares.
In determining whether a CDSC applies to a redemption of Class B
Shares, it will be assumed that shares held for more than six years (three years
for Delaware S&P 500 Index Fund) are redeemed first, followed by shares acquired
through the reinvestment of dividends or distributions, and finally by shares
held longest during the six-year period (three-year period for Delaware S&P 500
Index Fund). 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.
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
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compensates dealers or brokers for selling Class B Shares at the time of
purchase from its own assets in an amount equal to no more than 5% (2% for
Delaware S&P 500 Index Fund) of the dollar amount purchased. In addition, from
time to time, upon written notice to all of its dealers, the Distributor may
hold special promotions for specified periods during which the Distributor may
pay additional compensation to dealers or brokers for selling Class B Shares at
the time of purchase. As discussed below, however, Class B Shares are subject to
annual 12b-1 Plan expenses and, if redeemed within six years of purchase (three
years for Delaware S&P 500 Index Fund), a CDSC.
Proceeds from the CDSC and the annual 12b-1 Plan fees are paid to the
Distributor and others for providing distribution and related services, and
bearing related expenses, in connection with the sale of Class B Shares. These
payments support the compensation paid to dealers or brokers for selling Class B
Shares. Payments to the Distributor and others under the Class B 12b-1 Plan may
be in an amount equal to no more than 1% annually. The combination of the CDSC
and the proceeds of the 12b-1 Plan fees makes it possible for a Fund to sell
Class B Shares without deducting a front-end sales charge at the time of
purchase.
Holders of Class B Shares who exercise the exchange privilege described
below will continue to be subject to the CDSC schedule for Class B Shares
described in this Part B, even after the exchange. Such CDSC schedule may be
higher than the CDSC schedule for Class B Shares acquired as a result of the
exchange. See Redemption and Exchange.
Automatic Conversion of Class B Shares
Class B Shares, other than shares acquired through reinvestment of
dividends, held for eight years after purchase (five years for Delaware S&P 500
Index Fund) 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 day or next business day of March, June,
September and December (each, a "Conversion Date"). If the eighth anniversary
after a purchase of Class B Shares falls on a Conversion Date, an investor's
Class B Shares will be converted on that date. If the eighth anniversary occurs
between Conversion Dates, an investor's Class B Shares will be converted on the
next Conversion Date after such anniversary. Consequently, if a shareholder's
anniversary after purchase falls on the day after a Conversion Date, that
shareholder will have to hold Class B Shares for as long as three additional
months after the anniversary before the shares will automatically convert into
Class A Shares.
Class B Shares of a Fund acquired through a reinvestment of dividends
will convert to the corresponding Class A Shares of the Fund (or, in the case of
Delaware Group Cash Reserve, the Delaware Cash Reserve Fund Consultant Class)
pro-rata with Class B Shares of the Fund not acquired through dividend
reinvestment.
All such automatic conversions of Class B Shares will constitute
tax-free exchanges for federal income tax purposes.
Level Sales Charge Alternative - Class C Shares
Class C Shares may be purchased at net asset value without a front-end
sales charge and, as a result, the full amount of the investor's purchase
payment will be invested in Fund shares. The Distributor currently compensates
dealers or brokers for selling Class C Shares at the time of purchase from its
own assets in an amount equal to no more than 1% of the dollar amount purchased.
As discussed below, Class C Shares are subject to annual 12b-1 Plan expenses
and, if redeemed within 12 months of purchase, a CDSC.
Proceeds from the CDSC and the annual 12b-1 Plan fees are paid to the
Distributor and others for providing distribution and related services, and
bearing related expenses, in connection with the sale of Class C Shares. These
payments support the compensation paid to dealers or brokers for selling Class C
Shares.
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<PAGE>
Payments to the Distributor and others under the Class C 12b-1 Plan may be in an
amount equal to no more than 1% annually.
Holders of Class C Shares who exercise the exchange privilege described
below will continue to be subject to the CDSC schedule for Class C Shares as
described in this Part B. See Redemption and Exchange.
Plans Under Rule 12b-1 for the Fund Classes and Consultant Class
Pursuant to Rule 12b-1 under the 1940 Act, Foundation Funds has adopted
a separate plan for each of Class A Shares, Class B Shares, Class C Shares and
Consultant Class Shares (the "Plans"). Each Plan permits a Fund to pay for
certain distribution, promotional and related expenses involved in the marketing
of only the Class of shares to which the Plan applies. The Plans do not apply to
Institutional Classes of shares. Such shares are not included in calculating the
Plans' fees, and the Plans are not used to assist in the distribution and
marketing of shares of Institutional Class Shares. Shareholders of Institutional
Classes may not vote on matters affecting the Plans.
The Plans permit a Fund, pursuant to its Distribution Agreement, to pay
out of the assets of Class A Shares, Class B Shares, Class C Shares and
Consultant Class Shares monthly fees to the Distributor for its services and
expenses in distributing and promoting sales of shares of such classes. These
expenses include, among other things, preparing and distributing advertisements,
sales literature, and prospectuses and reports used for sales purposes,
compensating sales and marketing personnel, holding special promotions for
specified periods of time and paying distribution and maintenance fees to
brokers, dealers and others. In connection with the promotion of shares of the
Classes, the Distributor may, from time to time, pay to participate in
dealer-sponsored seminars and conferences, and reimburse dealers for expenses
incurred in connection with preapproved seminars, conferences and advertising.
The Distributor may pay or allow additional promotional incentives to dealers as
part of preapproved sales contests and/or to dealers who provide extra training
and information concerning a Class and increase sales of the Class. In addition,
a Fund may make payments from the 12b-1 Plan fees of its respective Classes
directly to others, such as banks, who aid in the distribution of Class shares
or provide services in respect of a Class, pursuant to service agreements with
Foundation Funds. 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.
The maximum aggregate fee payable by a Fund under the Plans, and the
Distribution Agreements, is on an annual basis, up to 0.30% of average daily net
assets of each of Class A Shares and Consultant Class Shares, and up to 1%
(0.25% of which are service fees to be paid to the Distributor, dealers and
others for providing personal service and/or maintaining shareholder accounts)
of each of the Class B Shares' and Class C Shares' average daily net assets for
the year. Foundation Funds' Board of Trustees may reduce these amounts at any
time.
Pursuant to Board action, the maximum aggregate fee payable by Class A
Shares of Income Portfolio, Balanced Portfolio and Growth Portfolio is 0.25% of
average daily net assets. In addition, pursuant to Board action, the maximum
aggregate fee payable by Class A Shares and Consultant Class of Delaware S&P 500
Index Fund is 0.15% and 0.12%, respectively. While this describes the current
basis for calculating the fees which will be payable under such Classes' Plans,
such Plans permit a full 0.30% on all assets to be paid at any time following
appropriate Board approval.
All of the distribution expenses incurred by the Distributor and
others, such as broker/dealers, in excess of the amount paid on behalf of Class
A Shares, Class B Shares and Class C Shares would be borne by such persons
without any reimbursement from such Fund 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.
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<PAGE>
The Plans and the Distribution Agreement, as amended, have all been
approved by the Board of Trustees of Foundation Funds, including a majority of
the trustees who are not "interested persons" (as defined in the 1940 Act) of
Foundation Funds 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 Agreement. Continuation of the Plans and the Distribution
Agreement, 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, Class C Shares and Consultant Class Shares and that there is a
reasonable likelihood of the Plan relating to a Class providing a benefit to
that Class. The Plans and the Distribution Agreement, as amended, may be
terminated with respect to a Class at any time without penalty by a majority of
those trustees who are not "interested persons" or by a majority vote of the
relevant Class' outstanding voting securities. Any amendment materially
increasing the percentage payable under the Plans must likewise be approved by a
majority vote of the relevant Class' outstanding voting securities, as well as
by a majority vote of those trustees who are not "interested persons." With
respect to each Class A Shares' Plan, any material increase in the maximum
percentage payable thereunder must also be approved by a majority of the
outstanding voting securities of a 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 Foundation 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
Foundation 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.
-55-
<PAGE>
The following table sets forth 12b-1 payments by each Class of each
Fund noted below for the fiscal year ended September 30, 1999.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Income Portfolio Balanced Portfolio Growth Portfolio
- ------------------ ------------------------------------ ------------------------------------- ------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Advertising Class A Class B Class C Class A Class B Class C Class A Class B Class C
- ------------------ ----------- ------------ ----------- ------------ ----------- ------------ ----------- ----------- ------------
Annual/Semi-Annual
Reports --- --- --- --- --- --- $3 --- ---
- ------------------ ----------- ------------ ----------- ------------ ----------- ------------ ----------- ----------- ------------
Broker Trails $34,634 $856 $272 $36,505 $1,924 $2,343 $24,474 $3,354 $158
- ------------------ ----------- ------------ ----------- ------------ ----------- ------------ ----------- ----------- ------------
Broker Sales
Charges --- $1,178 $345 --- $2,614 $1,743 --- $6,357 $2,335
- ------------------ ----------- ------------ ----------- ------------ ----------- ------------ ----------- ----------- ------------
Dealer Service
Expenses --- --- --- --- --- --- --- --- ---
- ------------------ ----------- ------------ ----------- ------------ ----------- ------------ ----------- ----------- ------------
Interest on
Broker Sales
Charges --- $1,219 $32 --- $2,770 $217 --- $3,084 $134
- ------------------ ----------- ------------ ----------- ------------ ----------- ------------ ----------- ----------- ------------
Commissions to
Wholesalers --- $171 $176 $457 $382 $421 $5 $672 $334
- ------------------ ----------- ------------ ----------- ------------ ----------- ------------ ----------- ----------- ------------
Promotional-Broker
Meetings --- --- --- --- --- --- --- --- ---
- ------------------ ----------- ------------ ----------- ------------ ----------- ------------ ----------- ----------- ------------
Promotional-Other --- --- --- --- --- --- --- --- ---
- ------------------ ----------- ------------ ----------- ------------ ----------- ------------ ----------- ----------- ------------
Prospectus
Printing --- --- --- --- --- --- --- --- ---
- ------------------ ----------- ------------ ----------- ------------ ----------- ------------ ----------- ----------- ------------
Telephone --- --- --- --- --- --- --- --- ---
- ------------------ ----------- ------------ ----------- ------------ ----------- ------------ ----------- ----------- ------------
Wholesaler
Expenses --- --- --- --- --- --- --- --- ---
- ------------------ ----------- ------------ ----------- ------------ ----------- ------------ ----------- ----------- ------------
Other --- --- --- --- --- --- --- --- ---
- ------------------ ----------- ------------ ----------- ------------ ----------- ------------ ----------- ----------- ------------
Total $34,634 $3,424 $825 $36,962 $7,690 $7,724 $24,482 $13,417 $2,956
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Other Payments to Dealers - Class A Shares, Class B Shares and Class C Shares
From time to time, at the discretion of the Distributor, all registered
broker/dealers whose aggregate sales of Fund Classes exceed certain limits as
set by the Distributor, may receive from the Distributor an additional payment
of up to 0.25% of the dollar amount of such sales. The Distributor may also
provide additional promotional incentives or payments to dealers that sell
shares of the Delaware Investments family of funds. In some instances, these
incentives or payments may be offered only to certain dealers who maintain, have
sold or may sell certain amounts of shares. The Distributor may also pay a
portion of the expense of preapproved dealer advertisements promoting the sale
of Delaware Investments fund shares.
-56-
<PAGE>
Special Purchase Features - Class A Shares
Buying Class A Shares at Net Asset Value
Class A Shares of a Fund may be purchased at net asset value under the
Delaware Investments Dividend Reinvestment Plan and, under certain
circumstances, the Exchange Privilege and the 12-Month Reinvestment Privilege.
Purchases of Class A Shares may be made at net asset value by current
and former officers, directors and employees (and members of their families) of
the Manager, any affiliate, any of the funds in the Delaware Investments family,
certain of their agents and registered representatives and employees of
authorized investment dealers and by employee benefit plans for such entities.
Individual purchases, including those in retirement accounts, must be for
accounts in the name of the individual or a qualifying family member. Class A
Shares may also be purchased at net asset value by current and former officers,
directors and employees (and members of their families) of the Dougherty
Financial Group LLC.
Purchases of Class A Shares may also be made by clients of registered
representatives of an authorized investment dealer at net asset value within 12
months after the registered representative changes employment, if the purchase
is funded by proceeds from an investment where a front-end sales charge,
contingent deferred sales charge or other sales charge has been assessed.
Purchases of Class A Shares may also be made at net asset value by bank
employees who provide services in connection with agreements between the bank
and unaffiliated brokers or dealers 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 a Fund may reasonably require to establish eligibility for
purchase at net asset value. Investors may be charged a fee when effecting
transactions in Class A Shares through a broker or agent that offers these
special investment products.
Purchases of Class A Shares at net asset value may also be made by the
following: financial institutions investing for the account of their trust
customers if they are not eligible to purchase shares of the Institutional Class
of a Fund; any group retirement plan (excluding defined benefit pension plans),
or such plans of the same employer, for which plan participant records are
maintained on the Retirement Financial Services, Inc. (formerly known as
Delaware Investment & Retirement Services, Inc.) proprietary record keeping
system that (i) has in excess of $500,000 of plan assets invested in Class A
Shares of a fund in the Delaware Investments family and any stable value account
available to investment advisory clients of the Manager or its affiliates; or
(ii) is sponsored by an employer that has at any point after May 1, 1997 had
more than 100 employees while such plan has held Class A Shares of a fund in the
Delaware Investments family and such employer has properly represented in
writing to Retirement Financial Services, Inc. that it has the requisite number
of employees and received written confirmation back from Retirement Financial
Services, Inc. See Group Investment Plans for information regarding the
applicability of the Limited CDSC.
Purchase of Class A Shares at net asset value may also be made by any
group retirement plan (excluding defined benefit pension plans) that purchases
shares through a retirement plan alliance program that requires shares to be
available at net asset value, provided Retirement Financial Services, Inc. has a
product participation agreement with the sponsor of the alliance program.
-57-
<PAGE>
Purchases of Class A Shares at net asset value may also be made by bank
sponsored retirement plans that are no longer eligible to purchase Institutional
Class Shares or purchase interests in a collective trust as a result of a change
in distribution arrangements.
Investments in Class A Shares made by plan level and/or participant
retirement accounts that are for the purpose of repaying a loan taken from such
accounts will be made at net asset value. Loan repayments made to a Fund account
in connection with loans originated from accounts previously maintained by
another investment firm will also be invested at net asset value.
Foundation Funds must be notified in advance that the trade qualifies
for purchase at net asset value.
Allied Plans
Class A Shares are available for purchase by participants in certain
401(k) Defined Contribution Plans ("Allied Plans") which are made available
under a joint venture agreement between the Distributor and another institution
through which mutual funds are marketed and which allow investments in Class A
Shares of designated Delaware Investments funds ("eligible Delaware Investments
fund shares"), as well as shares of designated classes of non-Delaware
Investments funds ("eligible non-Delaware Investments fund shares"). Class B
Shares and Class C Shares are not eligible for purchase by Allied Plans.
With respect to purchases made in connection with an Allied Plan, the
value of eligible Delaware Investments and eligible non-Delaware Investments
fund shares held by the Allied Plan may be combined with the dollar amount of
new purchases by that Allied Plan to obtain a reduced front-end sales charge on
additional purchases of eligible Delaware Investments fund shares. See Combined
Purchases Privilege, below.
Participants in Allied Plans may exchange all or part of their eligible
Delaware Investments fund shares for other eligible Delaware Investments fund
shares or for eligible non-Delaware Investments fund shares at net asset value
without payment of a front-end sales charge. However, exchanges of eligible fund
shares, both Delaware Investments and non-Delaware Investments, which were not
subject to a front end sales charge, will be subject to the applicable sales
charge if exchanged for eligible Delaware Investments fund shares to which a
sales charge applies. No sales charge will apply if the eligible fund shares
were previously acquired through the exchange of eligible shares on which a
sales charge was already paid or through the reinvestment of dividends. See
Investing by Exchange.
A dealer's commission may be payable on purchases of eligible Delaware
Investments fund shares under an Allied Plan. In determining a financial
adviser's eligibility for a dealer's commission on net asset value purchases of
eligible Delaware Investments fund shares in connection with Allied Plans, all
participant holdings in the Allied Plan will be aggregated. See Class A Shares.
The Limited CDSC is applicable to redemptions of net asset value
purchases from an Allied Plan on which a dealer's commission has been paid.
Waivers of the Limited CDSC, as described under Waiver of Limited Contingent
Deferred Sales Charge - Class A Shares under Redemption and Exchange, apply to
redemptions by participants in Allied Plans except in the case of exchanges
between eligible Delaware Investments and non-Delaware Investments fund shares.
When eligible Delaware Investments fund shares are exchanged into eligible
non-Delaware Investments fund shares, the Limited CDSC will be imposed at the
time of the exchange, unless the joint venture agreement specifies that the
amount of the Limited CDSC will be paid by the financial adviser or selling
dealer. See Contingent Deferred Sales Charge for Certain Redemptions of Class A
Shares Purchased at Net Asset Value under Redemption and Exchange.
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<PAGE>
Letter of Intention
The reduced front-end sales charges described above with respect to
Class A Shares are also applicable to the aggregate amount of purchases made by
any such purchaser previously enumerated within a 13-month period pursuant to a
written Letter of Intention provided by the Distributor and signed by the
purchaser, and not legally binding on the signer or Foundation 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 a Fund and of any class of any of the other mutual funds in
Delaware Investments (except shares of any Delaware Investments fund which do
not carry a front-end sales charge, CDSC or Limited CDSC other than shares of
Delaware Group Premium Fund beneficially owned in connection with the ownership
of variable insurance products, unless they were acquired through an exchange
from a Delaware Investments fund which carried a front-end sales charge, CDSC or
Limited CDSC) previously purchased and still held as of the date of their Letter
of Intention toward the completion of such Letter. For purposes of satisfying an
investor's obligation under a Letter of Intention, Class B Shares and Class C
Shares of a 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 the Fund and the corresponding class of shares of the other funds in
the Delaware Investments family.
Employers offering a Delaware Investments retirement plan may also
complete a Letter of Intention to obtain a reduced front-end sales charge on
investments of Class A Shares made by the plan. The aggregate investment level
of the Letter of Intention will be determined and accepted by the Transfer Agent
at the point of plan establishment. The level and any reduction in front-end
sales charge will be based on actual plan participation and the projected
investments in Delaware Investments funds that are offered with a front-end
sales charge, CDSC or Limited CDSC for a 13-month period. The Transfer Agent
reserves the right to adjust the signed Letter of Intention based on this
acceptance criteria. The 13-month period will begin on the date this Letter of
Intention is accepted by the Transfer Agent. If actual investments exceed the
anticipated level and equal an amount that would qualify the plan for further
discounts, any front-end sales charges will be automatically adjusted. In the
event this Letter of Intention is not fulfilled within the 13-month period, the
plan level will be adjusted (without completing another Letter of Intention) and
the employer will be billed for the difference in front-end sales charges due,
based on the plan's assets under management at that time. Employers may also
include the value (at offering price at the level designated in their Letter of
Intention) of all their shares intended for purchase that are offered with a
front-end sales charge, CDSC or Limited CDSC of any class. Class B Shares and
Class C Shares of the Fund and other Delaware Investments funds which offer
corresponding classes of shares may also be aggregated for this purpose.
Combined Purchases Privilege
In determining the availability of the reduced front-end sales charge
previously set forth with respect to Class A Shares, purchasers may combine the
total amount of any combination of Class A Shares, Class B Shares and/or Class C
Shares of a Fund, as well as shares of any other class of any of the other
Delaware Investments funds (except shares of any Delaware Investments fund which
do not carry a front-end sales charge, CDSC or Limited CDSC, other than shares
of Delaware Group Premium Fund beneficially owned in connection with the
ownership of variable insurance products, unless they were acquired through an
exchange
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<PAGE>
from a Delaware Investments fund which carried a front-end sales charge, CDSC or
Limited CDSC). In addition, assets held by investment advisory clients of
Delaware Investment Advisers, the Manager's affiliate, or any of the Manager's
other affiliates in a stable value account may be combined with other Delaware
Investments fund holdings.
The privilege also extends to all purchases made at one time by an
individual; or an individual, his or her spouse and their children under 21; or
a trustee or other fiduciary of trust estates or fiduciary accounts for the
benefit of such family members (including certain employee benefit programs).
Right of Accumulation
In determining the availability of the reduced front-end sales charge
with respect to the 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 Delaware Investments funds
which offer such classes (except shares of any Delaware Investments fund which
do not carry a front-end sales charge, CDSC or Limited CDSC, other than shares
of Delaware Group Premium Fund beneficially owned in connection with the
ownership of variable insurance products, unless they were acquired through an
exchange from a Delaware Investments fund which carried a front-end sales
charge, CDSC or Limited CDSC). If, for example, any such purchaser of the
Income, Balanced or Growth Portfolio has previously purchased and still holds
Class A Shares and/or shares of any other of the classes described in the
previous sentence with a value of $10,000 and subsequently purchases $40,000 at
offering price of additional shares of Class A Shares, the charge applicable to
the $10,000 purchase would currently be 4.75%. For the purpose of this
calculation, the shares presently held shall be valued at the public offering
price that would have been in effect were the shares purchased simultaneously
with the current purchase. Investors should refer to the table of sales charges
for Class A Shares to determine the applicability of the Right of Accumulation
to their particular circumstances.
12-Month Reinvestment Privilege
Holders of Class A Shares and Class B Shares of a Fund (and of the
Institutional Class holding shares which were acquired through an exchange from
one of the other mutual funds in the Delaware Investments family offered with a
front-end sales charge) 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 a 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
Distributor. 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 Distributor 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.
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<PAGE>
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 a Fund's shareholder servicing agent, about the
applicability of the Class A Limited CDSC in connection with the features
described above.
Group Investment Plans
Group Investment Plans which are not eligible to purchase shares of the
Institutional Classes may also benefit from the reduced front-end sales charges
for investments in Class A Shares, based on total plan assets. If a company has
more than one plan investing in the Delaware Investments family of funds, then
the total amount invested in all plans would be used in determining the
applicable front-end sales charge reduction upon each purchase, both initial and
subsequent, upon notification to a Fund at the time of each such purchase.
Employees participating in such Group Investment Plans may also combine the
investments made in their plan account when determining the applicable front-end
sales charge on purchases to non-retirement Delaware Investments investment
accounts if they so notify the Fund in which they are investing in connection
with each purchase. See Retirement Plans for the Fund Classes under Investment
Plans for information about Retirement Plans.
The Limited CDSC is applicable to any redemptions of net asset value
purchases made on behalf of any group retirement plan on which a dealer's
commission has been paid only if such redemption is made pursuant to a
withdrawal of the entire plan from a fund in the Delaware Investments family.
See Contingent Deferred Sales Charge for Certain Redemptions of Class A Shares
Purchased at Net Asset Value under Redemption and Exchange.
Institutional Class
The Institutional Class of each Fund is available for purchase only by:
(a) retirement plans introduced by persons not associated with brokers or
dealers that are primarily engaged in the retail securities business and
rollover individual retirement accounts from such plans; (b) tax-exempt employee
benefit plans of the Manager or its affiliates and securities dealer firms with
a selling agreement with the Distributor; (c) institutional advisory accounts of
the Manager or its affiliates and those having client relationships with
Delaware Investment Advisers, an affiliate of the Manager, or its other
affiliates and their corporate sponsors, as well as subsidiaries and related
employee benefit plans and rollover individual retirement accounts from such
institutional advisory accounts; (d) a bank, trust company and similar financial
institution investing for its own account or for the account of its trust
customers for whom such financial institution is exercising investment
discretion in purchasing shares of the Class, except where the investment is
part of a program that requires payment of the financial institution of a Rule
12b-1 Plan fee; and (e) registered investment advisers investing on behalf of
clients that consist solely of institutions and high net-worth individuals
having at least $1,000,000 entrusted to the adviser for investment purposes, but
only if the adviser is not affiliated or associated with a broker or dealer and
derives compensation for its services exclusively from its clients for such
advisory services.
Shares of the Institutional Class are available for purchase at net
asset value, without the imposition of a front-end or contingent deferred sales
charge and are not subject to Rule 12b-1 expenses.
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<PAGE>
Consultant Class
Consultant Class shares may be purchased through financial advisers,
including brokers, financial institutions and other entities that have a dealer
agreement with the Fund's distributor or a service agreement with the Fund. It
is available only to retirement plans administered by Retirement Financial
Services, Inc. and rollover individual retirement accounts from such plans.
INVESTMENT PLANS
Reinvestment Plan/Open Account
Unless otherwise designated by shareholders of Class A, B and C Shares
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 Class in which an investor has an account (based on the
net asset value in effect on the reinvestment date) and will be credited to the
shareholder's account on that date. All dividends and distributions of the
Institutional Classes and Consultant Class are reinvested in the accounts of the
holders of such shares (based on the net asset value in effect on the
reinvestment date). A confirmation of each dividend payment from net investment
income and of distributions 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
Class in which shares are being purchased. Such purchases, which must meet the
minimum subsequent purchase requirements set forth in the Prospectuses and this
Part B, are made for Class A Shares at the public offering price, and for Class
B Shares, Class C Shares and Institutional Class at the net asset value, at the
end of the day of receipt. A reinvestment plan may be terminated at any time.
This plan does not assure a profit nor protect against depreciation in a
declining market.
Reinvestment of Dividends in Other Delaware Investments Family of Funds
Subject to applicable eligibility and minimum initial purchase
requirements and the limitations set forth below, holders of Class A Shares,
Class B Shares, Class C Shares and Consultant Class Shares may automatically
reinvest dividends and/or distributions in any of the mutual funds in the
Delaware Investments, including a Fund, in states where their shares may be
sold. Such investments will be at net asset value at the close of business on
the reinvestment date without any front-end sales charge or service fee. The
shareholder must notify the Transfer Agent in writing and must have established
an account in the fund into which the dividends and/or distributions are to be
invested. Any reinvestment directed to the 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.
Subject to the following limitations, dividends and/or distributions
from other funds in Delaware Investments may be invested in shares of a Fund,
provided an account has been established. Dividends from Class A Shares and
Consultant Class 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.
Capital gains and/or dividend distributions for participants in the
following retirement plans are automatically reinvested into the same Delaware
Investments fund in which their investments are held:
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SAR/SEP, SEP/IRA, SIMPLE IRA, SIMPLE 401(k), Profit
Sharing and Money Purchase Pension Plans, 401(k) Defined Contribution Plans, or
403(b)(7) or 457 Deferred Compensation Plans.
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 a 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 the Fund acquired by exchange will continue to carry
the CDSC and, in the case of Class B Shares, the automatic conversion schedule
of the fund from which the exchange is made. The holding period of Class B
Shares of 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 the Fund.
Permissible exchanges into Class A Shares of a Fund will be made
without a front-end sales charge, except for exchanges of shares that were not
previously subject to a front-end sales charge (unless such shares were acquired
through the reinvestment of dividends). Permissible exchanges into Class B
Shares or Class C Shares of a Fund will be made without the imposition of a CDSC
by the fund from which the exchange is being made at the time of the exchange.
Investing by Electronic Fund Transfer
Direct Deposit Purchase Plan--Investors may arrange for a Fund to
accept for investment in Class A Shares, Class B Shares, Class C Shares or
Consultant Class Shares, through an agent bank, preauthorized government or
private recurring payments. This method of investment assures the timely credit
to the shareholder's account of payments such as social security, veterans'
pension or compensation benefits, federal salaries, Railroad Retirement
benefits, private payroll checks, dividends, and disability or pension fund
benefits. It also eliminates lost, stolen and delayed checks.
Automatic Investing Plan--Shareholders of Class A Shares, Class B
Shares, Class C Shares and Consultant Class Shares may make automatic
investments by authorizing, in advance, monthly or quarterly payments directly
from their checking account for deposit into their Fund account. This type of
investment will be handled in either of the following ways. (1) If the
shareholder's bank is a member of the National Automated Clearing House
Association ("NACHA"), the amount of the investment will be electronically
deducted from his or her account by Electronic Fund Transfer ("EFT"). The
shareholder's checking account will reflect a debit each month at a specified
date although no check is required to initiate the transaction. (2) If the
shareholder's bank is not a member of NACHA, deductions will be made by
preauthorized checks, known as Depository Transfer Checks. Should the
shareholder's bank become a member of NACHA in the future, his or her
investments would be handled electronically through EFT.
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This option is not available to participants in the following plans:
SAR/SEP, SEP/IRA, SIMPLE IRA, SIMPLE 401(k), Profit Sharing and Money Purchase
Pension Plans, 401(k) Defined Contribution Plans, or 403(b)(7) or 457 Deferred
Compensation Plans.
* * *
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 a Fund.
Direct Deposit Purchases by Mail
Shareholders may authorize a third party, such as a bank or employer,
to make investments directly to their Fund accounts. The Fund will accept these
investments, such as bank-by-phone, annuity payments and payroll allotments, by
mail directly from the third party. Investors should contact their employers or
financial institutions who in turn should contact Foundation Funds for proper
instructions.
MoneyLine(SM) On Demand
You or your investment dealer may request purchases of Fund shares by
phone using MoneyLine(SM) On Demand. When you authorize a Fund to accept such
requests from you or your investment dealer, funds will be withdrawn from (for
share purchases) 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.
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 Fund does not charge a fee
for this service; however, your bank may charge a fee. This service is not
available to the Institutional Classes.
Wealth Builder Option
Shareholders can use the Wealth Builder Option to invest in the Class
A, B, C and Consultant Classes through regular liquidations of shares in their
accounts in other mutual funds in the Delaware Investments family. Shareholders
of the such 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
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funds in the Delaware Investments family, subject to
the conditions and limitations set forth in the Classes' Prospectus. The
investment will be made on the 20th day of each month (or, if the fund selected
is not open that day, the next business day) at the public offering price or net
asset value, as applicable, of the fund selected on the date of investment. No
investment will be made for any month if the value of the shareholder's account
is less than the amount specified for investment.
Periodic investment through the Wealth Builder Option does not insure
profits or protect against losses in a declining market. The price of the fund
into which investments are made could fluctuate. Since this program involves
continuous investment regardless of such fluctuating value, investors selecting
this option should consider their financial ability to continue to participate
in the program through periods of low fund share prices. This program involves
automatic exchanges between two or more fund accounts and is treated as a
purchase of shares of the fund into which investments are made through the
program. See Redemption and Exchange 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.
This option is not available to participants in the following plans:
SAR/SEP, SEP/IRA, SIMPLE IRA, SIMPLE 401(k), Profit Sharing and Money Purchase
Pension Plans, 401(k) Defined Contribution Plans, or 403(b)(7) or 457 Deferred
Compensation Plans. This option also is not available to shareholders of the
Institutional Class.
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 the Funds and Consultant Class Shares
of Delaware S&P 500 Index Fund may be used in the same Strategy with class A
shares and 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 who utilize the Asset Planner for an IRA will continue
to pay an annual IRA fee of $15 per Social Security number. Investors will
receive a customized quarterly Strategy Report summarizing all Asset Planner
investment performance and account activity during the prior period.
Confirmation statements will be sent following all transactions other than those
involving a reinvestment of distributions.
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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.
Retirement Plans for the Fund Classes
An investment in the Funds may be suitable for tax-deferred retirement
plans. Delaware Investments offers a full spectrum of retirement plans,
including the 401(k) Defined Contribution Plan, Individual Retirement Account
("IRA") and the new Roth IRA and Education IRA.
Among the retirement plans that Delaware Investments offers, Class B
Shares are available only by Individual Retirement Accounts, SIMPLE IRAs, Roth
IRAs, Education IRAs, Simplified Employee Pension Plans, Salary Reduction
Simplified Employee Pension Plans, and 403(b)(7) and 457 Deferred Compensation
Plans. The CDSC may be 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 for a list of the instances in
which the CDSC is waived.
Purchases of Class B Shares are subject to a maximum purchase
limitation of $250,000 for retirement plans. Purchases of Class C Shares must be
in an amount that is less than $1,000,000 for such plans. The maximum purchase
limitations apply only to the initial purchase of shares by the retirement plan.
Minimum investment limitations generally applicable to other investors
do not apply to retirement plans other than Individual Retirement Accounts, for
which there is a minimum initial purchase of $250 and a minimum subsequent
purchase of $25, regardless of which Class is selected. Retirement plans may be
subject to plan establishment fees, annual maintenance fees and/or other
administrative or trustee fees. Fees are based upon the number of participants
in the plan as well as the services selected. Additional information about fees
is included in retirement plan materials. Fees are quoted upon request. Annual
maintenance fees may be shared by Delaware Management Trust Company, the
Transfer Agent, other affiliates of the Manager and others that provide services
to such Plans.
Certain shareholder investment services available to non-retirement
plan shareholders may not be available to retirement plan shareholders. Certain
retirement plans may qualify to purchase shares of the Institutional Class
shares. See Institutional Class, above. For additional information on any of the
plans and Delaware's retirement services, call the Shareholder Service Center
telephone number.
It is advisable for an investor considering any one of the retirement
plans described below to consult with an attorney, accountant or a qualified
retirement plan consultant. For further details, including applications for any
of these plans, contact your investment dealer or the Distributor.
Taxable distributions from the retirement plans described below may be
subject to withholding.
Please contact your investment dealer or the Distributor for the
special application forms required for the Plans described below.
Prototype Profit Sharing or Money Purchase Pension Plans
Prototype Plans are available for self-employed individuals,
partnerships, corporations and other eligible forms of organizations. These
plans can be maintained as Section 401(k), profit sharing or money purchase
pension plans. Contributions may be invested only in Class A Shares and Class C
Shares.
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Individual Retirement Account ("IRA")
A document is available for an individual who wants to establish an IRA
and make contributions which may be tax-deductible, even if the individual is
already participating in an employer-sponsored retirement plan. Even if
contributions are not deductible for tax purposes, as indicated below, earnings
will be tax-deferred. In addition, an individual may make contributions on
behalf of a spouse who has no compensation for the year; however, participation
may be restricted based on certain income limits.
IRA Disclosures
The Taxpayer Relief Act of 1997 provides new opportunities for
investors. Individuals have five types of tax-favored IRA accounts that can be
utilized depending on the individual's circumstances. A new Roth IRA and
Education IRA are available in addition to the existing deductible IRA and
non-deductible IRA.
Deductible and Non-deductible IRAs
An individual can contribute up to $2,000 in his or her IRA each year.
Contributions may or may not be deductible depending upon the taxpayer's
adjusted gross income ("AGI") and whether the taxpayer is an active participant
in an employer sponsored retirement plan. Even if a taxpayer is an active
participant in an employer sponsored retirement plan, the full $2,000 is still
available if the taxpayer's AGI is below $30,000 ($50,000 for taxpayers filing
joint returns) for years beginning after December 31, 1997. A partial deduction
is allowed for married couples with income between $50,000 and $60,000, and for
single individuals with incomes between $30,000 and $40,000. These income
phase-out limits reach $80,000-$100,000 in 2007 for joint filers and
$50,000-$60,000 in 2005 for single filers. No deductions are available for
contributions to IRAs by taxpayers whose AGI after IRA deductions exceeds the
maximum income limit established for each year and who are active participants
in an employer sponsored retirement plan.
Taxpayers who are not allowed deductions on IRA contributions still can
make non-deductible IRA contributions of as much as $2,000 for each working
spouse and defer taxes on interest or other earnings from the IRAs.
Under the new law, a married individual is not considered an active
participant in an employer sponsored retirement plan merely because the
individual's spouse is an active participant if the couple's combined AGI is
below $150,000. The maximum deductible IRA contribution for a married individual
who is not an active participant, but whose spouse is, is phased out for
combined AGI between $150,000 and $160,000.
Conduit (Rollover) IRAs
Certain individuals who have received or are about to receive eligible
rollover distributions from an employer-sponsored retirement plan or another IRA
may rollover the distribution tax-free to a Conduit IRA. The rollover of the
eligible distribution must be completed by the 60th day after receipt of the
distribution; however, if the rollover is in the form of a direct
trustee-to-trustee transfer without going through the distributee's hand, the
60-day limit does not apply.
A distribution qualifies as an "eligible rollover distribution" if it
is made from a qualified retirement plan, a 403(b) plan or another IRA and does
not constitute one of the following:
(1) Substantially equal periodic payments over the employee's life or
life expectancy or the joint lives or life expectancies of the employee and
his/her designated beneficiary;
(2) Substantially equal installment payments for a period certain of 10
or more years;
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(3) A distribution, all of which represents a required minimum
distribution after attaining age 70 1/2;
(4) A distribution due to a Qualified Domestic Relations Order to an
alternate payee who is not the spouse (or former spouse) of the employee; and
(5) A distribution of after-tax contributions which is not includable
in income.
Roth IRAs
For taxable years beginning after December 31, 1997, non-deductible
contributions of up to $2,000 per year can be made to a new Roth IRA. As a
result of the Internal Revenue Service Restructuring and Reform Act of 1998 (the
"1998 Act"), the $2,000 annual limit will not be reduced by any contributions to
a deductible or nondeductible IRA for the same year. The maximum contribution
that can be made to a Roth IRA is phased out for single filers with AGI between
$95,000 and $110,000, and for couples filing jointly with AGI between $150,000
and $160,000. Qualified distributions from a Roth IRA would be exempt from
federal taxes. Qualified distributions are distributions (1) made after the
five-taxable year period beginning with the first taxable year for which a
contribution was made to a Roth IRA and (2) that are (a) made on or after the
date on which the individual attains age 59 1/2, (b) made to a beneficiary on or
after the death of the individual, (c) attributed to the individual being
disabled, or (d) for a qualified special purpose (e.g., first time homebuyer
expenses).
Distributions that are not qualified distributions would always be
tax-free if the taxpayer is withdrawing contributions, not accumulated earnings.
Taxpayers with AGI of $100,000 or less are eligible to convert an
existing IRA (deductible, nondeductible and conduit) to a Roth IRA. Earnings and
contributions from a deductible IRA are subject to a tax upon conversion;
however, no 10% excise tax for early withdrawal would apply. If the conversion
is done prior to January 1, 1999, then the income from the conversion can be
included in income ratably over a four-year period beginning with the year of
conversion.
Education IRAs
For taxable years beginning after December 31, 1997, an Education IRA
has been created exclusively for the purpose of paying qualified higher
education expenses. Taxpayers can make non-deductible contributions up to $500
per year per beneficiary. The $500 annual limit is in addition to the $2,000
annual contribution limit applicable to IRAs and Roth IRAs. Eligible
contributions must be in cash and made prior to the date the beneficiary reaches
age 18. Similar to the Roth IRA, earnings would accumulate tax-free. There is no
requirement that the contributor be related to the beneficiary, and there is no
limit on the number of beneficiaries for whom one contributor can establish
Education IRAs. In addition, multiple Education IRAs can be created for the same
beneficiaries, however, the contribution limit of all contributions for a single
beneficiary cannot exceed $500 annually.
This $500 annual contribution limit for Education IRAs is phased out
ratably for single contributors with modified AGI between $95,000 and $110,000,
and for couples filing jointly with modified AGI of between $150,000 and
$160,000. Individuals with modified AGI above the phase-out range are not
allowed to make contributions to an Education IRA established on behalf of any
other individual.
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Distributions from an Education IRA are excludable from gross income to the
extent that the distribution does not exceed qualified higher education expenses
incurred by the beneficiary during the year the distribution is made regardless
of whether the beneficiary is enrolled at an eligible educational institution on
a full-time, half-time, or less than half-time basis.
Any balance remaining in an Education IRA at the time a beneficiary
becomes 30 years old must be distributed, and the earnings portion of such a
distribution will be includable in gross income of the beneficiary and subject
to an additional 10% penalty tax if the distribution is not for qualified higher
education expenses. Tax-free (and penalty-free) transfers and rollovers of
account balances from one Education IRA benefiting one beneficiary to another
Education IRA benefiting a different beneficiary (as well as redesignations of
the named beneficiary) is permitted, provided that the new beneficiary is a
member of the family of the old beneficiary and that the transfer or rollover is
made before the time the old beneficiary reaches age 30 and the new beneficiary
reaches age 18.
A company or association may establish a Group IRA or Group Roth IRA
for employees or members who want to purchase shares of a Fund.
Investments generally must be held in the IRA until age 59 1/2 in order
to avoid premature distribution penalties, but distributions generally must
commence no later than April 1 of the calendar year following the year in which
the participant reaches age 70 1/2. Individuals are entitled to revoke the
account, for any reason and without penalty, by mailing written notice of
revocation to Delaware Management Trust Company within seven days after the
receipt of the IRA Disclosure Statement or within seven days after the
establishment of the IRA, except, if the IRA is established more than seven days
after receipt of the IRA Disclosure Statement, the account may not be revoked.
Distributions from the account (except for the pro-rata portion of any
nondeductible contributions) are fully taxable as ordinary income in the year
received. Excess contributions removed after the tax filing deadline, plus
extensions, for the year in which the excess contributions were made are subject
to a 6% excise tax on the amount of excess. Premature distributions
(distributions made before age 59 1/2, except for death, disability and certain
other limited circumstances) will be subject to a 10% excise tax on the amount
prematurely distributed, in addition to the income tax resulting from the
distribution. For information concerning the applicability of a CDSC upon
redemption of Class B Shares and Class C Shares, see Contingent Deferred Sales
Charge - Class B Shares and Class C Shares.
Effective January 1, 1997, the 10% premature distribution penalty will
not apply to distributions from an IRA that are used to pay medical expenses in
excess of 7.5% of adjusted gross income or to pay health insurance premiums by
an individual who has received unemployment compensation for 12 consecutive
weeks. In addition, effective January 1, 1998, the new law allows for premature
distribution without a 10% penalty if (i) the amounts are used to pay qualified
higher education expenses (including graduate level courses) of the taxpayer,
the taxpayer's spouse or any child or grandchild of the taxpayer or the
taxpayer's spouse, or (ii) used to pay acquisition costs of a principle
residence for the purchase of a first-time home by the taxpayer, taxpayer's
spouse or any child or grandchild of the taxpayer or the taxpayer's spouse. A
qualified first-time homebuyer is someone who has had no ownership interest in a
residence during the past two years. The aggregate amount of distribution for
first-time home purchases cannot exceed a lifetime cap of $10,000.
Simplified Employee Pension Plan ("SEP/IRA")
A SEP/IRA may be established by an employer who wishes to sponsor a
tax-sheltered retirement program by making contributions on behalf of all
eligible employees. Each of the Classes are available for investment by a
SEP/IRA.
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Salary Reduction Simplified Employee Pension Plan ("SAR/SEP")
Although new SAR/SEP plans may not be established after December 31,
1996, existing plans may continue to be maintained by employers having 25 or
fewer employees. An employer may elect to make additional contributions to such
existing plans.
Prototype 401(k) Defined Contribution Plan
Section 401(k) of the Code permits employers to establish qualified
plans based on salary deferral contributions. Effective January 1, 1997,
non-governmental tax-exempt organizations may establish 401(k) plans. Plan
documents are available to enable employers to establish a plan. An employer may
also elect to make profit sharing contributions and/or matching contributions
with investments in only Class A Shares and Class C Shares or certain other
funds in the Delaware Investments family. Purchases under the Plan may be
combined for purposes of computing the reduced front-end sales charge applicable
to Class A Shares as set forth in the table the Prospectus for the Fund Classes.
Deferred Compensation Plan for Public Schools and Non-Profit Organizations
("403(b)(7)")
Section 403(b)(7) of the Code permits public school systems and certain
non-profit organizations to use mutual fund shares held in a custodial account
to fund deferred compensation arrangements for their employees. A custodial
account agreement is available for those employers who wish to purchase shares
of any of the Classes in conjunction with such an arrangement. Purchases under
the Plan may be combined for purposes of computing the reduced front-end sales
charge applicable to Class A Shares as set forth in the table the Prospectus for
the Fund Classes.
Deferred Compensation Plan for State and Local Government Employees ("457")
Section 457 of the Code permits state and local governments, their
agencies and certain other entities to establish a deferred compensation plan
for their employees who wish to participate. This enables employees to defer a
portion of their salaries and any federal (and possibly state) taxes thereon.
Such plans may invest in shares of a Fund. Although investors may use their own
plan, there is available a Delaware Investments 457 Deferred Compensation Plan.
Interested investors should contact the Distributor or their investment dealers
to obtain further information. Purchases under the Plan may be combined for
purposes of computing the reduced front-end sales charge applicable to Class A
Shares as set forth in the table in the Prospectus for the Fund Classes.
SIMPLE IRA
A SIMPLE IRA combines many of the features of an IRA and a 401(k) Plan
but is easier to administer than a typical 401(k) Plan. It requires employers to
make contributions on behalf of their employees and also has a salary deferral
feature that permits employees to defer a portion of their salary into the plan
on a pre-tax basis. A SIMPLE IRA is available only to plan sponsors with 100 or
fewer employees.
SIMPLE 401(k)
A SIMPLE 401(k) is like a regular 401(k) except that it is available
only to plan sponsors 100 or fewer employees and, in exchange for mandatory plan
sponsor contributions, discrimination testing is no longer required. Class B
Shares are not available for purchase by such plans.
DETERMINING OFFERING PRICE AND NET ASSET VALUE
Orders for purchases of Class A Shares are effected at the offering
price next calculated by a Fund in which shares are being purchased after
receipt of the order by the Fund, its agent or certain other authorized persons.
See Distribution and Service under Investment Management Agreement and
Sub-Advisory Agreement.
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Orders for purchases of Class B Shares, Class C Shares, Institutional Class
Shares and Consultant Class Shares are effected at the net asset value per share
next calculated after receipt of the order by a Fund in which shares are being
purchased, its agent or certain other authorized persons. Selling dealers have
the responsibility of transmitting orders promptly.
The offering price for Class A Shares consists of the net asset value
per share plus any applicable 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 and is incorporated by reference into Part B.
Each Fund's net asset value per share is computed by adding the value
of all the securities and other assets in the portfolio, deducting any
liabilities and dividing by the number of shares outstanding. Expenses and fees
are accrued daily. In determining a Fund's total net assets, portfolio
securities listed or traded on a national securities exchange, except for bonds,
are valued at the last sale price on the exchange upon which such securities are
primarily traded. 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. Foreign currencies and the prices of foreign securities denominated
in foreign currencies are translated to U.S. Dollars at the mean between the bid
and offer quotations of such currencies based on rates in effect as of the close
of the London Stock Exchange. Use of a pricing service has been approved by the
Board of Trustees. Prices provided by a pricing service take into account
appropriate factors such as institutional trading in similar groups of
securities, yield, quality, coupon rate, maturity, type of issue, trading
characteristics and other market data. If no quotations are available, all other
securities and assets are valued at fair value as determined in good faith and
in a method approved by the Board of Trustees.
Each Class of each Fund will bear, pro-rata, all of the common expenses
of its respective Fund. The net asset values of all outstanding shares of each
class of a Fund will be computed on a pro-rata basis for each outstanding share
based on the proportionate participation in that Fund represented by the value
of shares of that class. All income earned and expenses incurred by a Fund will
be borne on a pro-rata basis by each outstanding share of a Class, based on each
Class' percentage in that Fund represented by the value of shares of such
Classes, except that the Institutional Class will not incur any of the expenses
under the Trust's 12b-1 Plans and Class A Shares, Class B Shares and Class C
Shares of each Fund alone will bear the 12b-1 Plan expenses payable under their
respective Plans. Due to the specific distribution expenses and other costs that
will be allocable to each class, the NAV of each class of a Fund will vary.
REDEMPTION AND EXCHANGE
You can redeem or exchange your shares in a number of different ways.
The exchange service is useful if your investment requirements change and you
want an easy way to invest in other equity funds, tax-advantaged funds, bond
funds or money market funds. This service is also useful if you are anticipating
a major
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expenditure and want to move a portion of your investment into a
fund that has the checkwriting feature. Exchanges are subject to the
requirements of each fund and all exchanges of shares constitute taxable events.
Further, in order for an exchange to be processed, shares of the fund being
acquired must be registered in the state where the acquiring shareholder
resides. You may want to consult your financial adviser or investment dealer to
discuss which funds 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. See the Prospectuses. A shareholder
submitting a redemption request may indicate that he or she wishes to receive
redemption proceeds of a specific dollar amount. In the case of such a request,
and in the case of certain redemptions from retirement plan accounts, 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. Holders of Class A, B, C and
Consultant Class Shares may request a redemption or an exchange by calling the
Shareholder Service Center at 800-523-1918. Holders of Institutional Class
Shares may request a redemption or an exchange by calling a Client Services
Representative at 800-510-4015. A 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 a Fund, offers to repurchase Fund shares from broker/dealers acting on
behalf of shareholders. The redemption or repurchase price, which may be more or
less than the shareholder's cost, is the net asset value per share next
determined after receipt of the request in good order by a Fund, its agent, or
certain authorized persons, subject to 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. Each Fund and
the Distributor end their business days at 5 p.m., Eastern time. This offer is
discretionary and may be completely withdrawn without further notice by the
Distributor.
Orders for the repurchase of Fund shares which are submitted to the
Distributor prior to the close of its business day will be executed at the net
asset value per share computed that day (subject to the applicable CDSC or
Limited CDSC), if the repurchase order was received by the broker/dealer from
the shareholder prior to the time the offering price and net asset value are
determined on such day. The selling dealer has the responsibility of
transmitting orders to the Distributor promptly. Such repurchase is then settled
as an ordinary transaction with the broker/dealer (who may make a charge to the
shareholder for this service) delivering the shares repurchased.
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Payment for shares redeemed will ordinarily be mailed the next business
day, but in no case later than seven days, after receipt of a redemption request
in good order by a Fund or certain other authorized persons (see Distribution
and Service under Investment Management Agreement and Sub-Advisory Agreement);
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.
A Fund will process written and telephone redemption requests to the
extent that the purchase orders for the shares being redeemed have already
settled. A Fund will honor redemption requests as to shares for which a check
was tendered as payment, but a Fund will not mail or wire the proceeds until it
is reasonably satisfied that the 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, a
Fund will automatically redeem from the shareholder's account the shares
purchased by the check plus any dividends earned thereon. Shareholders may be
responsible for any losses to 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, Foundation
Funds has elected to be governed by Rule 18f-1 under the 1940 Act pursuant to
which a 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, below.
Class B Shares of Income Portfolio, Balanced Portfolio and Growth Portfolio are
subject to a CDSC of: (i) 5% if shares are redeemed within one year of purchase;
(ii) 4% if shares are redeemed during the second year after purchase (iii) 3% if
shares are redeemed during the third or fourth year following purchase; (iv) 2%
if shares are redeemed during the fifth year following purchase; and (v) 1% if
shares are redeemed during the sixth year following purchase. Redemptions of
Class B Shares of Delaware S&P 500 Index Fund made within three years of
purchase are subject to a CDSC of 2% during the first two years of purchase and
1% during the third year of purchase. Class C Shares of each Fund are subject to
a CDSC of 1% if shares are redeemed within 12 months following purchase. See
Contingent Deferred Sales Charge - Class B Shares and Class C Shares under
Purchasing Shares. Except for the applicable CDSC or Limited CDSC and, with
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respect to the expedited payment by wire described below for which, in the case
of the Fund Classes and the Consultant Class, there may be a bank wiring cost,
neither the Funds nor the Distributor charge a fee for redemptions or
repurchases, but such fees could be charged at any time in the future.
Holders of Class B Shares or Class C Shares that exchange their shares
("Original Shares") for shares of other funds in Delaware Investments (in each
case, "New Shares") in a permitted exchange, will not be subject to a CDSC that
might otherwise be due upon redemption of the Original Shares. However, such
shareholders will continue to be subject to the CDSC and, in the case of Class B
Shares, the automatic conversion schedule of the Original Shares as described in
this 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 Class B Shares
from a Fund, the Fund's CDSC schedule may be higher than the CDSC schedule
relating to the New Shares acquired as a result of the exchange. For purposes of
computing the CDSC that may be payable upon a disposition of the New Shares, the
period of time that an investor held the Original Shares is added to the period
of time that an investor held the New Shares. With respect to Class B Shares,
the automatic conversion schedule of the Original Shares may be longer than that
of the New Shares. Consequently, an investment in New Shares by exchange may
subject an investor to the higher 12b-1 fees applicable to Class B Shares of a
Fund for a longer period of time than if the investment in New Shares were made
directly.
Written Redemption
You can write to your 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, a Fund requires 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"). A Fund reserves the right to reject a
signature guarantee supplied by an eligible institution based on its
creditworthiness. A Fund may require further documentation from corporations,
executors, retirement plans, administrators, trustees or guardians.
Payment is normally mailed the next business day after receipt of your
redemption request. If your 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, Institutional Class and Consultant Class 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 your Fund (at 1818 Market Street, Philadelphia,
PA 19103) to request an exchange of any or all of your shares into another
mutual fund in Delaware Investments, subject to the same conditions and
limitations as other exchanges noted above.
Telephone Redemption and Exchange
To get the added convenience of the telephone redemption and exchange
methods, you must have the Transfer Agent hold your shares (without charge) for
you. If you choose to have your Class A Shares, Institutional Class Shares or
Consultant Class 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. A Fund reserves the right to modify, terminate or suspend these
procedures upon 60 days' written notice to
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shareholders. It may be difficult to reach a Fund 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, a Fund will follow
reasonable procedures to confirm that instructions communicated by telephone are
genuine (including verification of a form of personal identification) as, if it
does not, such Fund or the Transfer Agent may be liable for any losses due to
unauthorized or fraudulent transactions. Telephone instructions received by the
Fund Classes and the Consultant Class 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 that 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. A bank wire fee may be deducted from
Fund Class and Consultant Class redemption proceeds. If you ask for a check, it
will normally be mailed the next business day after receipt of your redemption
request to your predesignated bank account. There are no separate fees for this
redemption method, but the mail time may delay getting funds into your bank
account. Simply call the Shareholder Service Center prior to the time the
offering price and net asset value are determined, as noted above.
Telephone Exchange
The Telephone Exchange feature is a convenient and efficient way to
adjust your investment holdings as your liquidity requirements and investment
objectives change. You or your investment dealer of record can exchange your
shares into other funds in Delaware Investments under the same registration,
subject to the same conditions and limitations as other exchanges noted above.
As with the written exchange service, telephone exchanges are subject to the
requirements of each Fund, as described above. Telephone exchanges may be
subject to limitations as to amounts or frequency.
The telephone exchange privilege is intended as a convenience to
shareholders and is not intended to be a vehicle to speculate on short-term
swings in the securities market through frequent transactions in and out of the
funds in the Delaware Investments family. Telephone exchanges may be subject to
limitations as to amounts or frequency. The Transfer Agent and each Fund reserve
the right to record exchange instructions received by telephone and to reject
exchange requests at any time in the future.
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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"), a Fund will refuse any new timing
arrangements, as well as any new purchases (as opposed to exchanges) in Delaware
Investments funds from Timing Firms. Each Fund reserves the right to temporarily
or permanently terminate the exchange privilege or reject any specific purchase
order for any person whose transactions seem to follow a timing pattern who: (i)
makes an exchange request out of a Fund within two weeks of an earlier exchange
request out of such Fund, or (ii) makes more than two exchanges out of a Fund
per calendar quarter, or (iii) exchanges shares equal in value to at least $5
million, or more than 1/4 of 1% of a 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)
Delaware Decatur Equity Income Fund, (2) Delaware Growth and Income Fund, (3)
Delaware Small Cap Value Fund, (4) Delaware Limited-Term Government Fund, (5)
Delaware Trend Fund, (6) Delaware Cash Reserve Fund, (7) Delaware Delchester
Fund and (8) Delaware Tax-Free Pennsylvania Fund. No other Delaware Investments
funds are available for timed exchanges. Assets redeemed or exchanged out of
Timing Accounts in Delaware Investments funds not listed above may not be
reinvested back into that Timing Account. Each Fund reserves the right to apply
these same restrictions to the account(s) of any person whose transactions seem
to follow a time pattern (as described above).
Each Fund also reserves the right to refuse the purchase side of an
exchange request by any Timing Account, person, or group if, in the Manager's
judgment, a Fund would be unable to invest effectively in accordance with its
investment objectives and policies, or would otherwise potentially be adversely
affected. A shareholder's purchase exchanges may be restricted or refused if a
Fund receives or anticipates simultaneous orders affecting significant portions
of 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, Class C Shares and
Consultant Class 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 a
Fund does 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. This $5,000 minimum does not apply for a Fund's
prototype retirement plans. Shares purchased with the initial investment and
through reinvestment of cash dividends and realized securities
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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. Premature withdrawals from
retirement plans may have adverse tax consequences.
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 a participant in one of our
retirement plans or is investing in Delaware Investments funds which do not
carry a sales charge. Redemptions of Class A Shares pursuant to a Systematic
Withdrawal Plan may be subject to a Limited CDSC if the purchase was made at net
asset value and a dealer's commission has been paid on that purchase. The
applicable Limited CDSC for Class A Shares and CDSC for Class B and C Shares
redeemed via a Systematic Withdrawal Plan will be waived if the annual amount
withdrawn in each year is less than 12% of the account balance on the date that
the Plan is established. If the annual amount withdrawn in any year exceeds 12%
of the account balance on the date that the Systematic Withdrawal Plan is
established, all redemptions under the Plan will be subjected to the applicable
contingent deferred sales charge, including an assessment for previously
redeemed amounts under the Plan. Whether a waiver of the contingent deferred
sales charge is available or not, the first shares to be redeemed for each
Systematic Withdrawal Plan payment will be those not subject to a contingent
deferred sales charge because they have either satisfied the required holding
period or were acquired through the reinvestment of distributions. See Waiver 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. A Fund reserves the right to reject a
signature guarantee supplied by an eligible institution based on its
creditworthiness. This plan may be terminated by the shareholder or the Transfer
Agent at any time by giving written notice.
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
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must have your signature guaranteed. The Funds do not charge a fee for any this
service; however, your bank may charge a fee. This service is not available for
retirement plans.
The Systematic Withdrawal Plan is not available for the Institutional
Classes. 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 of Income Portfolio, Balanced Portfolio
and Growth Portfolio 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 (one
year with respect to Delaware S&P 500 Index Fund) 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 (one-year period with respect
to Delaware S&P 500 Index Fund) is not satisfied irrespective of whether the
redemption triggering its payment is of Class A Shares of a Fund or Class A
Shares acquired in the exchange.
In determining whether a Limited CDSC is payable, it will be assumed
that shares not subject to the Limited CDSC are the first redeemed followed by
other shares held for the longest period of time. The Limited CDSC will not be
imposed upon shares representing reinvested dividends or capital gains
distributions, or upon amounts representing share appreciation. All investments
made during a calendar month, regardless of what day of the month the investment
occurred, will age one month on the last day of that month and each subsequent
month.
Waivers of Contingent Deferred Sales Charges
Waiver of Limited Contingent Deferred Sales Charge - Class A Shares
The Limited CDSC for Class A Shares on which a dealer's commission has
been paid will be waived in the following instances: (i) redemptions that result
from a Fund's right to liquidate a shareholder's account if the aggregate net
asset value of the shares held in the account is less than the then-effective
minimum account size; (ii) distributions to participants from a retirement plan
qualified under section 401(a) or 401(k) of the Internal Revenue Code of 1986,
as amended (the "Code"), or due to death of a participant in such a plan; (iii)
redemptions pursuant to the direction of a participant or beneficiary of a
retirement plan qualified under section 401(a) or 401(k) of the Code with
respect to that retirement plan; (iv) periodic distributions from an IRA,
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SIMPLE IRA, or 403(b)(7) or 457 Deferred Compensation Plan due to death,
disability, or attainment of age 59 1/2, and IRA distributions qualifying under
Section 72(t) of the Internal Revenue Code; (v) returns of excess contributions
to an IRA; (vi) distributions by other employee benefit plans to pay benefits;
(vii) distributions described in (ii), (iv), and (vi) above pursuant to a
systematic withdrawal plan; (viii) distributions form an account if the
redemption results from a death of a 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 disability
(as defined in Section 72 of the Code) of all registered owners occurring after
the purchase of the shares being redeemed; and (ix) 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; (ii) returns of excess contributions to an IRA, SIMPLE IRA,
SEP/IRA, or 403(b)(7) or 457 Deferred Compensation Plan; (iii) periodic
distributions from an IRA, SIMPLE IRA, SAR/SEP, SEP/IRA, or 403(b)(7) or 457
Deferred Compensation Plan due to death, disability or attainment of age 59 1/2,
and IRA distributions qualifying under Section 72(t) of the Internal Revenue
Code; and (iv) distributions from an account if the redemption results from the
death of a 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 on 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; (ii) returns of
excess contributions to an IRA, SIMPLE IRA, 403(b)(7) or 457 Deferred
Compensation Plan, Profit Sharing Plan, Money Purchase Pension Plan, or 401(k)
Defined Contribution plan; (iii) periodic distributions from a 403(b)(7) or 457
Deferred Compensation Plan upon attainment of age 59 1/2, Profit Sharing Plan,
Money Purchase Plan, 401(k) Defined Contribution Plan upon attainment of age 70
1/2, and IRA distributions qualifying under Section 72(t) of the Internal
Revenue Code; (iv) distributions from a 403(b)(7) or 457 Deferred Compensation
Plan, Profit Sharing Plan, or 401(k) Defined Contribution Plan, under hardship
provisions of the plan; (v) distributions from a 403(b)(7) or 457 Deferred
Compensation Plan, Profit Sharing Plan, Money Purchase Pension Plan or a 401(k)
Defined Contribution Plan upon attainment of normal retirement age under the
plan or upon separation from service; (vi) periodic distributions from an IRA or
SIMPLE IRA on or after attainment of age 59 1/2; and (vii) distributions from an
account if the redemption results from the death of a 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 on Class A Shares and the CDSC on Class B
Shares and Class C Shares will be waived on shares redeemed in accordance with a
Systematic Withdrawal Plan if the annual amount selected to be withdrawn under
the Plan does not exceed 12% of the value of the account on the date that the
Systematic Withdrawal Plan was established or modified.
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<PAGE>
DIVIDENDS AND REALIZED SECURITIES PROFITS DISTRIBUTIONS
The Income and Balanced Portfolio and the Delaware S&P 500 Index Fund
will normally make payments from net investment income, if any, on a quarterly
basis. The Growth Portfolio will normally make payments from net investment
income, if any, on an annual basis. Payments from net realized securities
profits of a Fund, if any, will normally be distributed annually in the quarter
following the close of the fiscal year.
Each Class of shares of a Fund will share proportionately in the
investment income and expenses of that Fund, except that Class A Shares, Class B
Shares, Class C Shares and Consultant Class alone will incur distribution fees
under their respective 12b-1 Plans.
Dividends are automatically reinvested in additional shares of the same
Class of the respective Fund at net asset value, unless, in the case of
shareholders of the Fund Classes, an election to receive dividends in cash has
been made. Payment by check of cash dividends will ordinarily be mailed within
three business days after the payable date. Dividend payments of $1.00 or less
will be automatically reinvested, notwithstanding a shareholder's election to
receive dividends in cash. If such a shareholder's dividends increase to greater
than $1.00, the shareholder would have to file a new election in order to begin
receiving dividends in cash again. If a shareholder redeems an entire account,
all dividends accrued to the time of the withdrawal will be paid by separate
check at the end of that particular monthly dividend period, consistent with the
payment and mailing schedule described above.
Any check in payment of dividends or other distributions which cannot
be delivered by the United States Post Office or which remains uncashed for a
period of more than one year may be reinvested in the shareholder's account at
the then-current net asset value and the dividend option may be changed from
cash to reinvest. A Fund may deduct from a shareholder's account the costs of a
Fund's effort to locate a shareholder if a shareholder's mail is returned by the
United States Post Office or a 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.
TAXES
Dividends from investment income and short-term capital gains
distributions are treated by shareholders as ordinary income for federal income
tax purposes. Distributions of long-term capital gains, if any, are taxable to
shareholders as long-term capital gains, regardless of the length of time an
investor has held such shares, and these gains are currently taxed at long-term
capital gain rates described below. The tax status of dividends and
distributions paid to shareholders will not be affected by whether they are paid
in cash or in additional shares. Persons not subject to tax will not be required
to pay taxes on distributions. Each Fund is treated as a single tax entity and
capital gains for each Fund will be calculated separately.
A portion of each Fund's dividends may qualify for the
dividends-received deduction for corporations provided in the federal income tax
law. The portion of dividends paid by a Fund that so qualifies will be
designated each year in a notice mailed to a Fund's shareholders, and cannot
exceed the gross amount of dividends received by a Fund from domestic (U.S.)
corporations that would have qualified for the dividends-received deduction in
the hands of a Fund if the Fund were a regular corporation. The availability of
the dividends-received deduction is subject to certain holding period and debt
financing restrictions imposed under the Code on the corporation claiming the
deduction. Under the 1997 Act, the amount that a Fund may designate as eligible
for the dividends-received deduction will be reduced or eliminated if the shares
on which the
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<PAGE>
dividends earned by a Fund were debt-financed or held by a Fund for less than a
46-day period during a 90-day period beginning 45 days before the ex-dividend
date and ending 45 days after the ex-dividend date. Similarly, if your Fund
shares are debt-financed or held by you for less than a 46-day period during a
90-day period beginning 45 days before the ex-dividend date and ending 45 days
after the ex-dividend date, then the dividends-received deduction for Fund
dividends on your shares may also be reduced or eliminated. Even if designated
as dividends eligible for the dividends-received deduction, all dividends
(including any deducted portion) must be included in your alternative minimum
taxable income calculation. Advice as to the tax status of each year's dividends
and distributions, when paid, will be mailed annually. For the fiscal year ended
September 30, 1999, 100%, 86% and 54% of Income Portfolio's, Balanced
Portfolio's and Growth Portfolio's, respectively, dividends from net investment
income qualified for the dividends-received deduction.
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:
"Long-term capital gains": gains on securities sold after December 31,
1997 and held for more than 12 months as capital assets in the hands of the
holders are taxed at the 20% rate when distributed to shareholders (10% for
individual investors in the 15% bracket).
"Short-term capital gains": gains on securities sold by a Fund that do
not meet the long-term holding period are considered short-term capital gains
and are taxed as ordinary income.
"Qualified 5-year gains": For individuals in the 15% bracket, qualified
five-year gains are net gains on securities held for more than 5 years which are
sold after December 31, 2000. For individuals 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.
If you redeem some or all of your shares in a Fund, and then reinvest
the sales proceeds in such Fund or in another Delaware Investments fund within
90 days of buying the original shares, the sales charge that would otherwise
apply to your reinvestment may be reduced or eliminated. The IRS will require
you to report gain or loss on the redemption of your original shares in a Fund.
In doing so, all or a portion of the sales charge that you paid for your
original shares in a Fund will be excluded from your tax basis in the shares
sold (for the purpose of determining gain or loss upon the sale of such shares).
The portion of the sales charge excluded will equal the amount that the sales
charge is reduced on your reinvestment. Any portion of the sales charge excluded
from your tax basis in the shares sold will be added to the tax basis of the
shares you acquire from your reinvestment.
Shareholders will be notified annually by the Trust as to the federal
income tax status of dividends and distributions paid by their Fund.
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<PAGE>
In addition to the federal taxes described above, shareholders may or
may not be subject to various state and local taxes. Because shareholders' state
and local taxes may be different than the federal taxes described above,
shareholders should consult their own tax advisers.
See also Other Tax Requirements under Accounting and Tax Issues in this
Part B.
INVESTMENT MANAGEMENT AGREEMENT AND SUB-ADVISORY AGREEMENT
The Manager, located at One Commerce Square, Philadelphia, PA 19103,
furnishes investment management services to the Funds, subject to the
supervision and direction of the Trust's Board of Trustees.
The Manager and its predecessors have been managing the funds in the
Delaware Investments family since 1938. On September 30, 1999, the Manager and
its affiliates within Delaware Investments, including Delaware International
Advisers Ltd., were managing in the aggregate more than $46 billion in assets in
the various institutional or separately managed (approximately $27,671,110,000)
and investment company (approximately $18,401,910,000) accounts.
The Investment Management Agreement for Income Portfolio and Balanced
Portfolio is dated April 1, 1999 and was approved by shareholders on March 17,
1999. The Investment Management Agreement for Growth Portfolio is dated April
15, 1999 and was approved by shareholders on April 13, 1999. The Investment
Management Agreement for Delaware S&P 500 Index Fund is dated December 30, 1999
and was approved by the initial shareholder on that date. The 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 a
Fund, and only if the terms and the renewal thereof have been approved by the
vote of a majority of the trustees of the Trust who are not parties thereto or
interested persons of any such party, cast in person at a meeting called for the
purpose of voting on such approval. The Agreement is terminable without penalty
on 60 days' notice by the trustees of the Trust or by the Manager. The Agreement
will terminate automatically in the event of its assignment.
The Manager is paid an annual a fee equal to 0.25% (contractually
waived to 0.10% through November 30, 2000) of average daily net assets of each
of the Income Portfolio, Balanced Portfolio and Growth Portfolio.
The Manager is paid an annual a fee equal to 0.07% of average daily net
assets of the Delaware S&P 500 Index Fund.
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<PAGE>
On September 30, 1999, the total net assets of the Balanced Fund,
Growth Fund and Income Fund were $19,271,328, $13,459,884, and $17,734,238,
respectively. Investment management fees incurred, paid and waived for the
fiscal period December 31, 1997 through September 30, 1998 and for the fiscal
year ended September 30, 1999 with respect to the Income, Balanced and Growth
Portfolios were as follows:
1998 1999
Balanced Portfolio $623 earned $16,252 earned
$-0- paid $-0- paid
$623 waived $16,252 waived
Growth Portfolio $522 earned $11,302 earned
$-0- paid $-0- paid
$522 waived $11,302 waived
Income Portfolio $244 earned $14,125 earned
$-0- paid $-0- paid
$244 waived $14,125 waived
Under the general supervision of the Board of Directors, the Manager
makes all investment decisions which are implemented by the Funds. The Manager
pays the salaries of all directors, officers and employees who are affiliated
with both the Manager and the Funds.
Except for those expenses borne by the Manager under the Investment
Management Agreement and the Distributor under the Distribution Agreements, the
Funds are responsible for all of their own expenses. Among others, these include
a Fund's proportionate share of rent and certain other administrative expenses;
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.
The Manager has elected voluntarily to waive that portion, if any, of
the annual Investment Management Fees payable by the Income, Balanced and Growth
Portfolio and to pay each Funds' expenses to the extent necessary to ensure that
the "Total Operating Expenses" of the such Funds do not exceed 0.55% (exclusive
of taxes, interest, brokerage commissions, extraordinary expenses and applicable
12b-1 expenses) through June 30, 1999. The Manager has contracted to waive that
portion, if any, of the annual Asset Allocation Fees payable by such Funds and
to pay the Funds' expenses to the extent necessary to ensure that the "Total
Operating Expenses" of the Funds do not exceed 0.55% (exclusive of taxes,
interest, brokerage commissions, extraordinary expenses and applicable 12b-1
expenses) through November 30, 2000.
State Street Global Advisors, Two International Place, Boston, MA
02110, serves as Sub-Adviser to Delaware S&P 500 Index Fund. As sub-adviser,
State Street is responsible for day-to-day management of the Fund's assets.
State Street currently manages large institutional accounts and collective
investment funds. As of September 30, 1999, State Street had assets of $587.2
billion under management. For its services to the Fund, the Manager will pay
State Street an annual fee equal to 0.05% on the first $50 million of average
daily net assets, 0.04% on the next $50 million of average daily net assets and
0.02% on average daily net assets in excess of $100 million.
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<PAGE>
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. The Distributor is an
affiliate of the Manager and bears all of the costs of promotion and
distribution, except for payments by the Funds on behalf of their respective
Class A Shares, Class B Shares, Class C Shares and Consultant Class Shares under
their 12b-1 Plans. The Distributor is an indirect, wholly owned subsidiary of
DMH, Inc.
The Transfer Agent, Delaware Service Company, Inc., another affiliate
of the Manager located at 1818 Market Street, Philadelphia, PA 19103, serves as
the Funds' shareholder servicing, dividend disbursing and transfer agent
pursuant to a Shareholders Services Agreement. 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.
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.
OFFICERS AND TRUSTEES
The business and affairs of the Trust are managed under the direction
of its Board of Trustees.
Certain officers and directors of the Trust hold identical positions in
each of the other funds in the Delaware Investments family. On November 30,
1999, the Trust's officers and trustees owned less than 1% of the outstanding
shares of each Class of each Fund.
As of November 30, 1999, management believes the following accounts
held 5% or more of the outstanding shares of a Class of the Funds. The Funds
have no knowledge of beneficial ownership.
<TABLE>
<CAPTION>
Class Name of Address of Account Share Amount Percentage
- ----- -------------------------- ------------- ----------
<S> <C> <C> <C>
Income Portfolio DMTC RS 401(k) 1,865,803.600 94.54%
Class A Shares Hoag Memorial Hospital Savings Plan
One Hoag Drive
Newport Beach, CA 92658
Income Portfolio NFSC FEBO #OKS-998419 13,928.660 47.20%
Class B Shares NFSC/FMTC IRA Rollover
FBO Jonathan J. Williams
1122 Sinclair Way
Roseville, CA 95747-5814
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Class Name of Address of Account Share Amount Percentage
- ----- -------------------------- ------------- ----------
<S> <C> <C> <C>
Income Portfolio Prudential Securities, Inc. FBO 4,579.180 15.51%
Class B Shares Mr. Arthur L. Harbin
IRA Rollover dtd 06/23/98
725 W. 104th St.
Los Angeles, CA 90044-4405
NFSC FEBO #BQ7-019119 2,508.360 8.50%
R. James Benninghoff
5601 Coldwater Road
Fort Wayne, IN 46825-5450
NFSC FEBO #OKS-609277 1,734.040 5.87%
NFSC/FMTC IRA
FBO Teresa Linsteadt
12753 Manor Dr.
Auburn, CA 95603-3621
Income Portfolio David L. Stoner & 3,425.130 14.75%
Class C Shares Janet F. Stoner JTWROS
3207 Bowman Rd.
Landisville, PA 17538-1830
H. Dale Zimmerman 2,319.480 9.99%
Norma J. Zimmerman JT WROS
775 Stone Hill Road
Shoemakersville, PA 19555-9046
DMTC Custodian for the IRA of 1,986.150 8.55%
Barbara J. Turner
485 Martic Heights Dr.
Holtwood, PA 17532-9683
Ruby D. Miller 1,970.750 8.48%
6451 County Road
Millersburg, OH 44654
RS DMTC 401(k) Plan 1,957.690 8.43%
Shore Line Construction, Inc.
P.O. Box 181
County Rd. 38 & Primehook Rd.
Milton, DE 19968
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Class Name of Address of Account Share Amount Percentage
- ----- -------------------------- ------------- ----------
<S> <C> <C> <C>
Income Portfolio Donaldson Lufkin Jenrette 1,773.030 7.63%
Class C Shares Securities Corporation Inc
P.O. Box 2052
Jersey City, NJ 07303-2052
DMTC Custodian for the IRA of 1,539.330 6.63%
Amos A. Bricker
2754 Mount Pleasant Road
Mount Joy, PA 17552-8728
Irvin B. Horst & 1,162.730 5.00%
Janis A. Horst JTWROS
33 N. Millbach Rd.
Newmanstown, PA 17073-9127
Income Portfolio Delaware Management Business Trust-DIA 6,205.180 89.37%
Institutional Class Attn: Joseph Hastings
1818 Market Street, 16th Floor
Philadelphia, PA 19103-3638
RS Money Purchase Pension 368.990 5.31%
Iatse Atlanta Annuity Trust Fund
1299 Battlecreek Rd.
Suite 200
P.O. Box 607
Jonesboro, GA 30237-0607
Income Portfolio RS DMTC 401(k) Plan 368.500 5.30%
Institutional Class United Subcontractors 401(k) Plan
1005 N. Church St.
Charlotte, NC 28206
Balanced Portfolio DMTC RS 401(k) 1,438,368.770 73.91%
Class A Shares Hoag Memorial Hospital Savings Plan
One Hoag Dr.
Newport Beach, CA 92658
Balanced Portfolio FISERV Securities Inc. 9,236.570 7.65%
Class B Shares FAO 45021199
Attn: Mutual Funds
One Commerce Square
2005 Market Street Suite 1200
Philadelphia, PA 19103-7084
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Class Name of Address of Account Share Amount Percentage
- ----- -------------------------- ------------- ----------
<S> <C> <C> <C>
Balanced Portfolio Sarah A. Anthony 8,429.910 6.99%
Class B Shares RR 3 Box 137
Kunkletown, PA 18058-9521
Paine Webber Incorporated 6,677.460 5.53%
For benefit of Janine Gimpelman Sokolov
and Barbara J. Brigham Co-Ex
137066333
1000 Harborside Blvd.
Weehawken, NJ 07087
Balanced Portfolio DMTC For the Rollover IRA of 8,114.550 9.13%
Class C Shares Joan F. Sylvander
1757 East 26th Street
Brooklyn, NY 11229-2405
DMTC For the Rollover IRA of 6,525.840 7.34%
Catherine A. Horch
133 Henry St. - Apt. 8
Brooklyn, NY 11201
Dain Rauscher Inc. FBO 6,196.250 6.97%
Anne S. Hershbell
732 Kenmore Rd.
Amherst, VA 24521-3222
DMTC C/F the Rollover IRA of 5,613.530 6.31%
Josephine Benfatti
2017 Kimball Street
Brooklyn, NY 11234-5021
Paul K. Graybill and 5,038.850 5.67%
Grace H. Graybill, TEN ENT
4 Bomberger Road
Lititz, PA 17543-9510
NFSC FEBO #BQD-907103 4,451.550 5.01%
NFSC/FMTC IRA
FBO Carol W. Andrews
65 Newtown Ave.
Norwalk, CT 06851-3009
</TABLE>
-87-
<PAGE>
<TABLE>
<CAPTION>
Class Name of Address of Account Share Amount Percentage
- ----- -------------------------- ------------- ----------
<S> <C> <C> <C>
Balanced Portfolio Delaware Management Business Trust-DIA 6,099.430 82.80%
Institutional Class Attn: Joseph Hastings
1818 Market Street, 16th Floor
Philadelphia, PA 19103-3638
RS DMTC 401(k) Plan 854.900 11.60%
United Subcontractors 401(k) Plan
1005 N. Church St.
Charlotte, NC 28206
RS Money Purchase Pension 411.990 5.59%
Iatse Atlanta Annuity Trust Fund
1299 Battlecreek Rd.
Suite 200
P.O. Box 607
Jonesboro, GA 30237-0607
Growth Portfolio DMTC RS 401(k) 799,847.110 66.78%
Class A Shares Hoag Memorial Hospital Savings Plan
One Hoag Dr.
Newport Beach, CA 92658
RS DMTC 401(k) Plan 122,977.740 10.26%
Bottcher America Corp.
4600 Mercedes Dr.
Belcamp, MD 21017
Growth Portfolio DMTC C/F the Rollover IRA of 23,118.270 13.11%
Class B Shares Louis E. Meador
1301 Camden Place
Lawrenceville, GA 30043-5206
DMTC C/F The Beneficiary IRA of 12,279.350 6.96%
Jeanne Milner
300 Turner Rd.
Concord, GA 30206-2611
NFSC FEBO #BQ5-959685 9,061.320 5.14%
NFSC/FMTC IRA For the Benefit of
Joseph Morten Elkins
10602 Gray Fox Way
Savannah, GA 31406-4416
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Class Name of Address of Account Share Amount Percentage
- ----- -------------------------- ------------- ----------
<S> <C> <C> <C>
Growth Portfolio RS DMTC 401(k) Plan 6,214.190 12.38%
Class C Shares Shore Line Construction, Inc.
P.O. Box 181
County Rd. 38 & Primehook Rd.
Milton, DE 19968
RS DMTC 401(k) Plan 5,169.850 10.30%
L.L. Baumunk & Son
Route 154
Shunk, PA 17768
RS DMTC 401(k) Plan 4,128.850 8.22%
American Independent Insurance Co.
633 W. Germantown Pike
Suite 208
Plymouth Meeting, PA 19462
RS DMTC 401(k) Plan 3,951.920 7.87%
Warren S. Kurnick MD 401(k) Plan
215 Sunset Rd.
Willingboro, NJ 08046
Richard K. Morford 3,460.750 6.89%
1109 Tall Pines Court
Petoskey, MI 49770-3200
RS DMTC 401(k) Plan 2,901.680 5.78%
Genfed Federal Credit Union
85 Massilon Rd.
Akron, OH 44312
Growth Portfolio Delaware Management Business Trust-DIA 5,962.100 78.26%
Institutional Class Attn: Joseph Hastings
1818 Market Street, 16th Floor
Philadelphia, PA 19103-3638
RS Money Purchase Pension 1,159.400 15.21%
Iatse Atlanta Annuity Trust Fund
1299 Battlecreek Rd.
Suite 200
P.O. Box 607
Jonesboro, GA 30237-0607
RS DMTC 401(k) Plan 469.670 6.51%
United Subcontractors 401(k) Plan
1005 N. Church St.
Charlotte, NC 28206
</TABLE>
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<PAGE>
DMH Corp., Delvoy, Inc., Delaware Management Business Trust, Delaware
Management Company, Inc., Delaware Management Company (a series of Delaware
Management Business Trust), Delaware Investment Advisers (a series of Delaware
Management Business Trust), Delaware 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., Delaware General
Management, Inc. and Retirement Financial Services, Inc. are direct or indirect,
wholly owned subsidiaries of Delaware Management Holdings, Inc. ("DMH"). On
April 3, 1995, a merger between DMH and a wholly owned subsidiary of Lincoln
National Corporation ("Lincoln National") was completed. DMH and the Manager are
now indirect, wholly owned subsidiaries, and subject to the ultimate control, of
Lincoln National. Lincoln National, with headquarters in Fort Wayne, Indiana, is
a diversified organization with operations in many aspects of the financial
services industry, including insurance and investment management.
Certain officers and trustees of the Trust hold identical positions in
each of the other funds in the Delaware Investments family. Trustees and
principal officers of the Trust 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 trustee is One Commerce Square, Philadelphia, PA 19103.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Officer and Trustee
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
*Wayne A. Stork (62) Chairman and Trustee and/or Director of Foundation Funds and each of the other
32 investment companies in the Delaware Investments family.
Prior to January 1, 1999, Mr. Stork was Chairman and Trustee and/or Director of
Delaware Capital Management, Inc.; Chairman, President, Chief Executive Officer
and Director of DMH Corp., Delaware Distributors, Inc. and Founders Holdings,
Inc.; Chairman, President, Chief Executive Officer, Chief Investment Officer and
Director/Trustee of Delaware Management Company, Inc. and Delaware Management
Business Trust; Chairman, President, Chief Executive Officer and Chief
Investment Officer of Delaware Management Company (a series of Delaware
Management Business Trust); Chairman, Chief Executive Officer and Chief
Investment Officer of Delaware Investment Advisers (a series of Delaware
Management Business Trust); Chairman, Chief Executive Officer and Director of
Delaware International Advisers Ltd., Delaware International Holdings Ltd. and
Delaware Management Holdings, Inc.; President and Chief Executive Officer of
Delvoy, Inc.; Chairman of Delaware Distributors, L.P.; Director of Delaware
Service Company, Inc. and Retirement Financial Services, Inc. Prior to January
1, 2000, Mr. Stork was Chairman and Director of Delaware Management Holdings,
Inc. and a Director of Delaware International Advisers Ltd. In addition, during
the five years prior to January 1, 1999, Mr. Stork has served in various
executive capacities at different times within Delaware Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------------------
*Trustee affiliated with the Foundation Funds' investment manager and considered
an "interested person" as defined in the 1940 Act.
-90-
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Officer and Trustee
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
*David K. Downes (60) President, Chief Executive Officer, Chief Financial Officer and Trustee and/or
Director of Foundation Funds and each of the other 32 investment companies in
the Delaware Investments family.
President and Director of Delaware Management Company, Inc.
President, Chairman, Chief Executive Officer and Director of Delaware Service
Company, Inc. and Delaware Capital Management, Inc.
President, Chief Operating Officer, Chief Financial Officer and Director of
Delaware International Holdings Ltd.
President of Delaware Management Company (a series of Delaware Management
Business Trust).
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.
President, Chief Operating Officer and Director of Delaware General Management,
Inc.
Director of Delaware International Advisers Ltd.
During the past five years, Mr. Downes has served in various executive
capacities at different times within Delaware Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------------------
*Trustee affiliated with Foundation Funds' investment manager and considered an
"interested person" as defined in the 1940 Act.
-91-
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Officer
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Richard G. Unruh, Jr. (60) Executive Vice President and Chief Investment Officer, Equity of Foundation
Funds, each of the other 32 investment companies in the Delaware Investments
family and Delaware Management Company (a series of Delaware Management Business
Trust).
Chief Executive Officer/Chief Investment Officer of Delaware Investment Advisers
(a series of Delaware Management Business Trust)
Executive Vice President and Trustee of Delaware Management Business Trust
Executive Vice President of Delaware Management Holdings, Inc. and Delaware
Capital Management, Inc.
Director of Delaware International Advisers Ltd.
During the past five years, Mr. Unruh has served in various executive capacities
at different times within Delaware Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
H. Thomas McMeekin (46) Executive Vice President and Chief Investment Officer, Fixed Income of
Foundation Funds and each of the other 32 investment companies in the Delaware
Investments family, Delaware Management Company (a series of Delaware Management
Business Trust) and Delaware Investment Advisers (a series of Delaware
Management Business Trust)
Executive Vice President of Delaware Management Business Trust and Delaware
Capital Management, Inc.
Executive Vice President and Director of Delaware Management Holdings, Inc.
From 1987 to 1999, Mr. McMeekin has been employed in various executive
capacities by Lincoln Investment Management, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Officer
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Richard J. Flannery (42) Executive Vice President and General Counsel of Foundation Funds and each of the
other 32 investment companies in the Delaware Investments family
Executive Vice President and General Counsel of 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 and/or Trustee of Delaware
Management Trust Company, DMH Corp., Delaware Management Company, Inc., Delaware
Capital Management, Inc., Delaware Distributors, Inc., Delaware International
Advisers Ltd., Delaware International Holdings Ltd., Founders Holdings, Inc.,
Delvoy, Inc., Delaware Service Company, Inc., Delaware Management Business
Trust, Delaware General Management, Inc. and Retirement Financial Services, Inc.
Director of Delaware International Advisers Ltd.
Director, HYPPCO Finance Company Ltd.
During the past five years, Mr. Flannery has served in various executive
capacities at different times within Delaware Investments organization.
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</TABLE>
-93-
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Trustee
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Walter P. Babich (72) Trustee and/or Director of Foundation Funds and each of the other 32 investment
companies in the Delaware Investments family
460 North Gulph Road, King of Prussia, PA 19406
Board Chairman, Citadel Constructors, Inc.
From 1986 to 1988, Mr. Babich was a partner of Irwin & Leighton and from 1988 to
1991, he was a partner of I&L Investors.
- ------------------------------------------------------------------------------------------------------------------------------------
John H. Durham (62) Trustee and/or Director of Foundation Funds and 18 other investment companies in
the Delaware Investments family.
Private Investor.
P.O. Box 819, Gwynedd Valley, PA 19437
Mr. Durham served as Chairman of the Board of each fund in the Delaware
Investments family from 1986 to 1991; President of each fund from 1977 to 1990;
and Chief Executive Officer of each fund from 1984 to 1990. Prior to 1992, with
respect to Delaware Management Holdings, Inc., Delaware Management Company,
Delaware Distributors, Inc. and Delaware Service Company, Inc., Mr. Durham
served as a director and in various executive capacities at different times. He
was also a Partner of Complete Care Services from 1995 to 1999.
- ------------------------------------------------------------------------------------------------------------------------------------
Anthony D. Knerr (61) Trustee and/or Director of Foundation Funds and each of the 32 other investment
companies in the Delaware Investments family
500 Fifth Avenue, New York, NY 10110
Founder and Managing Director, Anthony Knerr & Associates
From 1982 to 1988, Mr. Knerr was Executive Vice President/Finance and Treasurer
of Columbia University, New York. From 1987 to 1989, he was also a lecturer in
English at the University. In addition, Mr. Knerr was Chairman of The Publishing
Group, Inc., New York, from 1988 to 1990. Mr. Knerr founded The Publishing
Group, Inc. in 1988.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-94-
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Trustee
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Ann R. Leven (59) Trustee and/or Director of Foundation Funds and each of the other 32 other
investment companies in the Delaware Investments family
785 Park Avenue, New York, NY 10021
Retired Treasurer, National Gallery of Art
From 1994 to 1999, Ms. Leven was the Treasurer of the National Gallery of Art
and from 1990 to 1994, Ms. Leven was Deputy Treasurer of the National Gallery of
Art. In addition, from 1984 to 1990, Ms. Leven was Treasurer and Chief Fiscal
Officer of the Smithsonian Institution, Washington, DC, and from 1975 to 1992,
she was Adjunct Professor of Columbia Business School.
- ------------------------------------------------------------------------------------------------------------------------------------
Thomas F. Madison (63) Trustee and/or Director of Foundation Funds and each of the other 32 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 (74) Trustee and/or Director of Foundation Funds and each of the other 32 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.
- ------------------------------------------------------------------------------------------------------------------------------------
Janet L. Yeomans (51) Trustee and/or Director of Foundation Funds and each of the other 32 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.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Officer
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Eric E. Miller (46) Senior Vice President/Deputy General Counsel and Secretary of Foundation Funds
and each of the other 32 investment companies in the Delaware Investments
family.
Senior Vice President/Deputy General Counsel and Assistant Secretary of Delaware
Management Holdings, Inc., 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 Service Company, Inc., Delaware
Capital Management, Inc., Retirement Financial Services, Inc., Delaware
Distributors, Inc., Delaware Distributors, L.P., Delaware General Management,
Inc. and Founders Holdings, Inc.
During the past five years, Mr. Miller has served in various executive
capacities at different times within the Delaware organization.
- ------------------------------------------------------------------------------------------------------------------------------------
Joseph H. Hastings (50) Senior Vice President/Corporate Controller of Foundation Funds and
each of the other 32 investment companies in the Delaware Investments family and
Delaware Investment Advisers (a series of Delaware Management Business Trust).
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., Delaware Management Business Trust, Delaware General Management, Inc. and
Founders Holdings, Inc.
Chief Financial Officer/Treasurer of Retirement Financial Services, Inc.
Executive Vice President/Chief Financial Officer/Treasurer of Delaware
Management Trust Company
Senior Vice President/Assistant Treasurer of Founders CBO Corporation
During the past five years, Mr. Hastings has served in various executive
capacities at different times within the Delaware organization.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Officer
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Michael P. Bishof (37) Senior Vice President and Treasurer of Foundation Funds and each of the other 32
investment companies in the Delaware Investments family and Founders Holdings,
Inc.
Senior Vice President/Investment Accounting of Delaware Management Company,
Inc., Delaware Management Company (a series of Delaware Management Business
Trust), Delaware Service Company, Inc., and Delaware Capital Management, Inc.
Senior Vice President and Treasurer/Manager, Investment Accounting of Delaware
Distributors, L.P. and Delaware Investment Advisers (a series of Delaware
Management Business Trust)
Senior Vice President and Assistant Treasurer of Founders CBO Corporation
Senior Vice President and Manager of Investment Accounting of Delaware
International Holdings Ltd.
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.
- ------------------------------------------------------------------------------------------------------------------------------------
J. Paul Dokas (40) Vice President/Portfolio Manager of Foundation Funds and each of the other 32
investment companies in the Delaware Investments family, 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 Delaware Investments in 1997, Mr. Dokas was a Director of Trust
Investments for Bell Atlantic Corporation in Philadelphia, where he held various
positions from 1985 to 1997.
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</TABLE>
-97-
<PAGE>
The following is a compensation table listing for each director
entitled to receive compensation, the aggregate compensation expected to be
received from the Trust during its fiscal year and the total compensation
expected to be received from all investment companies in the Delaware
Investments family for which he or she serves as a director or trustee during
the Trust's fiscal year and an estimate of annual benefits to be received upon
retirement under the Delaware Group Retirement Plan for Directors/Trustees as of
September 30, 1999. Only the independent trustees of the Trust receive
compensation from the Trust.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
Total
Compensation
Pension or from the
Aggregate Retirement Benefits Estimated Annual Investment
Compensation Accrued Benefits Companies in
from as Part of Upon Delaware
Name(3) Foundation Funds Fund Expenses Retirement(1) Investments(2)
--------------------------- ---------------------- --------------------- -------------------- --------------------
--------------------------- ---------------------- --------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Walter P. Babich $466 None $38,000 $59,066
--------------------------- ---------------------- --------------------- -------------------- --------------------
John H. Durham $464 None $32,180 $42,985
--------------------------- ---------------------- --------------------- -------------------- --------------------
Anthony D. Knerr $570 None $38,000 $65,126
--------------------------- ---------------------- --------------------- -------------------- --------------------
Ann R. Leven $572 None $38,000 $66,126
--------------------------- ---------------------- --------------------- -------------------- --------------------
Thomas F. Madison $465 None $38,000 $65,126
--------------------------- ---------------------- --------------------- -------------------- --------------------
Charles E. Peck $568 None $38,000 $63,043
--------------------------- ---------------------- --------------------- -------------------- --------------------
Janet L. Yeomans(4) $531 None $38,000 $34,715
------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
(1) Under the terms of the Delaware Group Retirement Plan for
Trustees/Directors, each disinterested trustee/director who, at the
time of his or her retirement from the Board, has attained the age of
70 and served on the Board for at least five continuous years, is
entitled to receive payments from each investment company in the
Delaware Investments family for which he or she serves as a
trustee/director for a period equal to the lesser of the number of
years that such person served as a trustee/director or the remainder of
such person's life. The amount of such payments will be equal, on an
annual basis, to the amount of the annual retainer that is paid to
trustees/directors of each investment company at the time of such
person's retirement. If an eligible trustee/director retired as of
September 30, 1999, he or she would be entitled to annual payments
totaling the amount noted above, in the aggregate, from all of the
investment companies in the Delaware Investments family for which he or
she served as trustee/director, based on the number of investment
companies in the Delaware Investments family as of that date.
(2) Each independent trustee/director (other than John H. Durham) currently
receives a total annual retainer fee of $38,000 for serving as a
trustee/director for all 33 investment companies in Delaware
Investments, plus $3,143 for each Board Meeting attended. John H.
Durham currently receives a total annual retainer fee of $32,180 for
serving as a trustee/director for 19 investment companies in Delaware
Investments, plus $1,810 for each Board Meeting attended. Ann R. Leven,
Charles E. Peck, Anthony D. Knerr and Thomas F. Madison serve on the
Fund's audit committee; Ms. Leven is the chairperson. Members of the
audit committee currently receive additional annual compensation of
$5,000 from all investment companies, in the aggregate, with the
exception of the chairperson, who receives $6,000.
(3) W. Thacher Longstreth served as an independent trustee of Foundation
Funds during its last fiscal year for the period October 1, 1998
through March 17, 1999, the date on which he retired. For this period,
Mr. Longstreth received $123 from Foundation Funds and $28,554 from all
investment companies in the Delaware Investments family.
(4) Janet L. Yeomans joined the Boards of all investment companies in the
Delaware Investments family in March 1999 for some funds and in April
1999 for other funds.
-98-
<PAGE>
GENERAL INFORMATION
Foundation Funds, which was organized as a Delaware Business Trust on
October 24, 1997, is an open-end management investment company. Income
Portfolio, Balanced Portfolio and Growth Portfolio are nondiversified as defined
by the 1940 Act. Delaware S&P 500 Index Fund is diversified as defined by the
1940 Act.
The Manager is the investment manager of the Funds. The Manager also
provides investment management services to certain of the other funds available
from the Delaware Investments family. An affiliate of the Manager also manages
private investment accounts. While investment decisions of the Funds are made
independently from those of the other funds and accounts, investment decisions
for such other funds and accounts may be made at the same time as investment
decisions for the Funds.
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 in Appendix A.
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 or its 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 by
certain covered persons in certain securities may only be closed-out at a profit
after a 60-day holding period has elapsed; and; and (5) the Compliance Officer
must be informed periodically of all securities transactions and duplicate
copies of brokerage confirmations and account statements must be supplied to the
Compliance Officer.
The Distributor acts as national distributor for each Fund and for the
other mutual funds in the Delaware Investments family. The Distributor received
net commissions from each Fund on behalf of Class A Shares, after reallowances
to dealers, as follow:
Balanced Portfolio
<TABLE>
<CAPTION>
Total
Amount of Amounts Net
Underwriting Reallowed Commission to
Fiscal Year Commission to Dealers the Distributor
----------- ------------ ---------- ---------------
<S> <C> <C> <C>
9/30/99 $39,552 $38,548 $1,004
12/31/97 - 9/30/98 18,454 15,121 3,333
</TABLE>
-99-
<PAGE>
Growth Portfolio
<TABLE>
<CAPTION>
Total
Amount of Amounts Net
Underwriting Reallowed Commission to
Fiscal Period Commission to Dealers the Distributor
----------- ------------ ---------- ---------------
<S> <C> <C> <C>
9/30/99 $44,851 $42,915 $1,936
12/31/97-9/30/98 7,7046,391 1,313
</TABLE>
Income Portfolio
<TABLE>
<CAPTION>
Total
Amount of Amounts Net
Underwriting Reallowed Commission to
Fiscal Period Commission to Dealers the Distributor
----------- ------------ ---------- ---------------
<S> <C> <C> <C>
9/30/99 $28,279 $28,171 $108
12/31/97-9/30/98 1,047 855 192
</TABLE>
The Distributor received in the aggregate Limited CDSC or other CDSC
payments with respect to Class A Shares, Class B Shares and Class C Shares as
follows:
Balanced Portfolio
<TABLE>
<CAPTION>
Class A Shares Class B Shares Class C Shares
Fiscal Period Limited CDSC Payments CDSC Payments CDSC Payments
------------- --------------------- -------------- --------------
<S> <C> <C> <C>
9/30/99 $-0- $1,332 $37
12/31/97-9/30/98 -0- -0- -0-
</TABLE>
Growth Portfolio
<TABLE>
<CAPTION>
Class A Shares Class B Shares Class C Shares
Fiscal Period Limited CDSC Payments CDSC Payments CDSC Payments
------------- --------------------- -------------- --------------
<S> <C> <C> <C>
9/30/99 $-0- $3,631 $75
12/31/97-9/30/98 -0- 438 19
</TABLE>
Income Portfolio
<TABLE>
<CAPTION>
Class A Shares Class B Shares Class C Shares
Fiscal Period Limited CDSC Payments CDSC Payments CDSC Payments
------------- --------------------- -------------- --------------
<S> <C> <C> <C>
9/30/99 $-0- $3,414 $303
12/31/97-9/30/98 -0- -0- -0-
</TABLE>
-100-
<PAGE>
The Transfer Agent, an affiliate of the Manager, acts as shareholder
servicing, dividend disbursing and transfer agent for the Trust and for the
other mutual funds in the Delaware Investments family. The Transfer Agent is
paid a fee by the Funds 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.
The Manager and its affiliates own the names "Delaware Group" and
"Foundation Funds." Under certain circumstances, including the termination of
the Trust's advisory relationships with the Manager or its distribution
relationships with the Distributor, the Manager and its affiliates could cause
the Trust to delete the words "Delaware Group" and "Foundation Funds" from the
Trust's name.
The Chase Manhattan Bank ("Chase"), 4 Chase Metrotech Center, Brooklyn,
NY 11245 is custodian of each Fund's securities and cash. As custodian for a
Fund, Chase maintains a separate account or accounts for a Fund; receives, holds
and releases portfolio securities on account of a Fund; receives and disburses
money on behalf of a Fund; and collects and receives income and other payments
and distributions on account of a Fund's portfolio securities.
Capitalization
The Trust currently offers five portfolios of shares. Each Fund has a
present unlimited authorized number of shares of beneficial interest with no par
value allocated to each Class. All shares have equal voting rights, except as
noted below, no preemptive rights, are fully transferable and, when issued, are
fully paid and nonassessable.
Class A Shares, Class B Shares, Class C Shares, Institutional Class
and, with respect to Delaware S&P 500 Index Fund, Consultant Class shares
represent a proportionate interest in the assets of each Fund of the Trust and
have the same voting and other rights and preferences, except that shares of
Institutional Classes may not vote on matters affecting the Funds' Distribution
Plans under Rule 12b-1. Similarly, as a general matter, shareholders of Class A
Shares, Class B Shares and Class C Shares may vote only on matters affecting the
12b-1 Plan that relates to the class of shares that they hold. However,
shareholders of Class B Shares must be given a vote on any material increase in
the 12b-1 fees payable by Class A Shares under the Plans for the Funds. General
expenses of each Fund will be allocated on a pro-rata basis to the Classes
according to asset size, except that expenses of the 12b-1 Plans of Class A
Shares, Class B Shares and Class C Shares will be allocated solely to those
classes.
Noncumulative Voting
The Trust's shares have noncumulative voting rights which means that
the holders of more than 50% of the shares of the Trust voting for the election
of trustees can elect all the trustees if they choose to do so, and, in such
event, the holders of the remaining shares will not be able to elect any
trustees.
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<PAGE>
This Part B does not include all of the information contained in the
Registration Statement which is on file with the SEC.
FINANCIAL STATEMENTS
Ernst & Young LLP serves as the independent auditors for Delaware Group
Foundation Funds ("Foundation Funds") and, in its capacity as such, audits the
annual financial statements of Foundation Funds. Income Portfolio's, Balanced
Portfolio's and Growth Portfolio's Statements of Net Assets, Statements of
Assets and Liabilities, Statements of Operations, Financial Highlights and Notes
to Financial Statements, as well as the report of Ernst & Young LLP for the
fiscal year ended September 30, 1999 are included in Foundation Funds Annual
Report to shareholders. The financial statements and financial highlights, the
notes relating thereto and the report of Ernst & Young LLP listed above are
incorporated by reference from the Annual Report into this Part B. Delaware S&P
500 Index Fund has not commenced operations as of the date of this Part B.
-102-
<PAGE>
APPENDIX A--INVESTMENT OBJECTIVES OF THE 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. Devon Fund
seeks current income and capital appreciation by investing primarily in
income-producing common stocks, with a focus on common stocks the investment
adviser 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 Technology and Innovation Fund seeks to provide
long-term capital growth. It invests primarily in stocks that the Manager
believes will benefit from technological advances and improvements.
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 American Government Bond Fund seeks high current income by
investing primarily in long-term debt obligations issued or guaranteed by the
U.S. government, its agencies or instrumentalities.
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<PAGE>
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 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 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 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 Pennsylvania Fund seeks a high level of current
interest income exempt from federal and, to the extent possible, certain
Pennsylvania state and local taxes, consistent with the preservation of capital.
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.
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
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<PAGE>
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.
Delaware Group Premium Fund offers various 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. U.S.
Growth Series seeks to maximize capital appreciation. The Series seeks to
achieve its investment objective 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 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
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obligations issued or unconditionally guaranteed by the full faith and credit of
the U.S. Treasury, and repurchase agreements fully secured by such obligations.
Delaware Tax-Free Arizona Insured Fund seeks to provide a high level of
current income exempt from federal income tax and the Arizona personal income
tax, consistent with the preservation of capital. Delaware Minnesota Insured
Fund seeks to provide a high level of current income exempt from federal income
tax and the Minnesota personal income tax, consistent with the preservation of
capital.
Delaware Tax-Free Minnesota Intermediate Fund seeks to provide a high
level of current income exempt from federal income tax and the Minnesota
personal income tax, consistent with preservation of capital. The Fund seeks to
reduce market risk by maintaining an average weighted maturity from five to ten
years.
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 Montana Municipal Bond Fund seek as high a level of current
income exempt from federal income tax and from the Montana personal income tax,
as is consistent with preservation of capital.
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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 Select 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.
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.
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 the Portfolio's prospectus(es).
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