<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
File No. 2-13017
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ X ]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 106 [ X ]
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AND
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ X ]
Amendment No. 106
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DELAWARE GROUP DECATUR FUND, INC.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
1818 Market Street, Philadelphia, Pennsylvania 19103
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (215) 751-2923
--------------
George M. Chamberlain, Jr., 1818 Market Street, Philadelphia, PA 19103
- --------------------------------------------------------------------------------
(Name and Address of Agent for Service)
Approximate Date of Public Offering: February 24, 1997
--------------------------
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b)
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on (date) pursuant to paragraph (b)
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60 days after filing pursuant to paragraph (a)(1)
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X on February 24, 1997 pursuant to paragraph (a)(1)
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75 days after filing pursuant to paragraph (a)(2)
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on (date) pursuant to paragraph (a)(2) of Rule 485
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Registrant has registered an indefinite amount of securities
under the Securities Act of 1933 pursuant to Section 24(f)
of the Investment Company Act of 1940. Registrant's 24f-2 Notice
for its most recent fiscal year will be filed on or about January 29, 1997.
<PAGE>
--- C O N T E N T S ---
This Post-Effective Amendment No. 106 to Registration File No. 2-13017
includes the following:
1. Facing Page
2. Contents Page
3. Cross-Reference Sheet
4. Part A - Prospectuses*
5. Part B - Statement of Additional Information
6. Part C - Other Information
7. Signatures
*This Post-Effective Amendment relates to the Registrant's four series of shares
and their classes: Decatur Income Fund - Decatur Income Fund A Class, Decatur
Income Fund B Class, Decatur Income Fund C Class and Decatur Income Fund
Institutional Class; Decatur Total Return Fund - Decatur Total Return Fund A
Class, Decatur Total Return Fund B Class, Decatur Total Return Fund C Class and
Decatur Total Return Fund Institutional Class; Blue Chip Fund - Blue Chip Fund A
Class, Blue Chip Fund B Class, Blue Chip Fund C Class and Blue Chip Fund
Institutional Class; and Quantum Fund - Quantum Fund A Class, Quantum Fund B
Class, Quantum Fund C Class and Quantum Fund Institutional Class. The Class A
Shares, Class B Shares and Class C Shares of Decatur Income Fund and Decatur
Total Return Fund are combined in one Prospectus, and the Institutional Class of
such Funds are combined in one Prospectus. The Class A Shares, Class B Shares
and Class C Shares of Blue Chip Fund and Quantum Fund are combined in one
Prospectus, and the Institutional Class of such Funds are combined in one
Prospectus. The four Funds (and 16 classes) have a common Statement of
Additional Information and Part C. The Registrant's Decatur Income Fund and
Decatur Total Return Fund A Class, B Class and C Class Prospectus and Decatur
Income Fund and Decatur Total Return Fund Institutional Class Prospectus each
dated January 30, 1996 are incorporated into this filing by reference to the
electronic filing of those Prospectuses made pursuant to Rule 497(c) on February
2, 1996. In addition, the Supplement to the A Class, B Class and C Class
Prospectus dated November 1, 1996 that was filed with the Commission on that
date pursuant to Rule 497(e) is incorporated by reference into this filing.
<PAGE>
CROSS-REFERENCE SHEET*
PART A**
<TABLE>
<CAPTION>
Location in
Item No. Description Prospectuses
- -------- ----------- ------------
Decatur Income Fund
Decatur Total Return Fund
A Classes/
B Classes/ Institutional
C Classes Classes
<S> <C> <C>
1 Cover Page............................................. Cover Cover
2 Synopsis............................................... Synopsis; Summary Synopsis; Summary
of Expenses of Expenses
3 Condensed Financial Information........................ Financial Financial
Highlights Highlights
4 General Description of Registrant ..................... Investment Objectives Investment
and Strategies; Objectives and
Shares Strategies; Shares
5 Management of the Fund ................................ Management of Management of
the Funds the Funds
6 Capital Stock and Other Securities .................... Delaware Difference; Dividends and
Dividends and Distributions;
Distributions; Taxes; Taxes; Shares
Shares
7 Purchase of Securities Being Offered................... Cover; How to Cover; How to Buy
Buy Shares; Calculation Shares; Calculation
of Offering Price of Net Asset Value
and Net Asset Value Per Share;
Per Share; Management Management of
of the Funds the Funds
8 Redemption or Repurchase............................... How to Buy Shares; How to Buy Shares;
Redemption Redemption
and Exchange and Exchange
9 Legal Proceedings...................................... None None
</TABLE>
* This filing relates to Registrant's Decatur Income Fund A Class, Decatur
Income Fund B Class, Decatur Income Fund C Class and Decatur Income Fund
Institutional Class of Decatur Income Fund, Decatur Total Return Fund A
Class, Decatur Total Return Fund B Class, Decatur Total Return Fund C
Class and Decatur Total Return Fund Institutional Class of Decatur Total
Return Fund, Blue Chip Fund A Class, Blue Chip Fund B Class, Blue Chip
Fund C Class and Blue Chip Fund Institutional Class of Blue Chip Fund
and Quantum Fund A Class, Quantum Fund B Class, Quantum Fund C Class and
Quantum Fund Institutional Class of Quantum Fund. The Class A Shares,
Class B Shares and Class C Shares of Decatur Income Fund and Decatur
Total Return Fund are combined in one Prospectus, and the Institutional
Class of such Funds is combined in one Prospectus. The Class A Shares,
Class B Shares and Class C Shares of Blue Chip Fund and Quantum Fund are
combined in one Prospectus, and the Institutional Class of such Funds is
combined in one Prospectus. The four Funds (and 16 classes) have a
common Statement of Additional Information and Part C.
<PAGE>
** The Registrant's Decatur Income Fund A Class, B Class and C Class and
Decatur Total Return Fund A Class, B Class and C Class Prospectus and
Decatur Income Fund Institutional Class and Decatur Total Return Fund
Institutional Class Prospectus, each dated January 30, 1996, are
incorporated into this filing by reference to the electronic filing of
those Prospectuses made pursuant to Rule 497(c) on February 2, 1996. In
addition, the Supplement to the A Class, B Class and C Class Prospectus
dated November 1, 1996 that was filed with the Commission on that date
pursuant to Rule 497(e) is incorporated by reference into this filing.
<PAGE>
CROSS-REFERENCE SHEET*
PART A
<TABLE>
<CAPTION>
Location in
Item No. Description Prospectuses
- -------- ----------- ------------
Blue Chip Fund
Quantum Fund
A Classes/
B Classes/ Institutional
C Classes Classes
<S> <C> <C> <C>
1 Cover Page............................................. Cover Cover
2 Synopsis............................................... Synopsis; Summary Synopsis; Summary
of Expenses of Expenses
3 Condensed Financial Information........................ Financial Financial
Highlights Highlights
4 General Description of Registrant ..................... Investment Objectives Investment
and Strategies; Objectives and
Shares Strategies; Shares
5 Management of the Fund ................................ Management of Management of
the Funds the Funds
6 Capital Stock and Other Securities .................... Delaware Difference; Dividends and
Dividends and Distributions;
Distributions; Taxes; Taxes; Shares
Shares
7 Purchase of Securities Being Offered................... Cover; How to Cover; How to Buy
Buy Shares; Calculation Shares; Calculation
of Offering Price of Net Asset Value
and Net Asset Value Per Share;
Per Share; Management Management of
of the Funds the Funds
8 Redemption or Repurchase............................... How to Buy Shares; How to Buy Shares;
Redemption Redemption
and Exchange and Exchange
9 Legal Proceedings...................................... None None
</TABLE>
* This filing relates to Registrant's Decatur Income Fund A Class, Decatur
Income Fund B Class, Decatur Income Fund C Class and Decatur Income Fund
Institutional Class of Decatur Income Fund, Decatur Total Return Fund A
Class, Decatur Total Return Fund B Class, Decatur Total Return Fund C Class
and Decatur Total Return Fund Institutional Class of Decatur Total Return
Fund, Blue Chip Fund A Class, Blue Chip Fund B Class, Blue Chip Fund C
Class and Blue Chip Fund Institutional Class of Blue Chip Fund and Quantum
Fund A Class, Quantum Fund B Class, Quantum Fund C Class and Quantum Fund
Institutional Class of Quantum Fund. The Class A Shares, the Class B Shares
and the Class C Shares of Decatur Income Fund and Decatur Total Return Fund
are combined in one Prospectus, and the Institutional Class of such Funds
is combined in one Prospectus. The Class A Shares, Class B Shares and Class
C Shares of Blue Chip Fund and Quantum Fund are combined in one Prospectus,
and the Institutional Class of such Funds is combined in one Prospectus.
The four Funds (and 16 classes) have a common Statement of Additional
Information and Part C.
<PAGE>
CROSS REFERENCE SHEET
PART B
<TABLE>
<CAPTION>
Location in Statement
Item No. Description of Additional Information
- -------- ----------- -------------------------
<S> <C> <C>
10 Cover Page...................................................... Cover
11 Table of Contents............................................... Table of Contents
12 General Information and History................................. General Information
13 Investment Objectives and Policies.............................. Investment Policies and
Portfolio Techniques
14 Management of the Registrant.................................... Officers and Directors
15 Control Persons and Principal Holders of
Securities..................................................... Officers and Directors
16 Investment Advisory and Other Services.......................... Plans Under Rule 12b-1
for the Fund Classes (under
Purchasing Shares); Investment
Management Agreements and Sub-
Advisory Agreements; Officers and
Directors; General Information;
Financial Statements
17 Brokerage Allocation............................................ Trading Practices
and Brokerage
18 Capital Stock and Other Securities.............................. Capitalization and
Noncumulative Voting
(under General Information)
19 Purchase, Redemption and Pricing of Securities
Being Offered................................................... Purchasing Shares; Determining
Offering Price and Net Asset
Value;Redemption and
Repurchase; Exchange Privilege
</TABLE>
<PAGE>
CROSS REFERENCE SHEET
PART B
(Continued)
<TABLE>
<CAPTION>
Location in Statement
Item No. Description of Additional Information
- -------- ----------- -------------------------
<S> <C> <C>
20 Tax Status...................................................... Accounting and Tax Issues;
Distributions and Taxes
21 Underwriters ................................................... Purchasing Shares
22 Calculation of Performance Data................................. Performance Information
23 Financial Statements............................................ Financial Statements
</TABLE>
PART C
<TABLE>
<CAPTION>
Location in
Part C
-----------
<S> <C> <C>
24 Financial Statements and Exhibits............................... Item 24
25 Persons Controlled by or under Common
Control with Registrant........................................ Item 25
26 Number of Holders of Securities................................. Item 26
27 Indemnification................................................. Item 27
28 Business and Other Connections of
Investment Adviser............................................. Item 28
29 Principal Underwriters.......................................... Item 29
30 Location of Accounts and Records................................ Item 30
31 Management Services............................................. Item 31
32 Undertakings.................................................... Item 32
</TABLE>
<PAGE>
The Registrant's Decatur Income Fund A Class, B Class and C Class and Decatur
Total Return Fund A Class, B Class and C Class Prospectus and Decatur Income
Fund Institutional Class and Decatur Total Return Fund Institutional Class
Prospectus each dated January 30, 1996 are incorporated into this filing by
reference to the electronic filing of those Prospectuses made pursuant to Rule
497(c) on February 2, 1996. In addition, the Supplement to the A Class, B Class
and C Class Prospectus that was filed with the Commission on that date pursuant
to Rule 497(e) is incorporated by reference into this filing.
<PAGE>
(VGA-ABC) Subject to Completion
- ------------------------
BLUE CHIP FUND
QUANTUM FUND
- ------------------------
A CLASS
B CLASS
C CLASS
- ------------------------
PROSPECTUS
- ------------------------
, 1997
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
DELAWARE
GROUP
--------
<PAGE>
(VGA-ABC)
The Delaware Group includes funds with a wide range of investment
objectives. Stock funds, income funds, tax-free funds, money market funds,
global and international funds and closed-end equity funds give investors the
ability to create a portfolio that fits their personal financial goals. For more
information, contact your financial adviser or call Delaware Group at
800-523-4640.
INVESTMENT MANAGER
Delaware Management Company, Inc.
One Commerce Square
Philadelphia, PA 19103
SUB-ADVISER
Vantage Global Advisors, Inc.
630 Fifth Avenue
New York, NY 10111
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>
(VGA-ABC)
BLUE CHIP FUND
QUANTUM FUND PROSPECTUS
A CLASS SHARES , 1997
B CLASS SHARES
C CLASS SHARES
--------------------------------------------------------------------------
1818 Market Street, Philadelphia, PA 19103
For Prospectus and Performance:
Nationwide 800-523-4640
Information on Existing Accounts:
(SHAREHOLDERS ONLY)
Nationwide 800-523-1918
Dealer Services:
(BROKER/DEALERS ONLY)
Nationwide 800-362-7500
Representatives of Financial Institutions:
Nationwide 800-659-2259
This Prospectus describes two series, Blue Chip Fund and Quantum Fund
(individually a "Fund" and collectively the "Funds"), of Delaware Group Equity
Funds II, Inc. ("Equity Funds II, Inc."), a professionally-managed mutual fund
of the series type. Blue Chip Fund offers the Blue Chip Fund A Class, the Blue
Chip Fund B Class and the Blue Chip Fund C Class. Quantum Fund offers the
Quantum Fund A Class, the Quantum Fund B Class and the Quantum Fund C Class.
Each class is referred to individually as a "Class" and collectively as the
"Classes" or "Class A Shares," Class B Shares" or "Class C Shares."
The objective of Blue Chip Fund is 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. The objective of Quantum Fund is 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.
This Prospectus sets forth information that you should read and
consider before you invest. Please retain it for future reference. The Statement
of Additional Information ("Part B") of Equity Funds II, Inc.'s registration
statement, dated __________, 1997, as it may be amended from time to time,
contains additional information about the Fund and has been filed with the
Securities and Exchange Commission. Part B is incorporated by reference into
this Prospectus and is available, without charge, by writing to Delaware
Distributors, L.P. at the above address or by calling the above telephone
numbers.
-1-
<PAGE>
(VGA-ABC)
Each Fund also offers an Institutional Class which is available for
purchase only by certain investors. A prospectus for the Funds' Institutional
Classes can be obtained by writing to Delaware Distributors, L.P. at the above
address or by calling the above telephone numbers.
TABLE OF CONTENTS
Cover Page How to Buy Shares
Synopsis Redemption and Exchange
Summary of Expenses Dividends and Distributions
Investment Objectives and Policies Taxes
Suitability Calculation of Offering Price and
Investment Strategy Net Asset Value Per Share
The Delaware Difference Management of the Funds
Plans and Services Other Investment Policies and
Retirement Planning Special Risk Considerations
Classes of Shares Appendix A--Investment Illustrations
Appendix B--Classes Offered
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
BE SURE TO CONSULT YOUR FINANCIAL ADVISER WHEN MAKING INVESTMENTS. MUTUAL FUNDS
CAN BE A VALUABLE PART OF YOUR FINANCIAL PLAN; HOWEVER, SHARES OF THE FUNDS ARE
NOT FDIC OR NCUSIF INSURED, ARE NOT GUARANTEED BY ANY BANK OR ANY CREDIT UNION,
ARE NOT OBLIGATIONS OF ANY BANK OR ANY CREDIT UNION, AND INVOLVE INVESTMENT
RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. SHARES OF THE FUNDS ARE NOT BANK
OR CREDIT UNION DEPOSITS.
-2-
<PAGE>
(VGA-ABC)
SYNOPSIS
Investment Objective
Blue Chip Fund - The objective of Blue Chip Fund is 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.
Quantum Fund - The objective of Quantum Fund is 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.
Risk Factors and Special Considerations
Each Fund has the ability to enter into options and futures
transactions for hedging purposes and, among other reasons, to attempt to
counterbalance portfolio volatility. There are risks that result from the use of
options and futures and the investor should review the description of these
risks in this Prospectus. See Futures Contracts and Options under Other
Investment Policies and Risk Considerations.
Each Fund may invest up to 20% of its total assets directly or
indirectly in securities of issuers domiciled in foreign countries. Such
investments involve certain risk and opportunity considerations not typically
associated with investing in United States companies. See Foreign Securities
under Other Investment Policies and Risk Considerations.
Investment Manager, Distributor and Service Agent
Delaware Management Company, Inc. (the "Manager") furnishes investment
management services to each Fund, subject to the supervision and direction of
Equity Funds II, Inc.'s Board of Directors. The Manager also provides investment
management services to certain other funds in the Delaware Group. The Manager
has selected Vantage Global Advisors, Inc. (the "Sub-Adviser") to serve as
sub-adviser to each Fund and to provide the day-to-day management to each Fund.
Delaware Distributors, L.P. (the "Distributor") is the national distributor for
the Fund and for all of the other mutual funds in the Delaware Group. Delaware
Service Company, Inc. (the "Transfer Agent") is the shareholder servicing,
dividend disbursing, accounting services and transfer agent for the Fund and for
all of the other mutual funds in the Delaware Group. See Summary of Expenses and
Management of the Funds for other information regarding the Manager and the
Sub-Adviser and the fees payable under each Fund's Investment Management
Agreement and Sub-Advisory Agreement.
Sales Charges
The price of Class A Shares of each Fund includes a maximum front-end
sales charge of 4.75% of the offering price, which is equivalent to 0.00% of the
amount invested, based on an initial net asset value of $8.50 per share. The
front-end sales charge is reduced on certain transactions of at least $100,000
but under $1,000,000. There is no front-end sales charge on purchases of
$1,000,000 or more. Class A Shares are subject to annual 12b-1 Plan expenses.
-3-
<PAGE>
(VGA-ABC)
The price of Class B Shares is equal to the net asset value per share.
Class B Shares are subject to a contingent deferred sales charge ("CDSC") of:
(i) 4% if shares are redeemed within two years of purchase; (ii) 3% if shares
are redeemed during the third or fourth year following purchase; (iii) 2% if
shares are redeemed during the fifth year following purchase; and (iv) 1% if
shares are redeemed during the sixth year following purchase. Class B Shares are
subject to annual 12b-1 Plan expenses for approximately eight years after
purchase. See Deferred Sales Charge Alternative - Class B Shares and Automatic
Conversion of Class B Shares under Classes of Shares.
The price of Class C Shares is equal to the net asset value per share.
Class C Shares are subject to a CDSC of 1% if shares are redeemed within 12
months of purchase. Class C Shares are subject to annual 12b-1 Plan expenses for
the life of the investment.
See Classes of Shares and Distribution (12b-1) and Service under
Management of the Funds.
Purchase Amounts
Generally, the minimum initial investment in any Class is $1,000.
Subsequent investments must generally be at least $100.
Each purchase of Class B Shares is subject to a maximum purchase
limitation of $250,000. For Class C Shares, each purchase must be in an amount
that is less than $1,000,000. An investor may exceed these maximum purchase
limitations for Class B Shares and Class C Shares by making cumulative purchases
over a period of time. An investor should keep in mind, however, that reduced
front-end sales charges apply to investments of $100,000 or more in Class A
Shares, and Class A Shares are subject to lower annual 12b-1 Plan expenses than
Class B and Class C Shares and generally are not subject to a CDSC. The minimum
and maximum purchase amounts for retirement plans may vary. See How to Buy
Shares.
Redemption and Exchange
Class A Shares of the Fund may be redeemed or exchanged at the net
asset value calculated after receipt of the redemption or exchange request.
Neither the Fund nor the Distributor assesses a charge for redemptions or
exchanges of Class A Shares, except for certain redemptions of shares purchased
at net asset value, which may be subject to a CDSC if a dealer's commission was
paid in connection with such purchases. See Front-End Sales Charge Alternative -
Class A Shares under Classes of Shares.
Class B Shares and Class C Shares may be redeemed or exchanged at the
net asset value calculated after receipt of the redemption or exchange request
subject, in the case of redemptions, to any applicable CDSC. Neither the Fund
nor the Distributor assesses any charges other than the CDSC for redemptions or
exchanges of Class B or Class C Shares. There are certain limitations on an
investor's ability to exchange shares between the various classes of shares that
are offered. See Redemption and Exchange.
Open-End Investment Company
Equity Funds II, Inc., which was organized as a Maryland corporation in
1983, is an open-end management investment company. Each Fund's portfolio of
assets is diversified as defined by the Investment Company Act of 1940 (the
"1940 Act"). Equity Funds II, Inc. was previously organized as a Delaware
corporation in 1956. See Shares under Management of the Funds.
-4-
<PAGE>
(VGA-ABC)
SUMMARY OF EXPENSES
A general comparison of the sales arrangements and other expenses
applicable to Class A, Class B and Class C Shares follows:
<TABLE>
<CAPTION>
Blue Chip Fund Quantum Fund
Class A Class B Class C Class A Class B Class C
Shareholder Transaction Expenses Shares Shares Shares Shares Shares Shares
- -------------------------------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Maximum Sales Charge Imposed
on Purchases (as a percentage
of offering price) . . . . . . . . . . 4.75% None None 4.75% None None
Maximum Sales Charge Imposed
on Reinvested Dividends
(as a percentage of
offering price) . . . . . . . . . . . .. None None None None None None
Maximum Contingent Deferred Sales
Charge (as a percentage of
original purchase price or
redemption proceeds,
whichever is lower). . . . . . . . . . . None* 4.00%** 1.00%+ None* 4.00%** 1.00%+
Redemption Fees . . . . . . . . . . . . . . None++ None++ None++ None++ None++ None++
</TABLE>
*Class A purchases of $1 million or more may be made at net asset value.
However, if in connection with any such purchase a dealer commission is paid to
the financial adviser through whom such purchase is effected, a CDSC of 1% will
be imposed on certain redemptions within 12 months of purchase ("Limited CDSC").
See Contingent Deferred Sales Charge for Certain Redemptions of Class A Shares
Purchased at Net Asset Value under Redemption and Exchange.
**Class B Shares of each Fund are subject to a CDSC of: (i) 4% if shares are
redeemed within two years of purchase; (ii) 3% if shares are redeemed during the
third or fourth year following purchase; (iii) 2% if shares are redeemed during
the fifth year following purchase; (iv) 1% if shares are redeemed during the
sixth year following purchase; and (v) 0% thereafter. See Deferred Sales Charge
Alternative - Class B Shares under Classes of Shares.
+Class C Shares of each Fund are subject to a CDSC of 1% if shares are redeemed
within 12 months of purchase. See Level Sales Charge Alternative--Class C Shares
under Classes of Shares.
++CoreStates Bank, N.A. currently charges $7.50 per redemption for redemptions
payable by wire.
-5-
<PAGE>
(VGA-ABC)
<TABLE>
<CAPTION>
Annual Operating Expenses Blue Chip Fund Quantum Fund
(as a percentage of Class A Class B Class C Class A Class B Class C
average daily net assets) Shares Shares Shares Shares Shares Shares
- ------------------------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Management Fees
(after voluntary waivers) . . . . . . 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
12b-1 Plan Expenses
(including service fees). . . . . . . 0.30%+ 1.00%+ 1.00%+ 0.30%+ 1.00%+ 1.00%+
Other Operating Expenses . . . . . . . . 0.00%++ 0.00%++ 0.00%++ 0.00%++ 0.00%++ 0.00%++
----- ----- ----- ----- ----- -----
Total Operating Expenses
(after voluntary waivers). . . . . 1.50%++ 2.20%++ 2.20%++ 1.50%++ 2.20%++ 2.20%++
======= ======= ======= ======= ======= =======
</TABLE>
+Class A Shares, Class B Shares and Class C Shares are subject to separate 12b-1
Plans. Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted by rules of the National Association
of Securities Dealers, Inc. (the "NASD"). See Distribution (12b-1) and Service
under Management of the Funds.
++"Total Operating Expenses" and "Other Operating Expenses" for the Class A
Shares, the Class B Shares and the Class C Shares are based on estimated amounts
for the first full fiscal year of the Classes, after giving effect to the
voluntary expense waiver. The Manager has elected voluntarily to waive that
portion, if any, of the annual management fees payable by each Fund and to pay
certain expenses of that Fund to the extent necessary to ensure that the Total
Operating Expenses of the Class A Shares, the Class B Shares and the Class C
Shares of a Fund, including each such Class' 12b-1 fees, do not exceed 1.50%,
2.20% and 2.20%, respectively, from the commencement of the public offering of
Classes through ___________, 199__. If the voluntary expense waivers were not in
effect, it is estimated that for the first full year, the Total Operating
Expenses, as a percentage of average daily net assets, would be 0.00%, 0.00% and
0.00%, respectively, for the Class A Shares, the Class B Shares and the Class C
Shares of Blue Chip Fund, reflecting management fees of 0.65%, and 0.00%, 0.00%
and 0.00%, respectively, for the Class A Shares, the Class B Shares and the
Class C Shares of Quantum Fund, reflecting management fees of 0.75%.
For expense information about the Blue Chip Fund Institutional Class of
shares and Quantum Fund Institutional Class of shares, see the separate
prospectus relating to those classes.
-6-
<PAGE>
(VGA-ABC)
The following example illustrates the expenses that an investor would
pay on a $1,000 investment over various time periods, assuming (1) a 5% annual
rate of return, (2) redemption and no redemption at the end of each time period
and (3) for Class B Shares and Class C Shares, payment of a CDSC at the time of
redemption, if applicable.
Blue Chip Fund Assuming Redemption Assuming No Redemption
1 year 3 years 1 year 3 years
------ ------- ------ -------
Class A Shares $00(1) $00 $00 $00
Class B Shares(2) $00 $000 $00 $00
Class C Shares $00 $00 $00 $00
Quantum Fund Assuming Redemption Assuming No Redemption
1 year 3 years 1 year 3 years
------ ------- ------ -------
Class A Shares $00(1) $00 $00 $00
Class B Shares(2) $00 $000 $00 $00
Class C Shares $00 $00 $00 $00
The purpose of this table is to assist the investor in understanding
the various costs and expenses that an investor in any of the Classes will bear
directly or indirectly.
(1) Generally, no redemption charge is assessed upon redemption of Class A
Shares. Under certain circumstances, however, a Limited CDSC, which has
not been reflected in this calculation, may be imposed on certain
redemptions within 12 months of purchase. See Contingent Deferred Sales
Charge for Certain Redemptions of Class A Shares Purchased at Net Asset
Value under Redemption and Exchange.
(2) At the end of approximately eight years after purchase, Class B Shares
will be automatically converted into Class A Shares. The example above
does not assume conversion of Class B Shares since it reflects figures
only for one and three years. See Automatic Conversion of Class B
Shares under Classes of Shares for a description of the automatic
conversion feature.
This example should not be considered a representation of past or future
expenses or performance. Actual expenses may be greater or less than those
shown.
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(VGA-ABC)
INVESTMENT OBJECTIVES AND POLICIES
Blue Chip Fund - The objective of Blue Chip Fund is 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.
Quantum Fund - The objective of Quantum Fund is 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.
SUITABILITY
Blue Chip Fund - The Fund may be suitable for the patient investor
interested in long-term capital appreciation with the potential for current
income. Investors should be willing to accept the risks associated with
investments in equity securities and securities convertible into equity
securities, issued by domestic and foreign issuers. Because current income is a
secondary objective of the Fund, the Fund is not suitable as an investment
vehicle for investors whose primary investment goal is current income.
Quantum Fund - The Fund may be suitable for the patient investor
interested in capital appreciation. Investors should be willing to accept the
risks associated with investments in equity securities issued by domestic and
foreign issuers. The Fund is designed for capital appreciation; providing
current income is not a goal of the Fund. Any income produced, therefore, is
expected to be minimal.
* * *
Naturally, the Funds cannot assure a specific rate of return or that
principal will be protected. The value of each Fund's shares can be expected to
move up and down depending upon market conditions. Consequently, appreciation
may be obtained in periods of generally rising markets, while in declining
markets, the value of its shares may, of course, decline. For this reason,
neither Fund is appropriate for short-term investors. However, through the
cautious selection and supervision of its portfolio, each Fund will strive to
achieve its objective set forth above.
Investors should not consider a purchase of shares of either Fund as
equivalent to a complete investment program. The Delaware Group includes a
family of funds, generally available through registered investment dealers,
which may be used together to create a more complete investment program.
INVESTMENT STRATEGY
Blue Chip Fund - The objective of Blue Chip Fund is to achieve
long-term capital appreciation. Current income is a secondary objective. It
seeks to achieve these objectives by investing in equity securities and any
securities that are convertible into equity securities. The Sub-Adviser will
invest in companies which it believes exhibit growth potential that
significantly exceeds the average anticipated growth rate of companies included
in the Standard and Poor's 500 Index ("S&P 500"). Under normal market
conditions, at least 65% of these investments will be in companies determined by
the Sub-Adviser to be "Blue Chip." Generally, the median market capitalization
of companies targeted for investment by the Fund will be greater than $5
billion. For investment purposes, however, "Blue Chip" companies are those whose
market capitalization is greater than $1 billion at the time of investment.
The Sub-Adviser believes "Blue Chip" companies have characteristics
which are desirable in seeking to achieve the investment objectives of the Fund.
For example, such companies tend to have
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<PAGE>
(VGA-ABC)
a lengthy history of profit growth and dividend payment, and a reputation for
quality management structure, products and service. Securities of "Blue Chip"
companies generally are considered to be highly liquid, because compared to
those of lesser capitalized companies, more shares of these securities are
outstanding in the marketplace and their trading volume tends to be higher.
While it is anticipated that the Fund, under normal market conditions,
will invest principally in common stock and securities that are convertible into
common stock, the Fund may invest in all available types of equity securities,
including without limitation, preferred stock and warrants. Such investments may
be made in any proportion deemed prudent under existing market and economic
conditions. Convertible securities include preferred stock and debentures that
pay a stated interest rate or dividend and are convertible into common stock at
an established ratio. These securities, which are usually priced at a premium to
their conversion value, may allow the Fund to receive current income while
participating to some extent in any appreciation in the underlying common stock.
The value of a convertible security tends to be affected by changes in interest
rates as well as factors affecting the market value of the underlying common
stock. See Other Investment Policies and Risks Considerations.
Up to 20% of the Fund's total assets may be invested directly or
indirectly in securities of issuers domiciled in foreign countries, including
investments in American, European and Global Depositary Receipts. See Foreign
Investment Information under Other Investment Policies and Risk Considerations.
The Fund may enter into options and futures transactions for hedging
purposes and, among other reasons, to attempt to counterbalance portfolio
volatility. See Futures Contracts and Options under Other Investment Policies
and Risk Considerations.
The Fund may hold cash or invest in short-term debt securities and
other money market instruments when, in the Sub-Adviser's opinion, such holdings
are prudent given then prevailing market conditions. The Fund may also invest in
such instruments pending investment by the Fund of proceeds from the sale of
portfolio securities or proceeds from new sales of Fund shares pending
investment in other types of securities for the Fund or to maintain sufficient
liquidity to meet redemptions. All such short-term investments will be of the
highest quality as determined by a nationally-recognized statistical rating
organization (e.g., AAA by Standard & Poor's Rating Group ("S&P") or Aaa by
Moody's Investors Service, Inc. ("Moody's")) or, if unrated, judged to be of
comparable quality as determined by the Sub- Adviser. See Short-Term Investments
under Other Investment Policies and Risk Considerations.
The Fund will constantly strive to achieve its objectives and, in
investing to do so, may hold securities for any period of time. To the extent
the Fund engages in short-term trading in attempting to achieve its objectives,
it may increase the turnover rate and incur larger brokerage commissions and
other expenses than might otherwise be the case.
Quantum Fund - The objective of Quantum Fund is 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. Medium to large-size companies generally are those having a market
capitalization of greater than $1 billion at the time of investment. The
Sub-Adviser will invest in equity securities that it believes exhibit growth
potential that significantly exceeds the average anticipated growth rate of
companies included in the S&P 500 and meet the Fund's "Social Criteria"
strategy.
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(VGA-ABC)
The Fund will adhere to a Social Criteria strategy, which can be
changed by action of Equity Funds II, Inc.'s Board of Directors. The Sub-Adviser
will utilize the Social Investment Database published by Kinder, Lydenberg,
Domini & Co. Inc. ("KLD") in determining whether a company is engaged in any
activity precluded by the Fund's Social Criteria. KLD specializes in providing
the financial community with social research on publicly traded U.S.
corporations. The Fund will not purchase securities of any company for which the
Social Investment Database indicates a concern or a major concern relating to
one or more of the Social Criteria. See Social Criteria under Other Investment
Policies and Risk Considerations.
While it is anticipated that the Fund, under normal market conditions,
will invest principally in common stock, the Fund may invest in all available
types of equity securities, including without limitation, preferred stock,
warrants and securities convertible into common stock such investments may be
made in any proportion deemed prudent under existing market and economic
conditions. See Other Investment Policies and Risk Considerations.
Up to 20% of the Fund's total assets may be invested directly or
indirectly in securities of issuers domiciled in foreign countries, including
investments in American, European or Global Depositary Receipts. See Foreign
Investment Information under Other Investment Policies and Risk Considerations.
The Fund may enter into options and futures transactions for hedging
purposes to counterbalance portfolio volatility. See Futures Contracts and
Options under Other Investment Policies and Risk Considerations.
The Fund may hold cash or invest in short-term debt securities
and other money market instruments when, in the Sub-Adviser's opinion, such
holdings are prudent given then prevailing market conditions. The Fund may also
invest in such instruments pending investment by the Fund of proceeds from the
sale of portfolio securities or proceeds from new sales of Fund shares pending
investment in other types of securities for the Fund as to maintain sufficient
liquidity to meet redemptions. All such short-term investments will be of the
highest quality as determined by a nationally-recognized statistical rating
organization (e.g., AAA by S&P or Aaa by Moody's) or, if unrated, judged to be
of comparable quality as determined by the Sub-Adviser. See Short-Term
Investments under Other Investment Policies and Risk Considerations.
The Fund will constantly strive to achieve its objective and, in
investing to do so, may hold securities for any period of time. To the extent
the Fund engages in short-term trading in attempting to achieve its objective,
it may increase the turnover rate and incur larger brokerage commissions and
other expenses than might otherwise be the case.
* * *
For additional information on each Fund's investment policies and
certain risks associated with investments in certain types of securities, see
Other Investment Policies and Risk Considerations.
Although each Fund will constantly strive to attain its respective
objectives, there can be no assurance that they will be attained.
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<PAGE>
(VGA-ABC)
THE DELAWARE DIFFERENCE
PLANS AND SERVICES
The Delaware Difference is our commitment to provide you with superior
information and quality service on your investments in the Delaware Group of
funds.
SHAREHOLDER PHONE DIRECTORY
Investor Information Center
800-523-4640
Fund Information, Literature Price, Yield and Performance Figures
Shareholder Service Center
800-523-1918
Information on Existing Regular Investment Accounts and Retirement Plan
Accounts, Wire Investments, Wire Liquidations, Telephone
Liquidations and Telephone Exchanges
Delaphone
800-362-FUND
(800-362-3863)
Performance Information
You can call the Investor Information Center at any time for current
performance information.
Shareholder Services
During business hours, you can call the Delaware Group's Shareholder
Service Center. Our representatives can answer any questions about your account,
the Funds, various service features and other funds in the Delaware Group.
Delaphone Service
Delaphone is an account inquiry service for investors with
Touch-Tone(R) phone service. It enables you to get information on your account
faster than the mailed statements and confirmations. Delaphone also provides
current performance information on the Funds, as well as other funds in the
Delaware Group. Delaphone is available seven days a week, 24 hours a day.
Dividend Payments
Dividends, capital gains and other distributions are automatically
reinvested in your account, unless you elect to receive them in cash. You may
also elect to have the dividends earned in one fund automatically invested in
another Delaware Group fund with a different investment objective, subject to
certain exceptions and limitations.
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(VGA-ABC)
For more information, see Additional Methods of Adding to Your
Investment - Dividend Reinvestment Plan under How to Buy Shares or call the
Shareholder Service Center.
MoneyLine Direct Deposit Service
If you elect to have your dividends and distributions paid in cash and
such dividends and distributions are in an amount of $25 or more, you may choose
the MoneyLine Direct Deposit Service and have such payments transferred from
your Fund account to your predesignated bank account. See Dividends and
Distributions. In addition, you may elect to have your Systematic Withdrawal
Plan payments transferred from your Fund account to your predesignated bank
account through this service. See Systematic Withdrawal Plans under Redemption
and Exchange. Your funds will normally be credited to your bank account two
business days after the payment date. There are no fees for this service. You
can initiate the MoneyLine Direct Deposit Service by completing an Authorization
Agreement. If your name and address are not identical to the name and address on
your Fund account, you must have your signature guaranteed. This service is not
available for retirement plans.
Statements and Confirmations
You will receive quarterly statements of your account summarizing all
transactions during the period. A confirmation statement will be sent following
all transactions other than those involving a reinvestment of dividends. You
should examine statements and confirmations immediately and promptly report any
discrepancy by calling the Shareholder Service Center.
Duplicate Confirmations
If your financial adviser or investment dealer is noted on your
investment application, we will send a duplicate confirmation to him or her.
This makes it easier for your adviser to help you manage your investments.
Tax Information
Each year, Equity Funds II, Inc. will mail to you information on the
tax status of your dividends and distributions.
Right of Accumulation
With respect to Class A Shares, the Right of Accumulation feature
allows you to combine the value of your current holdings of Class A Shares,
Class B Shares and Class C Shares of a Fund with the dollar amount of new
purchases of Class A Shares of that Fund to qualify for a reduced front-end
sales charge on such purchases of Class A Shares. Under the Combined Purchases
Privilege, you may also include certain shares that you own in other funds in
the Delaware Group. See Classes of Shares.
Letter of Intention
The Letter of Intention feature permits you to obtain a reduced
front-end sales charge on purchases of Class A Shares by aggregating certain of
your purchases of Delaware Group fund shares over a 13- month period. See
Classes of Shares and Part B.
12-Month Reinvestment Privilege
The 12-Month Reinvestment Privilege permits you to reinvest proceeds
from a redemption of Class A Shares, within one year of the date of the
redemption, without paying a front-end sales charge.
See Part B.
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(VGA-ABC)
Exchange Privilege
The Exchange Privilege permits shareholders to exchange all or part of
their shares into shares of the other funds in the Delaware Group, subject to
certain exceptions and limitations. For additional information on exchanges, see
Investing by Exchange under How to Buy Shares and Redemption and Exchange.
Wealth Builder Option
You may elect to invest in a Fund through regular liquidations of
shares in your accounts in other funds in the Delaware Group. Investments under
this feature are exchanges and are therefore subject to the same conditions and
limitations as other exchanges of Fund shares. See Additional Methods of Adding
to Your Investment - Wealth Builder Option and Investing by Exchange under How
to Buy Shares, and Redemption and Exchange.
Delaware Group Asset Planner
Delaware Group Asset Planner is an asset allocation service that gives
investors, working with a professional financial adviser, the ability to more
easily design and maintain investments in a diversified selection of Delaware
Group mutual funds. The Asset Planner service offers a choice of four
predesigned allocation strategies (each with a different risk/reward profile)
made up of separate investments in predetermined percentages of Delaware Group
funds. With the guidance of a financial adviser, investors may also tailor an
allocation strategy that meets their personal needs and goals. See How to Buy
Shares.
Financial Information about the Funds
Each fiscal year, you will receive an audited annual report and an
unaudited semi-annual report. These reports provide detailed information about
each Fund's investments and performance. Equity Funds II, Inc.'s fiscal year
ends on November 30.
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(VGA-ABC)
RETIREMENT PLANNING
An investment in either Fund may be suitable for tax-deferred
retirement plans. Among the retirement plans noted below, Class B Shares are
available for investment only by Individual Retirement Accounts, Simplified
Employee Pension Plans, 457 Deferred Compensation Plans and 403(b)(7) Deferred
Compensation Plans.
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. 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 the Blue Chip
Fund Institutional Class and the Quantum Fund Institutional Class. For
additional information on any of the plans and Delaware's retirement services,
call the Shareholder Service Center or see Part B.
Individual Retirement Account ("IRA")
Individuals, even if they participate in an employer-sponsored
retirement plan, may establish their own retirement program for investments in
each of the Classes. Contributions to an IRA may be tax-deductible and earnings
are tax-deferred. Under the Tax Reform Act of 1986, the tax deductibility of IRA
contributions is restricted, and in some cases eliminated, for individuals who
participate in certain employer-sponsored retirement plans and whose annual
income exceeds certain limits. Existing IRAs and future contributions up to the
IRA maximums, whether deductible or not, still earn on a tax-deferred basis.
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 is available for investment by a
SEP/IRA.
Salary Reduction Simplified Employee Pension Plan ("SAR/SEP")
Offers employers with 25 or fewer eligible employees the ability to
establish a SEP/IRA that permits salary deferral contributions. An employer may
also elect to make additional contributions to this plan. Class B Shares are not
available for purchase by such plans. Under the Small Business Protection Act of
1996, an employer cannot establish a new SAR/SEP after December 31, 1996. Plans
established before January 1, 1997 can continue to operate without change.
403(b)(7) Deferred Compensation Plan
Permits employees of public school systems or of certain types of
non-profit organizations to enter into a deferred compensation arrangement for
the purchase of shares of each of the Classes.
457 Deferred Compensation Plan
Permits employees of state and local governments and certain other
entities to enter into a deferred compensation arrangement for the purchase of
shares of each of the Classes.
Prototype Profit Sharing or Money Purchase Pension Plan
Offers self-employed individuals, partnerships and corporations a
tax-qualified plan which provides for the investment of contributions in Class A
Shares or Class C Shares. Class B Shares are not available for purchase by such
plans.
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(VGA-ABC)
Prototype 401(k) Defined Contribution Plan
Permits employers to establish a tax-qualified plan based on salary
deferral contributions for investment in Class A or Class C Shares. Class B
Shares are not available for purchase by such plans.
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 Group funds ("eligible Delaware Group fund
shares"), as well as shares of designated classes of non-Delaware Group funds
("eligible non-Delaware Group 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 Group and eligible non-Delaware Group 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 Group fund shares. See Front-End Sales Charge
Alternative Class A Shares under Classes of Shares.
Participants in Allied Plans may exchange all or part of their eligible
Delaware Group fund shares for other eligible Delaware Group fund shares or for
eligible non-Delaware Group fund shares at net asset value without payment of a
front-end sales charge. However, exchanges of eligible fund shares, both
Delaware Group and non-Delaware Group, which were not subject to a front-end
sales charge, will be subject to the applicable sales charge if exchanged for
eligible Delaware Group 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
Group 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 Group fund shares in connection with Allied Plans, all participant
holdings in the Allied Plan will be aggregated. See Front-End Sales Charge
Alternative Class A Shares under Classes of 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 Group and non-Delaware Group fund shares. When
eligible Delaware Group fund shares are exchanged into eligible non-Delaware
Group 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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(VGA-ABC)
CLASSES OF SHARES
Alternative Purchase Arrangements
Shares may be purchased at a price equal to the next determined net
asset value per share, subject to a sales charge which may be imposed, at the
election of the purchaser, at the time of the purchase for Class A Shares
("front-end sales charge alternative"), or on a contingent deferred basis for
Class B Shares ("deferred sales charge alternative") or Class C Shares ("level
sales charge alternative").
Class A Shares. An investor who elects the front-end sales charge
alternative acquires Class A Shares, which incur a sales charge when they are
purchased, but generally are not subject to any sales charge when they are
redeemed. Class A Shares are subject to annual 12b-1 Plan expenses of up to a
maximum of 0.30% of average daily net assets of such shares. Certain purchases
of Class A Shares qualify for reduced front-end sales charges. See Front-End
Sales Charge Alternative - Class A Shares. See also Contingent Deferred Sales
Charge for Certain Redemptions of Class A Shares Purchased at Net Asset Value
under Redemption and Exchange and Distribution (12b-1) and Service under
Management of the Funds.
Class B Shares. An investor who elects the deferred sales charge
alternative acquires Class B Shares, which do not incur a front-end sales charge
when they are purchased, but are subject to a contingent deferred sales charge
if they are redeemed within six years of purchase. Class B Shares are subject to
annual 12b-1 Plan expenses of up to a maximum of 1% (0.25% of which are service
fees to be paid to the Distributor, dealers or others for providing personal
service and/or maintaining shareholder accounts) of average daily net assets of
such shares for approximately eight years after purchase. Class B Shares permit
all of the investor's dollars to work from the time the investment is made. The
higher 12b-1 Plan expenses paid by Class B Shares will cause such shares to have
a higher expense ratio and to pay lower dividends than Class A Shares. At the
end of approximately eight years after purchase, the Class B Shares will
automatically be converted into Class A Shares. See Automatic Conversion of
Class B Shares, below.
Class C Shares. An investor who elects the level sales charge
alternative acquires Class C Shares, which do not incur a front-end sales charge
when they are purchased, but are subject to a contingent deferred sales charge
if they are redeemed within 12 months of purchase. Class C Shares are subject to
annual 12b-1 Plan expenses of up to a maximum of 1% (0.25% of which are service
fees to be paid to the Distributor, dealers or others for providing personal
service and/or maintaining shareholder accounts) of average daily net assets of
such shares for the life of the investment. The higher 12b-1 Plan expenses paid
by Class C Shares will cause such shares to have a higher expense ratio and to
pay lower dividends than Class A Shares. Unlike Class B Shares, Class C Shares
do not convert to another class.
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<PAGE>
(VGA-ABC)
The alternative purchase arrangements described above permit investors
to choose the method of purchasing shares that is most suitable given the amount
of their purchase, the length of time they expect to hold their shares and other
relevant circumstances. Investors should determine whether, given their
particular circumstances, it is more advantageous to purchase Class A Shares and
incur a front-end sales charge, purchase Class B Shares and have the entire
initial purchase amount invested in a Fund with their investment being subject
to a CDSC if they redeem shares within six years of purchase, or purchase Class
C Shares and have the entire initial purchase amount invested in a Fund with
their investment being subject to a CDSC if they redeem shares within 12 months
of purchase. In addition, investors should consider the level of annual 12b-1
Plan expenses applicable to each Class. The higher 12b-1 Plan expenses on Class
B Shares and Class C Shares will be offset to the extent a return is realized on
the additional money initially invested upon the purchase of such shares.
However, there can be no assurance as to the return, if any, that will be
realized on such additional money. In comparing Class B Shares to Class C
Shares, investors should also consider the desirability of an automatic
conversion feature, which is available only for Class B Shares.
Prospective investors should refer to Appendix A--Investment
Illustrations in this Prospectus for an illustration of the potential effect
that each of the purchase options may have on a long-term shareholder's
investment.
For the distribution and related services provided to, and the expenses
borne on behalf of, a Fund, the Distributor and others will be paid, in the case
of the Class A Shares, from the proceeds of the front-end sales charge and 12b-1
Plan fees and, in the case of the Class B Shares and the 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, Class B and Class C Shares. Investors should understand that the
purpose and function of the respective 12b-1 Plans and the CDSCs applicable to
Class B Shares and Class C Shares are the same as those of the 12b-1 Plan and
the front-end sales charge applicable to Class A Shares in that such fees and
charges are used to finance the distribution of the respective Classes. See
12b-1 Distribution Plans - Class A, Class B and Class C Shares.
Dividends paid on Class A, Class B and Class C Shares, to the extent
any dividends are paid, will be calculated in the same manner, at the same time,
on the same day and will be in the same amount, except that, when assessed, the
additional amount of 12b-1 Plan expenses relating to Class B Shares and Class C
Shares will be borne exclusively by such shares. See Calculation of Offering
Price and Net Asset Value Per Share.
The NASD has adopted certain rules relating to investment company sales
charges. Equity Funds II, Inc. and the Distributor intend to operate in
compliance with these rules.
Front-End Sales Charge Alternative - Class A Shares
Class A Shares may be purchased at the offering price, which reflects a
maximum front-end sales charge of 4.75%. See Calculation of Offering Price and
Net Asset Value Per Share.
Purchases of $100,000 or more carry a reduced front-end sales charge as
shown in the following table.
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(VGA-ABC)
Blue Chip Fund A Class
Quantum Fund A Class
- --------------------------------------------------------------------------------
Front-End Sales Charge Dealer's
as % of Commission***
Offering Amount as % of
Amount of Purchase Price Invested** Offering Price
- --------------------------------------------------------------------------------
Blue
Chip Quantum
Fund Fund
Less than $100,000 4.75% 0.00% 0.00% 4.00%
$100,000 but
under $250,000 3.75 0.00 0.00 3.00
$250,000 but
under $500,000 2.50 0.00 0.00 2.00
$500,000 but
under $1,000,000* 2.00 0.00 0.00 1.60
* There is no front-end sales charge on purchases of Class A Shares of $1
million or more but, under certain limited circumstances, a 1% Limited
CDSC may apply upon redemption of such shares.
** Based upon the initial net asset value of $8.50 per share of Class A
Shares of each Fund.
*** Financial institutions or their affiliated brokers may receive an
agency transaction fee in the percentages set forth above.
- --------------------------------------------------------------------------------
Blue Chip Fund or Quantum Fund, as appropriate, must be notified when a
sale takes place which would qualify for the reduced front-end sales
charge on the basis of previous or current purchases. The reduced
front-end sales charge will be granted upon confirmation of the
shareholder's holdings by such Fund. Such reduced front-end sales
charges are not retroactive.
From time to time, upon written notice to all of its dealers, the
Distributor may hold special promotions for specified periods during
which the Distributor may reallow to dealers up to the full amount of
the front-end sales charge shown above. In addition, certain dealers
who enter into an agreement to provide extra training and information
on Delaware Group products and services and who increase sales of
Delaware Group funds may receive an additional commission of up to
0.15% of the offering price. Dealers who receive 90% or more of the
sales charge may be deemed to be underwriters under the Securities Act
of 1933.
- --------------------------------------------------------------------------------
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For initial purchases of Class A Shares of $1,000,000 or more, a
dealer's commission may be paid by the Distributor to financial advisers through
whom such purchases are made in accordance with the following schedule:
Dealer's Commission
(as a percentage of
Amount of Purchase amount purchased)
Up to $2 million 1.00%
Next $1 million up to $3 million 0.75
Next $2 million up to $5 million 0.50
Amount over $5 million 0.25
In determining a financial adviser's eligibility for the dealer's
commission, purchases of Class A Shares of other Delaware Group funds as to
which a Limited CDSC applies 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 Group 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.
Redemptions of Class A Shares purchased at net asset value may result
in the imposition of a Limited CDSC if the dealer's commission described above
was paid in connection with the purchase of those shares. See Contingent
Deferred Sales Charge for Certain Redemptions of Class A Shares Purchased at Net
Asset Value under Redemption and Exchange.
Combined Purchases Privilege
By combining your holdings of Class A Shares with your holdings of
Class B Shares and/or Class C Shares of a Fund and shares of the other funds in
the Delaware Group, except those noted below, you can reduce the front-end sales
charges on any additional purchases of Class A Shares. Shares of Delaware Group
Premium Fund, Inc. beneficially owned in connection with ownership of variable
insurance products may be combined with other Delaware Group fund holdings.
Shares of other funds that do not carry a front-end sales charge or CDSC may not
be included unless they were acquired through an exchange from a Delaware Group
fund that does carry a front-end sales charge or CDSC.
This privilege permits you to combine your purchases and holdings with
those of your spouse, your children under 21 and any trust, fiduciary or
retirement account for the benefit of such family members.
It also permits you to use these combinations under a Letter of
Intention. A Letter of Intention allows you to make purchases over a 13-month
period and qualify the entire purchase for a reduction in front-end sales
charges on Class A Shares.
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Combined purchases of $1,000,000 or more, including certain purchases
made at net asset value pursuant to a Right of Accumulation or under a Letter of
Intention, may result in the payment of a dealer's commission and the
applicability of a Limited CDSC. Investors should consult their financial
advisers or the Shareholder Service Center about the operation of these
features. See Front-End Sales Charge Alternative - Class A Shares, above.
Buying Class A Shares at Net Asset Value
Class A Shares may be purchased at net asset value under the Delaware
Group Dividend Reinvestment Plan and, under certain circumstances, the Exchange
Privilege and the 12-Month Reinvestment Privilege. See The Delaware Difference
and Redemption and Exchange for additional information.
Purchases of Class A Shares may be made at net asset value by current
and former officers, directors and employees (and members of their families) of
the Manager, any affiliate, any of the funds in the Delaware Group, certain of
their agents and registered representatives and employees of authorized
investment dealers and by employee benefit plans for such entities. Individual
purchases, including those in retirement accounts, must be for accounts in the
name of the individual or a qualifying family member.
Purchases of Class A Shares may also be made by clients of registered
representatives of an authorized investment dealer at net asset value within 12
months after the registered representative changes employment, if the purchase
is funded by proceeds from an investment where a front-end sales charge,
contingent deferred sales charge or other sales charge has been assessed.
Purchases of Class A Shares may also be made at net asset value by bank
employees who provide services in connection with agreements between the bank
and unaffiliated brokers or dealers concerning sales of shares of Delaware Group
funds. 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.
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 Delaware
Group account in connection with loans originated from accounts previously
maintained by another investment firm will also be invested at net asset value.
Blue Chip Fund or Quantum Fund, as appropriate, must be notified in
advance that an investment qualifies for purchase at net asset value.
Group Investment Plans
Group Investment Plans (e.g., SEP/IRA, SAR/SEP, Prototype Profit
Sharing, Pension and 401(k) Defined Contribution Plans) may benefit from the
reduced front-end sales charges available on the Class A Shares set forth in the
table on page , based on total plan assets. In addition, 403(b)(7) and 457
Retirement Plan Accounts may benefit from a reduced front-end sales charge on
Class A Shares based on
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the total amount invested by all participants in the plan by satisfying the
following criteria: (i) the employer for which the plan was established has 250
or more eligible employees and the plan lists only one broker of record, or (ii)
the plan includes employer contributions and the plan lists only one broker of
record. If a company has more than one plan investing in the Delaware Group of
funds, then the total amount invested in all plans will be aggregated to
determine the applicable front-end sales charge reduction on each purchase, both
initial and subsequent, if, at the time of each such purchase, the company
notifies the Fund in which it is investing that it qualifies for the reduction.
Employees participating in such Group Investment Plans may also combine the
investments held in their plan account to determine the front-end sales charge
applicable to purchases in non-retirement Delaware Group investment accounts if,
at the time of each such purchase, they notify the Fund in which they are
investing that they are eligible to combine purchase amounts held in their plan
account.
For additional information on retirement plans, including plan forms,
applications, minimum investments and any applicable account maintenance fees,
contact your investment dealer or the Distributor.
For other retirement plans and special services, see Retirement
Planning.
Deferred Sales Charge Alternative - Class B Shares
Class B Shares may be purchased at net asset value without a front-end
sales charge and, as a result, the full amount of the investor's purchase
payment will be invested in Fund shares. The Distributor currently anticipates
compensating dealers or brokers for selling Class B Shares at the time of
purchase from its own assets in an amount equal to no more than 4% of the dollar
amount purchased. In addition, from time to time, upon written notice to all of
its dealers, the Distributor may hold special promotions for specified periods
during which the Distributor may pay additional compensation to dealers or
brokers for selling Class B Shares at the time of purchase. As discussed below,
however, Class B Shares are subject to annual 12b-1 Plan expenses and, if
redeemed within six years of purchase, a CDSC.
Proceeds from the CDSC and the annual 12b-1 Plan fees, if any, are paid
to the Distributor and others for providing distribution and related services,
and bearing related expenses, in connection with the sale of Class B Shares.
These payments support the compensation paid to dealers or brokers for selling
Class B Shares. Payments to the Distributor and others under the Class B 12b-1
Plan may be in an amount equal to no more than 1% annually. The combination of
the CDSC and the proceeds of the 12b-1 Plan fees makes it possible for the Funds
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 the Class B Shares
described in this Prospectus, even after the exchange. Such CDSC schedule may be
higher than the CDSC schedule for the Class B Shares acquired as a result of the
exchange. See Redemption and Exchange.
Automatic Conversion of Class B Shares
Class B Shares, other than shares acquired through reinvestment of
dividends, held for eight years after purchase are eligible for automatic
conversion into Class A Shares. Conversions of Class B Shares into Class A
Shares will occur only four times in any calendar year, on the last business day
of the second
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full week of March, June, September and December (each, a "Conversion Date"). If
the eighth anniversary after a purchase of Class B Shares falls on a Conversion
Date, an investor's Class B Shares will be converted on that date. If the eighth
anniversary occurs between Conversion Dates, an investor's Class B Shares will
be converted on the next Conversion Date after such anniversary. Consequently,
if a shareholder's eighth anniversary falls on the day after a Conversion Date,
that shareholder will have to hold Class B Shares for as long as three
additional months after the eighth anniversary of purchase before the shares
will automatically convert into Class A Shares.
Class B Shares of a fund acquired through a reinvestment of dividends
will convert to the corresponding Class A Shares of that fund (or, in the case
of Delaware Group Cash Reserve, Inc., the Delaware Cash Reserve Consultant
Class) pro-rata with Class B Shares of that fund not acquired through dividend
reinvestment.
All such automatic conversions of Class B Shares will constitute
tax-free exchanges for federal income tax purposes. See Taxes.
Level Sales Charge Alternative - Class C Shares
Class C Shares may be purchased at net asset value without a front-end
sales charge and, as a result, the Fund will invest the full amount of the
investor's purchase payment. The Distributor currently anticipates compensating
dealers or brokers for selling Class C Shares at the time of purchase from its
own assets in an amount equal to no more than 1% of the dollar amount purchased.
As discussed below, however, Class C Shares are subject to annual 12b-1 Plan
expenses and, if redeemed within 12 months of purchase, a CDSC.
Proceeds from the CDSC and the annual 12b-1 Plan fees, if any, are paid
to the Distributor and others for providing distribution and related services,
and bearing related expenses, in connection with the sale of Class C Shares.
These payments support the compensation paid to dealers or brokers for selling
Class C Shares. Payments to the Distributor and others under the Class C 12b-1
Plan may be in an amount equal to no more than 1% annually.
Holders of Class C Shares who exercise the exchange privilege described
below will continue to be subject to the CDSC schedule for the Class C Shares as
described in this Prospectus. See Redemption and Exchange.
Contingent Deferred Sales Charge - Class B Shares and Class C Shares
Class B Shares redeemed within six years of purchase may be subject to
a CDSC at the rates set forth below and Class C Shares redeemed within 12 months
of purchase may be subject to a CDSC of 1%. CDSCs are charged as a percentage of
the dollar amount subject to the CDSC. The charge will be assessed on an amount
equal to the lesser of the net asset value at the time of purchase of the shares
being redeemed or the net asset value of those shares at the time of redemption.
No CDSC will be imposed on increases in net asset value above the initial
purchase price, nor will a CDSC be assessed on redemptions of shares acquired
through reinvestments of dividends or capital gains distributions. For purposes
of this formula, the "net asset value at the time of purchase" will be the net
asset value at purchase of the Class B Shares or the Class C Shares of Blue Chip
Fund or Quantum Fund, as the case may be, even if those shares are later
exchanged for shares of another Delaware Group 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.
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The following table sets forth the rates of the CDSC for the Class B
Shares of the Funds:
Contingent Deferred
Sales Charge (as a
Percentage of
Dollar Amount
Year After Purchase Made Subject to Charge)
0-2 4%
3-4 3%
5 2%
6 1%
7 and thereafter None
During the seventh year after purchase and, thereafter, until converted
automatically into Class A Shares, Class B Shares will still be subject to the
annual 12b-1 Plan expenses of up to 1% of average daily net assets of those
shares. See Automatic Conversion of Class B Shares, above. Investors are
reminded that the Class A Shares into which the 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 are redeemed
first, followed by shares acquired through the reinvestment of dividends or
distributions, and finally by shares held longest during the six-year period.
With respect to Class C Shares, it will be assumed that shares held for more
than 12 months are redeemed first followed by shares acquired through the
reinvestment of dividends or distributions, and finally by shares held for 12
months or less.
All investments made during a calendar month, regardless of what day of
the month the investment occurred, will age one month on the last day of that
month and each subsequent month.
The CDSC is waived on certain redemptions of Class B Shares and Class C
Shares. See Waiver of Contingent Deferred Sales Charge - Class B Shares and
Class C Shares under Redemption and Exchange.
Other Payments to Dealers -- Class A, Class B and Class C Shares
From time to time at the discretion of the Distributor, all registered
broker/dealers whose aggregate sales of the Classes exceed certain limits, as
set by the Distributor, may receive from the Distributor an additional payment
of up to 0.25% of the dollar amount of such sales. The Distributor may also
provide additional promotional incentives or payments to dealers that sell
shares of the Delaware Group 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.
Subject to pending amendments to the NASD's Rules of Fair Practice, in
connection with the promotion of Delaware Group fund shares, the Distributor
may, from time to time, pay to participate in dealer-sponsored seminars and
conferences, reimburse dealers for expenses incurred in connection with
preapproved seminars, conferences and advertising and may, from time to time,
pay or allow additional
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promotional incentives to dealers, which shall include non-cash concessions,
such as certain luxury merchandise or a trip to or attendance at a business or
investment seminar at a luxury resort, as part of preapproved sales contests.
Payment of non-cash compensation to dealers is currently under review by the
NASD and the Securities and Exchange Commission. It is likely that the NASD's
Rules of Fair Practice will be amended such that the ability of the Distributor
to pay non-cash compensation as described above will be restricted in some
fashion. The Distributor intends to comply with the NASD's Rules of Fair
Practice as they may be amended.
Blue Chip Fund Institutional Class and Quantum Fund Institutional Class
In addition to offering the Class A, Class B and Class C Shares, Blue
Chip Fund also offers the Blue Chip Fund Institutional Class and Quantum Fund
also offers the Quantum Fund Institutional Class, which are described in a
separate prospectus and are available for purchase only by certain investors.
Blue Chip Fund Institutional Class shares and Quantum Fund Institutional Class
shares generally are distributed directly by the Distributor and do not have a
front-end sales charge, a CDSC or a Limited CDSC, and are not subject to 12b-1
Plan distribution expenses. To obtain the prospectus that describes the Blue
Chip Fund Institutional Class and the Quantum Fund Institutional Class, contact
the Distributor by writing to the address or by calling the telephone number
listed on the back of this Prospectus.
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HOW TO BUY SHARES
Purchase Amounts
Generally, the minimum initial purchase is $1,000 for Class A Shares,
Class B Shares and Class C Shares. Subsequent purchases of shares of any Class
generally must be $100 or more. For purchases under a Uniform Gifts to Minors
Act or Uniform Transfers to Minors Act or through an Automatic Investing Plan,
there is a minimum initial purchase of $250 and a minimum subsequent purchase of
$25. Minimum purchase requirements do not apply to retirement plans other than
IRAs, for which there is a minimum initial purchase of $250, and a minimum
subsequent purchase of $25, regardless of which Class is selected.
There is a maximum purchase limitation of $250,000 on each purchase of
Class B Shares. For Class C Shares, each purchase must be in an amount that is
less than $1,000,000. An investor may exceed these maximum purchase limitations
by making cumulative purchases over a period of time. In doing so, an investor
should keep in mind that reduced front-end sales charges are available on
investments of $100,000 or more in Class A Shares, and that Class A Shares (i)
are subject to lower annual 12b-1 Plan expenses than Class B Shares and Class C
Shares and (ii) generally are not subject to a CDSC. For retirement plans, the
maximum purchase limitations apply only to the initial purchase of Class B
Shares or Class C Shares by the plan.
Investing through Your Investment Dealer
You can make a purchase of shares of the Funds through most investment
dealers who, as part of the service they provide, must transmit orders promptly.
They may charge for this service. If you want a dealer but do not have one, we
can refer you to one.
Investing by Mail
1. Initial Purchases--An Investment Application or, in the case of a retirement
account, an appropriate retirement plan application, must be completed, signed
and sent with a check payable to specific Fund and Class selected, to Delaware
Group at 1818 Market Street, Philadelphia, PA 19103.
2. Subsequent Purchases--Additional purchases may be made at any time by mailing
a check payable to the specific Fund and Class selected. Your check should be
identified with your name(s) and account number. An investment slip (similar to
a deposit slip) is provided at the bottom of transaction confirmations and
dividend statements that you will receive from Equity Funds II, Inc. Use of this
investment slip can help expedite processing of your check when making
additional purchases. Your investment may be delayed if you send additional
purchases by certified mail.
Investing by Wire
You may purchase shares by requesting your bank to transmit funds by
wire to CoreStates Bank, N.A., ABA #031000011, account number 1412893401
(include your name(s) and your account number for the Class in which you are
investing).
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1. Initial Purchases--Before you invest, telephone the Shareholder Service
Center to get an account number. If you do not call first, processing of your
investment may be delayed. In addition, you must promptly send your Investment
Application or, in the case of a retirement account, an appropriate retirement
plan application, to the specific Fund and Class selected, to Delaware Group at
1818 Market Street, Philadelphia, PA 19103.
2. Subsequent Purchases--You may make additional investments anytime by wiring
funds to CoreStates Bank, N.A., as described above. You should advise the
Shareholder Service Center by telephone of each wire you send.
If you want to wire investments to a retirement plan account, call the
Shareholder Service Center for special wiring instructions.
Investing by Exchange
If you have an investment in another mutual fund in the Delaware Group,
you may write and authorize an exchange of part or all of your investment into
shares of either Fund. If you wish to open an account by exchange, call the
Shareholder Service Center for more information. All exchanges are subject to
the eligibility and minimum purchase requirements set forth in each fund's
prospectus.
Holders of Class A Shares may exchange all or part of their shares for
certain of the shares of other funds in the Delaware Group, including other
Class A Shares, but may not exchange their Class A Shares for Class B Shares or
Class C Shares of either Fund or of any other fund in the Delaware Group.
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 Group 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 Group
funds. See Appendix B--Classes Offered for a list of funds that offer Class A,
Class B, Class C and Consultant Class Shares. Class B Shares of a Fund and Class
C Shares of a Fund acquired by exchange will continue to carry the CDSC and, in
the case of Class B Shares, the automatic conversion schedule of the fund from
which the exchange is made. The holding period of Class B Shares of a Fund
acquired by exchange will be added to that of the shares that were exchanged for
purposes of determining the time of the automatic conversion into Class A Shares
of that Fund.
Permissible exchanges into Class A Shares of a Fund will be made
without a front-end sales charge, except for exchanges of shares that were not
previously subject to a front-end sales charge (unless such shares were acquired
through the reinvestment of dividends). Permissible exchanges into Class B
Shares or Class C Shares of a Fund will be made without the imposition of a CDSC
by the fund from which the exchange is being made at the time of the exchange.
See Allied Plans under Retirement Planning for information on exchanges
by participants in an Allied Plan.
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Additional Methods of Adding to Your Investment
Call the Shareholder Service Center for more information if you wish to
use the following services:
1. Automatic Investing Plan
The Automatic Investing Plan enables you to make regular monthly
investments without writing or mailing checks. You may authorize Equity Funds
II, Inc. to transfer a designated amount monthly from your checking account to
your account. Many shareholders use this as an automatic savings plan.
Shareholders should allow a reasonable amount of time for initial purchases and
changes to these plans to become effective.
This option is not available to participants in the following plans:
SAR/SEP, SEP/IRA, Profit Sharing and Money Purchase Pension Plans, 401(k)
Defined Contribution Plans, 403(b)(7) Deferred Compensation Plans or 457
Deferred Compensation Plans.
2. Direct Deposit
You may have your employer or bank make regular investments directly to
your Fund account for you (for example: payroll deduction, pay by phone, annuity
payments). Each Fund also accepts preauthorized recurring government and private
payments by Electronic Fund Transfer, which avoids mail time and check clearing
holds on payments such as social security, federal salaries, Railroad Retirement
benefits, etc.
* * *
Should investments through an automatic investing plan or by direct
deposit be reclaimed or returned for some reason, Equity Funds II, Inc. has the
right to liquidate your shares to reimburse the government or transmitting bank.
If there are insufficient funds in your account, you are obligated to reimburse
the Fund.
3. Wealth Builder Option
You can use our Wealth Builder Option to invest in a Fund through
regular liquidations of shares in your accounts in other funds in the Delaware
Group. You may also elect to invest in other mutual funds in the Delaware Group
through the Wealth Builder Option through regular liquidations of shares in your
Fund account.
Under this automatic exchange program, you can authorize regular
monthly amounts (minimum of $100 per fund) to be liquidated from your account in
one or more funds in the Delaware Group and invested automatically into any
other Delaware Group account that you may specify. If in connection with the
election of the Wealth Builder Option, you wish to open a new account to receive
the automatic investment, such new account must meet the minimum initial
purchase requirements described in the prospectus of the fund that you select.
All investments under this option are exchanges and are therefore subject to the
same conditions and limitations as other exchanges noted above. You can
terminate your participation at any time by written notice to the fund from
which the exchanges are made. See Redemption and Exchange.
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This option is not available to participants in the following plans:
SAR/SEP, SEP/IRA, Profit Sharing and Money Purchase Pension Plans, 401(k)
Defined Contribution Plans, 403(b)(7) Deferred Compensation Plans or 457
Deferred Compensation Plans.
4. Dividend Reinvestment Plan
You can elect to have your distributions (capital gains and/or dividend
income) paid to you by check or reinvested in your Fund account. Or, you may
invest your distributions in certain other funds in the Delaware Group, subject
to the exceptions noted below as well as the eligibility and minimum purchase
requirements set forth in each fund's prospectus.
Reinvestments of distributions into Class A Shares of a Fund or of
other Delaware Group funds are made without a front-end sales charge.
Reinvestments of distributions into Class B Shares of a Fund or of other
Delaware Group funds or into Class C Shares of a Fund or of other Delaware Group
funds are also made without any sales charge and will not be subject to a CDSC
if later redeemed. See Automatic Conversion of Class B Shares under Classes of
Shares for information concerning the automatic conversion of Class B Shares
acquired by reinvesting dividends.
Holders of Class A Shares of a Fund may not reinvest their
distributions into Class B Shares or Class C Shares of any fund in the Delaware
Group, including the Funds. Holders of Class B Shares of a Fund may reinvest
their distributions only into Class B Shares of the funds in the Delaware Group
which offer that class of shares. Similarly, holders of Class C Shares of a Fund
may reinvest their distributions only into Class C Shares of the funds in the
Delaware Group which offer that class of shares. See Appendix B--Classes Offered
for a list of the funds offering those classes of shares. For more information
about reinvestments, call the Shareholder Service Center.
Delaware Group Asset Planner
To invest in Delaware Group funds using the Delaware Group Asset
Planner asset allocation service, you should complete a Delaware Group Asset
Planner Account Registration Form, which is available only from a financial
adviser or investment dealer. As previously described, the Delaware Group Asset
Planner service offers a choice of four predesigned asset allocation strategies
(each with a different risk/reward profile) in predetermined percentages in
Delaware Group funds. Or, with the help of a financial adviser, you may 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
Group accounts into the Asset Planner service may be made at net asset value
under the circumstances described under Investing by Exchange, above. The
minimum initial investment per Strategy is $2,000; subsequent investments must
be at least $100. Individual fund minimums do not apply to investments made
using the Asset Planner service. Class A, Class B and Class C Shares are
available through the Asset Planner service. Generally, only shares within the
same class may be used within the same Strategy. However, Class A Shares of a
Fund and of other funds in the Delaware Group may be used in the same Strategy
with consultant class shares that are offered by certain other Delaware Group
funds. See Appendix B--Classes Offered for the funds in the Delaware Group that
offer consultant class shares.
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An annual maintenance fee, currently $35 per Strategy, is typically due
at the time of initial investment and by September 30th 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 30th. However, effective November 1, 1996, the annual fee will
be 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.
See Part B.
Investors will receive a customized quarterly Strategy Report
summarizing all Delaware Group Asset Planner investment performance and account
activity during the prior period. Confirmation statements will be sent following
all transactions other than those involving a reinvestment of distributions.
Certain shareholder services are not available to investors using the
Asset Planner service, due to its special design. These include Delaphone,
Checkwriting, Wealth Builder Option and Letter of Intention. Systematic
Withdrawal Plans are available after the account has been open for two years.
Purchase Price and Effective Date
The offering price and net asset value of the Class A, Class B and
Class C Shares are determined as of the close of regular trading on the New York
Stock Exchange (ordinarily, 4 p.m., Eastern time) on days when the Exchange is
open.
The effective date of a purchase made through an investment dealer is
the date the order is received by the Fund in which the shares are being
purchased. The effective date of a direct purchase is the day your wire,
electronic transfer or check is received unless it is received after the time
the offering price or net asset value of shares is determined, as noted above.
Purchase orders received after such time will be effective the next business
day.
The Conditions of Your Purchase
Each Fund reserves the right to reject any purchase order. If a
purchase is canceled because your check is returned unpaid, you are responsible
for any loss incurred. Each 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 Group. Each Fund reserves the
right to reject purchase orders paid by third-party checks or checks that are
not drawn on a domestic branch of a United States financial institution. If a
check drawn on a foreign financial institution is accepted, you may be subject
to additional bank charges for clearance and currency conversion.
Each Fund also reserves the right, following shareholder notification,
to charge a service fee on non-retirement accounts that have remained below the
minimum stated account balance for a period of three or more consecutive months.
Holders of such accounts may be notified of their insufficient account balance
and advised that they have until the end of the current calendar quarter to
raise their balance to the stated minimum. If the account has not reached the
minimum balance requirement by that time, the Fund in which the account is held
will charge a $9 fee for that quarter and each subsequent calendar quarter until
the account is brought up to the minimum balance. The service fee will be
deducted from the account during the first week of each calendar quarter for the
previous quarter, and will be used to help defray the cost of maintaining
low-balance accounts. No fees will be charged without proper notice, and no CDSC
will apply to such assessments.
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Each Fund also reserves the right, upon 60 days' written notice, to
involuntarily redeem accounts that remain under the minimum initial purchase
amount as a result of redemptions. An investor making the minimum initial
investment may be subject to involuntary redemption without the imposition of a
CDSC or Limited CDSC if he or she redeems any portion of his or her account.
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REDEMPTION AND EXCHANGE
You can redeem or exchange your shares in a number of different ways.
The exchange service is useful if your investment requirements change and you
want an easy way to invest in other equity funds, bond funds, tax-advantaged
funds or money market funds. This service is also useful if you are anticipating
a major expenditure and want to move a portion of your investment into a fund
that has the checkwriting feature. Exchanges are subject to the requirements of
each fund and all exchanges of shares constitute taxable events. See Taxes.
Further, in order for an exchange to be processed, shares of the fund being
acquired must be registered in the state where the acquiring shareholder
resides. You may want to consult your financial adviser or investment dealer to
discuss which funds in the Delaware Group will best meet your changing
objectives, and the consequences of any exchange transaction. You may also call
the Delaware Group directly for fund information.
All exchanges involve a purchase of shares of the fund into which the
exchange is made. As with any purchase, an investor should obtain and carefully
read that fund's prospectus before buying shares in an exchange. The prospectus
contains more complete information about the fund, including charges and
expenses.
Your shares will be redeemed or exchanged at a price based on the net
asset value next determined after the Fund receives your request in good order,
subject, in the case of a redemption, to any applicable CDSC or Limited CDSC.
Redemption or exchange requests received in good order after the time the
offering price and net asset value of shares are determined, as noted above,
will be processed on the next business day. See Purchase Price and Effective
Date under How to Buy Shares. A shareholder submitting a redemption request may
indicate that he or she wishes to receive redemption proceeds of a specific
dollar amount. In the case of such a request, and in the case of certain
redemptions from retirement plan accounts, the Fund will redeem the number of
shares necessary to deduct the applicable CDSC in the case of Class B 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 you want to receive the proceeds. Exchange
instructions and redemption requests must be signed by the record owner(s)
exactly as the shares are registered. You may request a redemption or an
exchange by calling the Shareholder Service Center at 800-523-1918. Each Fund
may suspend, terminate, or amend the terms of the exchange privilege upon 60
days' written notice to shareholders.
Each Fund will process written and telephone redemption requests to the
extent that the purchase orders for the shares being redeemed have already
settled. Each Fund will honor redemption requests as to shares for which a check
was tendered as payment, but neither Fund will not mail or wire the proceeds
until it is reasonably satisfied that the check has cleared, which may take up
to 15 days from the purchase date. You can avoid this potential delay if you
purchase shares by wiring Federal Funds. Each Fund
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reserves the right to reject a written or telephone redemption request or delay
payment of redemption proceeds if there has been a recent change to the
shareholder's address of record.
There is no front-end sales charge or fee for exchanges made between
shares of funds which both carry a front-end sales charge. Any applicable
front-end sales charge will apply to exchanges from shares of funds not subject
to a front-end sales charge, except for exchanges involving assets that were
previously invested in a fund with a front-end sales charge and/or exchanges
involving the reinvestment of dividends.
Holders of Class B Shares or Class C Shares that exchange their shares
("Original Shares") for shares of other funds in the Delaware Group (in each
case, "New Shares") in a permitted exchange, will not be subject to a CDSC that
might otherwise be due upon redemption of the Original Shares. However, such
shareholders will continue to be subject to the CDSC and, in the case of Class B
Shares, the automatic conversion schedule of the Original Shares as described in
this Prospectus and any CDSC assessed upon redemption will be charged by the
Fund from which the Original Shares were exchanged. In an exchange of Class B
Shares from Blue Chip Fund or Quantum Fund, such 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 either Fund for a longer period of time
than if the investment in New Shares were made directly.
Various redemption and exchange methods are outlined below. Except for
the CDSC applicable to certain redemptions of Class B and Class C Shares and the
Limited CDSC applicable to certain redemptions of Class A Shares purchased at
net asset value, there is no fee charged by either Fund or the Distributor for
redeeming or exchanging your shares, but such fees could be charged in the
future. You may have your investment dealer arrange to have your shares redeemed
or exchanged. Your investment dealer may charge for this service.
All authorizations given by shareholders, including selection of any of
the features described below, shall continue in effect until such time as a
written revocation or modification has been received by the Fund to which the
authorization relates or its agent.
Written Redemption
You can write to each Fund at 1818 Market Street, Philadelphia, PA
19103 to redeem some or all of your shares. The request must be signed by all
owners of the account or your investment dealer of record. For redemptions of
more than $50,000, or when the proceeds are not sent to the shareholder(s) at
the address of record, the Funds requires a signature by all owners of the
account and a signature guarantee for each owner. Each signature guarantee must
be supplied by an eligible guarantor institution. The Funds reserves the right
to reject a signature guarantee supplied by an eligible institution based on its
creditworthiness. The Funds may require further documentation from corporations,
executors, retirement plans, administrators, trustees or guardians.
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Payment is normally mailed the next business day after receipt of your
redemption request. If your Class A Shares are in certificate form, the
certificate must accompany your request and also be in good order. Certificates
are issued for Class A Shares only if a shareholder submits a specific request.
Certificates are not issued for Class B Shares or Class C Shares.
Written Exchange
You may also write to each Fund (at 1818 Market Street, Philadelphia,
PA 19103) to request an exchange of any or all of your shares into another
mutual fund in the Delaware Group, subject to the same conditions and
limitations as other exchanges noted above.
Telephone Redemption and Exchange
To get the added convenience of the telephone redemption and exchange
methods, you must have the Transfer Agent hold your shares (without charge) for
you. If you choose to have your Class A Shares in certificate form, you may
redeem or exchange only by written request and you must return your
certificates.
The Telephone Redemption--Check to Your Address of Record service and
the Telephone Exchange service, both of which are described below, are
automatically provided unless you notify the Fund in which you have your account
in writing that you do not wish to have such services available with respect to
your account. Each Fund reserves the right to modify, terminate or suspend these
procedures upon 60 days' written notice to shareholders. It may be difficult to
reach the Funds by telephone during periods when market or economic conditions
lead to an unusually large volume of telephone requests.
Neither the Funds nor their Transfer Agent is responsible for any
shareholder loss incurred in acting upon written or telephone instructions for
redemption or exchange of Fund shares which are reasonably believed to be
genuine. With respect to such telephone transactions, each Fund will follow
reasonable procedures to confirm that instructions communicated by telephone are
genuine (including verification of a form of personal identification) as, if it
does not, such Fund or the Transfer Agent may be liable for any losses due to
unauthorized or fraudulent transactions. Instructions received by telephone are
generally tape recorded, and a written confirmation will be provided for all
purchase, exchange and redemption transactions initiated by telephone. By
exchanging shares by telephone, you are acknowledging prior receipt of a
prospectus for the fund into which your shares are being exchanged.
Telephone Redemption--Check to Your Address of Record
The Telephone Redemption feature is a quick and easy method to redeem
shares. You or your investment dealer of record can have redemption proceeds of
$50,000 or less mailed to you at your address of record. Checks will be payable
to the shareholder(s) of record. Payment is normally mailed the next business
day after receipt of the redemption request. This service is only available to
individual, joint and individual fiduciary-type accounts.
Telephone Redemption--Proceeds to Your Bank
Redemption proceeds of $1,000 or more can be transferred to your
predesignated bank account by wire or by check. You should authorize this
service when you open your account. If you change your predesignated bank
account, you must complete an Authorization Form and have your signature
guaranteed. For your protection, your authorization must be on file. If you
request a wire, your funds
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will normally be sent the next business day. CoreStates Bank, N.A.'s fee
(currently $7.50) will be deducted from your redemption. 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 the Delaware Group under the same registration,
subject to the same conditions and limitations as other exchanges noted above.
As with the written exchange service, telephone exchanges are subject to the
requirements of each fund, as described above. Telephone exchanges may be
subject to limitations as to amounts or frequency.
Systematic Withdrawal Plans
1. Regular Plans
This plan provides shareholders with a consistent monthly (or
quarterly) payment. This is particularly useful to shareholders living on fixed
incomes, since it can provide them with a stable supplemental amount. With
accounts of at least $5,000, you may elect monthly withdrawals of $25 (quarterly
$75) or more. The Funds do not recommend any particular monthly amount, as each
shareholder's situation and needs vary. Payments are normally made by check. In
the alternative, you may elect to have your payments transferred from your Fund
account to your predesignated bank account through the MoneyLine Direct Deposit
Service. Your funds will normally be credited to your bank account two business
days after the payment date. There are no separate fees for this redemption
method. See MoneyLine Direct Deposit Service under The Delaware Difference for
more information about this service.
2. Retirement Plans
For shareholders eligible under the applicable retirement plan to
receive benefits in periodic payments, the Systematic Withdrawal Plan provides
you with maximum flexibility. A number of formulas are available for calculating
your withdrawals depending upon whether the distributions are required or
optional. Withdrawals must be for $25 or more; however, no minimum account
balance is required. The MoneyLine Direct Deposit Service described above is not
available for retirement plans.
* * *
Shareholders should not purchase additional shares while participating
in a Systematic Withdrawal Plan.
Redemptions of Class A Shares via a Systematic Withdrawal Plan may be
subject to a Limited CDSC if the original purchase was made at net asset value
within the 12 months prior to the withdrawal and a dealer's commission was paid
on that purchase. See Contingent Deferred Sales Charge for Certain Redemptions
of Class A Shares Purchased at Net Asset Value, below.
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The applicable CDSC for Class B Shares and Class C Shares redeemed via
a Systematic Withdrawal Plan will be waived if, on the date that the Plan is
established, the annual amount selected to be withdrawn is less than 12% of the
account balance. If the annual amount selected to be withdrawn exceeds 12% of
the account balance on the date that the Systematic Withdrawal Plan is
established, all redemptions under the Plan will be subject to the applicable
CDSC. Whether a waiver of the CDSC is available or not, the first shares to be
redeemed for each Systematic Withdrawal Plan payment will be those not subject
to a CDSC because they have either satisfied the required holding period or were
acquired through the reinvestment of distributions. The 12% annual limit will be
reset on the date that any Systematic Withdrawal Plan is modified (for example,
a change in the amount selected to be withdrawn or the frequency or date of
withdrawals), based on the balance in the account on that date. See Waiver of
Contingent Deferred Sales Charge - Class B and Class C Shares, below.
For more information on Systematic Withdrawal Plans, call the
Shareholder Service Center.
Contingent Deferred Sales Charge for Certain Redemptions of Class A Shares
Purchased at Net Asset Value
A Limited CDSC will be imposed on certain redemptions of Class A Shares
(or shares into which such Class A Shares are exchanged) made within 12 months
of purchase, if such purchases were made at net asset value and triggered the
payment by the Distributor of the dealer's commission previously described. See
Classes of Shares.
The Limited CDSC will be paid to the Distributor and will be equal to
the lesser of 1% of: (1) the net asset value at the time of purchase of 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
Group fund and, in the event of an exchange of Class A Shares, the "net asset
value of such shares at the time of redemption" will be the net asset value of
the shares acquired in the exchange.
Redemptions of such Class A Shares held for more than 12 months will
not be subjected to the Limited CDSC and an exchange of such Class A Shares into
another Delaware Group fund will not trigger the imposition of the Limited CDSC
at the time of such exchange. The period a shareholder owns shares into which
Class A Shares are exchanged will count towards satisfying the 12-month holding
period. The Limited CDSC is assessed if such 12-month period is not satisfied
irrespective of whether the redemption triggering its payment is of Class A
Shares of a Fund or Class A Shares acquired in the exchange.
In determining whether a Limited CDSC is payable, it will be assumed
that shares not subject to the Limited CDSC are the first redeemed followed by
other shares held for the longest period of time. The Limited CDSC will not be
imposed upon shares representing reinvested dividends or capital gains
distributions, or upon amounts representing share appreciation. All investments
made during a calendar month, regardless of what day of the month the investment
occurred, will age one month on the last day of that month and each subsequent
month.
Waiver of Limited Contingent Deferred Sales Charge - Class A Shares
The Limited CDSC for Class A Shares on which a dealer's commission has
been paid will be waived in the following instances: (i) redemptions that result
from a Fund's right to liquidate a
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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) distributions
from a section 403(b)(7) Plan or an IRA due to death, disability, or attainment
of age 59 1/2; (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; and
(viii) redemptions by the classes of shareholders who are permitted to purchase
shares at net asset value, regardless of the size of the purchase (see Buying
Class A Shares at Net Asset Value under Classes of Shares).
Waiver of Contingent Deferred Sales Charge - Class B 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 or 403(b)(7)
Deferred Compensation Plan; (iii) required minimum distributions from an IRA,
403(b)(7) Deferred Compensation Plan or 457 Deferred Compensation Plan; and (iv)
distributions from an account if the redemption results from the death of all
registered owners of the account (in the case of accounts established under the
Uniform Gifts to Minors or Uniform Transfers to Minors Acts or trust accounts,
the waiver applies upon the death of all beneficial owners) or a total and
permanent disability (as defined in Section 72 of the Code) of all registered
owners occurring after the purchase of the shares being redeemed.
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, 403(b)(7) Deferred Compensation Plan, Profit
Sharing Plan, Money Purchase Pension Plan or 401(k) Defined Contribution Plan;
(iii) required minimum distributions from an IRA, 403(b)(7) Deferred
Compensation Plan, 457 Deferred Compensation Plan, Profit Sharing Plan, Money
Purchase Pension Plan or 401(k) Defined Contribution Plan; (iv) distributions
from a 403(b)(7) Deferred Compensation Plan, 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) Deferred Compensation
Plan, 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)
distributions from an IRA on or after attainment of age 59 1/2; and (vii)
distributions from an account if the redemption results from the death of all
registered owners of the account (in the case of accounts established under the
Uniform Gifts to Minors or Uniform Transfers to Minors Acts or trust accounts,
the waiver applies upon the death of all beneficial owners) or a total and
permanent disability (as defined in Section 72 of the Code) of all registered
owners occurring after the purchase of the shares being redeemed.
In addition, the CDSC will be waived on Class B and Class C Shares
redeemed in accordance with a Systematic Withdrawal Plan if the annual amount
selected to be withdrawn under the Plan does not exceed 12% of the value of the
account on the date that the Systematic Withdrawal Plan was established or
modified.
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DIVIDENDS AND DISTRIBUTIONS
Equity Funds II, Inc. currently intends to make quarterly payments from
Blue Chip Fund's net investment income and annual payments from Quantum Fund's
net investment income. [Payments from a Fund's net realized security profits
will be made during the first quarter of the next fiscal year.]
Each class of a Fund will share proportionately in the investment
income and expenses of that Fund, except that the per share dividends from net
investment income on the Class A Shares, the Class B Shares and the Class C
Shares will vary due to the expenses under the 12b-1 Plan applicable to each
Class. Generally, the dividends per share on Class B Shares and Class C Shares
can be expected to be lower than the dividends per share on Class A Shares
because the expenses under the 12b-1 Plans relating to Class B and Class C
Shares will be higher than the expenses under the 12b-1 Plan relating to Class A
Shares. See Distribution (12b-1) and Service under Management of the Fund.
Both dividends and distributions, if any, are automatically reinvested
in your account at net asset value unless you elect otherwise. Any check in
payment of dividends or other distributions which cannot be delivered by the
United States Post Office or which remains uncashed for a period of more than
one year may be reinvested in your account at the then-current net asset value
and the dividend option may be changed from cash to reinvest. If you elect to
take your dividends and distributions in cash and such dividends and
distributions are in an amount of $25 or more, you may choose the MoneyLine
Direct Deposit Service and have such payments transferred from your Fund account
to your predesignated bank account. This service is not available for retirement
plans. See MoneyLine Direct Deposit Service under The Delaware Difference for
more information about this service.
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TAXES
The tax discussion set forth below is included for general information
only. Investors should consult their own tax advisers concerning the federal,
state, local or foreign tax consequences of an investment in a Fund.
Each Fund intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code (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.
Each Fund intends to distribute substantially all of its net investment
income and net capital gains, if any. Dividends from net investment income or
net short-term capital gains will be taxable to those investors who are subject
to income taxes as ordinary income, whether received in cash or in additional
shares. It is expected that either none or only a nominal portion of a Fund's
dividends will be eligible for the dividends-received deduction for
corporations.
Distributions paid by a Fund from long-term capital gains, whether
received in cash or in additional shares, are taxable to those investors who are
subject to income taxes as long-term capital gains, regardless of the length of
time an investor has owned shares in the Fund. The Funds do not seek to realize
any particular amount of capital gains during a year; rather, realized gains are
a byproduct of Fund management activities. Consequently, capital gains
distributions may be expected to vary considerably from year to year. Also, for
those investors subject to tax, if purchases of shares in a Fund are made
shortly before the record date for a dividend or capital gains distribution, a
portion of the investment will be returned as a taxable distribution.
Although dividends generally will be treated as distributed when paid,
dividends which are declared in October, November or December to shareholders of
record on a specified date in one of those months, but which, for operational
reasons, may not be paid to the shareholder until the following January, will be
treated for tax purposes as if paid by a Fund and received by the shareholder on
December 31 of the calendar year in which they are declared.
The sale of shares of the Funds is a taxable event and may result in a
capital gain or loss to shareholders subject to tax. Capital gain or loss may be
realized from an ordinary redemption of shares or an exchange of shares between
a Fund and any other fund in the Delaware Group. Any loss incurred on a sale or
exchange of Fund shares that had been held for six months or less will be
treated as a long-term capital loss to the extent of capital gain dividends
received with respect to such shares. All or a portion of the sales charge
incurred in acquiring Fund shares will be excluded from the federal tax basis of
any of such shares sold or exchanged within 90 days of their purchase (for
purposes of determining gain or loss upon the sale of such shares) if the sale
proceeds are reinvested in such Fund or in another fund in the Delaware Group of
funds and a sales charge that would otherwise apply to the reinvestment is
reduced or eliminated. Any portion of such sales charge excluded from the tax
basis of the shares sold will be added to the tax basis of the shares acquired
in the reinvestment.
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The automatic conversion of Class B Shares into Class A Shares at the
end of approximately eight years after purchase will be tax-free for federal tax
purposes. See Automatic Conversion of Class B Shares under Classes of Shares.
Each Fund may be subject to foreign withholding taxes on income from
certain of its foreign securities.
In addition to federal taxes, shareholders may be subject to state and
local taxes on distributions. Distributions of interest income and capital gains
realized from certain types of U.S. government securities may be exempt from
state personal income taxes. Shares of each Fund are exempt from Pennsylvania
county personal property taxes.
Each year, Equity Funds II, Inc. will mail to you information on the
tax status of the dividends and distributions paid by the Fund in which you hold
shares. Shareholders will also receive each year information as to the portion
of dividend income that is derived from U.S. government securities that are
exempt from state income tax. Of course, shareholders who are not subject to tax
on their income would not be required to pay tax on amounts distributed to them
by a Fund.
Each Fund is required to withhold 31% of taxable dividends, capital
gains distributions, and redemptions paid to shareholders who have not complied
with IRS taxpayer identification regulations. You may avoid this withholding
requirement by certifying on your Investment Application your proper Taxpayer
Identification Number and by certifying that you are not subject to backup
withholding.
See Accounting and Tax Issues and Distributions and Taxes in Part B for
additional information on tax matters relating to each Fund and its
shareholders.
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CALCULATION OF OFFERING PRICE AND NET ASSET VALUE PER SHARE
The net asset value ("NAV") per share is computed by adding the value
of all securities and other assets in the portfolio, deducting any liabilities
(expenses and fees are accrued daily) and dividing by the number of shares
outstanding. Debt securities are priced on the basis of valuations provided by
an independent pricing service using methods approved by Equity Funds II, Inc.'s
Board of Directors. Equity securities for which marked quotations are available
are priced at market value. Short-term investments having a maturity of less
than 60 days are valued at amortized cost, which approximates market value. All
other securities are valued at their fair value as determined in good faith and
in a method approved by Equity Funds II, Inc.'s Board of Directors.
Class A Shares are purchased at the offering price per share, while
Class B Shares and Class C Shares are purchased at the NAV per share. The
offering price per share of Class A Shares consists of the NAV per share next
computed after the order is received, plus any applicable front-end sales
charges.
The offering price and NAV are computed as of the close of regular
trading on the New York Stock Exchange (ordinarily, 4 p.m., Eastern time) on
days when the Exchange is open.
The net asset values of all outstanding shares of each class of a Fund
will be computed on a pro-rata basis for each outstanding share based on the
proportionate participation in 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 Blue Chip Fund Institutional Class and the Quantum Fund
Institutional Class will not incur any of the expenses under 12b-1 Plans and the
Class A, Class B and Class C Shares alone will bear the 12b-1 Plan expense
payable under their respective Plans.
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MANAGEMENT OF THE FUNDS
Directors
The business and affairs of Equity Funds II, Inc. are managed under the
direction of its Board of Directors. Part B contains additional information
regarding Equity Funds II, Inc.'s directors and officers.
Investment Manager
The Manager furnishes investment management services to each Fund.
The Manager and its predecessors have been managing the funds in the
Delaware Group since 1938. On September 30, 1996, the Manager and its affiliates
in the Delaware Group, including Delaware International Advisers Ltd., were
supervising in the aggregate more than $00 billion in assets in the various
institutional or separately managed (approximately $00,000,000,000) and
investment company (approximately $00,000,000,000) accounts.
The Manager is an indirect, wholly owned subsidiary of Delaware
Management Holdings, Inc. ("DMH"). On April 3, 1995, a merger between DMH and a
wholly owned subsidiary of Lincoln National Corporation ("Lincoln National") was
completed. DMH and the Manager are now indirect, wholly owned subsidiaries, and
subject to the ultimate control, of Lincoln National. Lincoln National, with
headquarters in Fort Wayne, Indiana, is a diversified organization with
operations in many aspects of the financial services industry, including
insurance and investment management.
The Manager administers the affairs of and is ultimately responsible
for the investment management of each of the Funds under separate Investment
Management Agreements with Equity Funds II, Inc. on behalf of each Fund dated ,
1997. Under the Investment Management Agreement for Blue Chip Fund, the Manager
is paid an annual fee equal to 0.65% on the first $500 million of average daily
net assets, 0.625% on the next $500 million and 0.60% on the average daily net
assets in excess of $1 billion. Under the Investment Management Agreement for
Quantum Fund, the Manager is paid an annual fee equal to 0.75% on the first $500
million of average daily net assets, 0.725% on the next $500 million and 0.70%
on the average daily net assets in excess of $1 billion.
Pursuant to the terms of a Sub-Advisory Agreement with the Manager, the
Sub-Adviser participates in the management of each Fund's assets, is responsible
for day-to-day investment management of each Fund, makes investment decisions
for each Fund in accordance with the Fund's investment objectives and stated
policies and places orders on behalf of each Fund to effect the investment
decisions made. The Manager continues to have ultimate responsibility for all
investment advisory services in connection with the management of the Funds
pursuant to the Investment Management Agreement and supervises the Sub-Adviser's
performance of such services For the services provided to the Manager, the
Manager pays the Sub-Adviser a fee equal to 00% of the fee paid to the Manger
under Blue Chip Fund's Investment Management Agreement and 00% of the fee paid
to the Manager under Quantum Fund's Investment Management Agreement.
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The Sub-Adviser, 630 Fifth Avenue, New York, New York, 10111, is an
indirect, wholly-owned subsidiary of Lincoln National and an affiliate of the
Manager, Founded in 1979, it provides investment advice to pension plans,
endowments, insurance and commingled products and has assets under management,
as of , 1996, in excess of $4.7 billion. T. Scott Wittman, President and Chief
Investment Officer of the Sub-Adviser, has primary responsibility for making
day-to-day investment decisions for each Fund. He has had such responsibility
for the Funds since their inception. His responsibilities include both business
administration and equity portfolio management. A Chartered Financial Analyst,
Mr. Wittman received both graduate and undergraduate degrees in business
administration form Indiana University. He has spent his entire professional
career in quantitative investment firms, including TSA Capital Management, where
he was a managing director, and Mellon Bank, where he was Vice President and
Manager of Quantitative Analysis and Systems.
Mr. Wittman also serves as portfolio manager for Lincoln National
Growth and Income Fund, Inc. ("Lincoln Growth and Income Fund") and Lincoln
National Social Awareness Fund, Inc. ("Lincoln Social Awareness Fund"), which
are available only through variable annuity contracts issued by Lincoln National
Life Insurance Co. In the capacity as portfolio manager, Mr. Wittman has had
primary responsibility for making day-to-day investment decisions for each such
fund. The Sub-Adviser has served as sub-adviser for Lincoln National Growth and
Income Fund since ___________, 1984 and for Lincoln Social Awareness Fund since
inception. Mr. Wittman has served as portfolio manager for each fund since
October 1993.
The investment objectives, policies and strategies of Blue Chip Fund
and Lincoln Growth and Income Fund are substantially similar. Mr. Wittman makes
comparable selections of securities for each such fund. The table below presents
the prior performance history of total return on an annualized basis for Lincoln
Growth and Income Fund compared with the average of the performance of all funds
offered through variable annuity contracts included as part of Lipper Analytical
Services' growth and income category:
Since
1 Year 2 Years 3 Years 5 Years 10 Years Inception(1)
------ ------- ------- ------- -------- ---------
Lincoln Growth
and Income(2) 13.87% 22.54% 15.85% 13.04% 13.14% 13.15%
Average Growth
and Income(3) 17.39% 19.89% 13.61% 13.30% 12.89% 14.77%
(1) The fund's inception date is December 21, 1981.
(2) Returns reflect changes in share prices and reinvestment of dividends
and distributions and is net of all expenses, including insurance
related fees. The expense ratio of the Lincoln Growth and Income Fund,
including insurance related fees, has been capped at 1.50% since
inception.
(3) Returns represented in the Lipper Analytical Services growth and income
category reflect changes in share prices and reinvestment of dividends
and distributions and is net of all expenses, including insurance
related fees.
Please note that the historical performance presented above is for Lincoln
Growth and Income Fund, a separate and unrelated fund, and its performance is
not indicative of the potential performance of Blue Chip Fund. Share prices and
investment returns will fluctuate reflecting market conditions.
<PAGE>
The investment objectives, policies and strategies of Quantum Fund and
Lincoln Social Awareness Fund are substantially similar. Mr. Wittman makes
comparable selections of securities for each such fund. The table below presents
the prior performance history of total return on an annualized basis for Lincoln
Social Awareness Fund compared with the average of the performance of all funds
offered through variable annuity contracts included in Lipper Analytical
Services' growth category:
Since
1 Year 2 Years 3 Years 5 Years Inception(1)
------ ------- ------- ------- ---------
Lincoln Social
Awareness Fund(2) 25.61% 29.03% 18.50% 16.14% 15.19%
Average Growth
Funds(3) 15.31% 21.15% 13.99% 13.78% 14.29%
(1) The fund's inception date is May 2, 1988.
(2) Returns reflect changes in share prices and reinvestment of dividends
and distributions and is net of all expenses, including insurance
related fees. The expense ratio of the Lincoln Social Awareness Fund,
including insurance related fees, has been capped at 1.50% since
inception.
(3) Returns represented in the Lipper Analytical Services growth and income
category reflect changes in share prices and reinvestment of dividends
and distributions and is net of all expenses, including insurance
related fees.
Please note that the historical performance presented above is for Lincoln
Social Awareness Fund, a separate and unrelated fund, and its performance is not
indicative of the potential performance of Quantum Fund. Share prices and
investment returns will fluctuate reflecting market conditions.
Portfolio Trading Practices
Each Fund normally will not invest for short-term trading purposes.
However, a Fund may sell securities without regard to the length of time they
have been held. The degree of portfolio activity will affect brokerage costs of
a Fund and may affect taxes payable by such Fund's shareholders. Given each
Fund's investment objective, its annual portfolio turnover rate is not expected
to exceed 100%. A turnover rate of 100% would occur, for example, if all the
investments in the Fund's portfolio at the beginning of the year were replaced
by the end of the year.
Each Fund uses its best efforts to obtain the best available price and
most favorable execution for portfolio transactions. Orders may be placed with
brokers or dealers who provide brokerage and research services to the Manager or
to their advisory clients. These services may be used by the Manager in
servicing any of its accounts. Subject to best price and execution, each Fund
may consider a broker/dealer's sales of Fund shares in placing portfolio orders
and may place orders with broker/dealers that have agreed to defray certain Fund
expenses such as custodian fees.
Performance Information
From time to time, each Fund may quote total return performance of its
Classes in advertising and other types of literature.
Total return will be based on a hypothetical $1,000 investment,
reflecting the reinvestment of all distributions at net asset value and: (i) in
the case of Class A Shares, the impact of the maximum front-end sales charge at
the beginning of each specified period; and (ii) in the case of Class B Shares
and Class C Shares, the deduction of any applicable CDSC at the end of the
relevant period. Each presentation will include the average annual total return
for one-, five- and ten-year or life-of-fund periods, as relevant. Each Fund may
also advertise aggregate and average total return information concerning a Class
over additional periods of time. In addition, each Fund may present total return
information that does not reflect the deduction of the maximum front-end sales
charge or any applicable CDSC. In this case, such total return information would
be more favorable than total return information that includes the deductions of
the maximum front-end sales charge or any applicable CDSC.
Net asset value fluctuates and is not guaranteed. Past performance is
not a guarantee of future results.
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<PAGE>
(VGA-ABC)
Distribution (12b-1) and Service
The Distributor, Delaware Distributors, L.P., serves as the national
distributor of each Fund's shares under separate Distribution Agreements with
Equity Funds II, Inc. dated as of , 1997.
Equity Funds II, Inc. has adopted a separate distribution plan under
Rule 12b-1 for each of the Class A Shares, Class B Shares and Class C Shares of
the Fund (the "Plans"). The Plans permit the Fund to which the Plans relate to
pay the Distributor from the assets of the respective Classes a monthly fee for
the Distributor's services and expenses in distributing and promoting sales of
shares. These expenses include, among other things, preparing and distributing
advertisements, sales literature, and prospectuses and reports used for sales
purposes, compensating sales and marketing personnel, holding special promotions
for specified periods of time, and paying distribution and maintenance fees to
brokers, dealers and others. In connection with the promotion of shares of the
Classes, the Distributor may, from time to time, pay to participate in
dealer-sponsored seminars and conferences, and reimburse dealers for expenses
incurred in connection with preapproved seminars, conferences, and advertising.
The Distributor may pay or allow additional promotional incentives to dealers as
part of preapproved sales contests and/or to dealers who provide extra training
and information concerning a Class and increase sales of the Class. In addition,
each Fund may make payments from the 12b-1 plan fees of its respective Class
directly to others, such as banks, who aid in the distribution of Class shares
or provide services in respect of a Class, pursuant to service agreements with
Equity Funds II, Inc.
The 12b-1 Plan expenses relating to each of the Class B Shares and
Class C Shares are also used to pay the Distributor for advancing the commission
costs to dealers with respect to the initial sale of such shares.
The aggregate fees paid by a Fund from the assets of its respective
Classes to the Distributor and others under the Plans may not exceed (i) 0.30%
of the Class A Shares' average daily net assets in any year, and (ii) 1% (0.25%
of which are service fees to be paid to the Distributor, dealers and others for
providing personal service and/or maintaining shareholder accounts) of each of
the Class B Shares' and Class C Shares' average daily net assets in any year.
The Class A, Class B and Class C Shares will not incur any distribution expenses
beyond these limits, which may not be increased without shareholder approval.
While payments pursuant to the Plans may not exceed 0.30% annually with
respect to the Class A Shares, and 1% annually with respect to each of the Class
B Shares and the Class C Shares, the Plans do not limit fees to amounts actually
expended by the Distributor. It is therefore possible that the Distributor may
realize a profit in any particular year. However, the Distributor currently
expects that its distribution expenses will likely equal or exceed payments to
it under the Plans. The Distributor may, however incur such additional expenses
and make additional payments to dealers from its own resources to promote the
distribution of shares of the Classes. The monthly fees paid to the Distributor
are subject to the review and approval of Equity Funds II, Inc.'s unaffiliated
directors, who may reduce the fees or terminate the Plans at any time.
Equity Funds II, Inc.'s Plans do not apply to the Blue Chip Fund
Institutional Class of shares or the Quantum Fund Institutional Class of shares.
Those shares are not included in calculating the Plans' fees, and the Plans are
not used to assist in the distribution and marketing of the Blue Chip Fund
Institutional Class shares or the Quantum Fund Institutional Class shares.
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<PAGE>
(VGA-ABC)
The Transfer Agent, Delaware Service Company, Inc., serves as the
shareholder servicing, dividend disbursing and transfer agent for each Fund
pursuant to an amended and restated agreement dated as of ___________, 1996. The
Transfer Agent also provides accounting services to each Fund pursuant to the
terms of a separate Fund Accounting Agreement. The directors of Equity Funds II,
Inc. annually review service fees paid to the Transfer Agent.
The Distributor and the Transfer Agent are also indirect, wholly owned
subsidiaries of DMH.
Expenses
Each Fund is responsible for all of its own expenses other than those
borne by the Manager under the Investment Management Agreement and those borne
by the Distributor under the Distribution Agreement. The expense ratio of each
Class will reflect the impact of its 12b-1 Plan.
Shares
Equity Funds II, Inc. is an open-end management investment company.
Each Fund's portfolio of assets is diversified as defined by the 1940 Act.
Commonly known as a mutual fund, Equity Funds II, Inc. was organized as a
Maryland corporation on March 4, 1983. Equity Funds II, Inc. was previously
organized as a Delaware corporation in 1970. In addition to each Fund, Equity
Funds II, Inc. presently offers two other series of shares, the Decatur Income
Fund series and the Decatur Total Return Fund series.
Equity Funds II, Inc.'s shares have a par value of $1.00, equal voting
rights, except as noted below, and are equal in all other respects. Equity Funds
II, Inc.'s shares have noncumulative voting rights which means that the holders
of more than 50% of Equity Funds II, Inc.'s shares voting for the election of
directors can elect 100% of the directors if they choose to do so. Under
Maryland law, Equity Funds II, Inc. is not required, and does not intend, to
hold annual meetings of shareholders unless, under certain circumstances, it is
required to do so under the 1940 Act. Shareholders of 10% or more of Equity
Funds II, Inc.'s outstanding shares may request that a special meeting be called
to consider the removal of a director.
In addition to Class A Shares, Class B Shares and Class C Shares, the
Blue Chip Fund and Quantum Fund also offer, respectively, the Blue Chip Fund
Institutional Class and the Quantum Fund Institutional Class. Shares of each
class represent proportionate interests in the assets of a Fund and have the
same voting and other rights and preferences as the other classes of such Fund,
except that shares of the Blue Chip Fund Institutional Class and the Quantum
Fund Institutional Class are not subject to, and may not vote on matters
affecting, the Distribution Plans under Rule 12b-1 relating to the Class A,
Class B and Class C Shares. Similarly, as a general matter, the shareholders of
Class A Shares, Class B Shares and Class C Shares may vote only on matters
affecting the 12b-1 Plan that relates to the class of shares that they hold.
However, the Class B Shares may vote on any proposal to increase materially the
fees to be paid by the Fund under the Rule 12b-1 Plan relating to the Class A
Shares.
It is expected that [Lincoln National Corporation Employees' Retirement
Trust (the "Trust")] will make an initial investment in each Fund, which could
result in the Trust holding up to 100% of the outstanding shares of a Fund.
Subject to certain limited exceptions, there would be no limitation on the
Trust's ability to redeem its shares of a Fund and it may elect to do so at any
time.
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<PAGE>
(VGA-ABC)
OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS
Social Criteria
Quantum Fund will adhere to a Social Criteria strategy, which may be
changed by action of Equity Funds II, Inc.'s Board of Directors. The Sub-Adviser
will utilize the Social Investment Database published by KLD in determining
whether a company is engaged in any activity precluded by the Fund's Social
Criteria. The Social Investment Database reflects KLD's determination of the
extent to which a company's involvement in the activities prohibited by the
Social Criteria is significant enough to merit a concern or a major concern.
Significance may be determined on the basis of percentage of revenue generated
by, or the size of the operations attributable to, activities related to such
Social Criteria, or other factors selected by KLD. The social screening
undergoes continual refinement and modification. For specifics on the Social
Criteria see Part B.
Because of its Social Criteria, the Fund may not be able to take the
same advantage of certain investment opportunities as do funds which do not have
Social Criteria. Only securities of companies not excluded by any of the Social
Criteria will be eligible for consideration for purchase by the Fund according
to its objective and policies described in this Prospectus.
The Fund will commence the orderly sale of securities of a company when
it is determined by the Sub-Adviser that such company no longer adheres to the
Social Criteria. The Fund will sell such securities in a manner so as to
minimize any adverse affect on the Fund's assets. Typically, such sales will be
made within 90 days from the date of the Sub-Adviser's determination, unless a
sale within the 90 day period would produce a significant loss to the overall
value of the Fund's assets.
Convertible, Debt and Non-Traditional Equity Securities
Each Fund may invest in convertible and debt securities of issuers in
any industry. A convertible security is a security which may be converted at a
stated price within a specified period of time into a certain quantity of the
common stock of the same or a different issuer. Convertible and debt securities
are senior to common stocks in a corporation's capital structure, although
convertible securities are usually subordinated to similar nonconvertible
securities. Convertible and debt securities provide a fixed-income stream and
the opportunity, through its conversion feature, to participate in the capital
appreciation resulting from a market price advance in the convertible security's
underlying common stock. Just as with debt securities, convertible securities
tend to increase in market value when interest rates decline and tend to
decrease in value when interest rates rise. However, the price of a convertible
security is also influenced by the market value of the security's underlying
common stock and tends to increase as the market value of the underlying stock
rises, whereas it tends to decrease as the market value of the underlying stock
declines.
Each Fund 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).
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<PAGE>
(VGA-ABC)
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.
Each Fund 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 all 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.
Foreign Securities
Each Fund may invest up to 20% of its total assets in foreign
securities. Foreign markets may be more volatile than U.S. markets. Such
investments involve sovereign risk in addition to the normal risks associated
with securities of U.S. issuers. These risks include political risks, foreign
taxes and exchange controls and currency fluctuations. For example, foreign
portfolio investments may fluctuate in value due to changes in currency rates
(i.e., other things being equal, the value of foreign investments would increase
with a fall in the value of the dollar, and decrease with a rise in the value of
the dollar) and control regulations apart from market fluctuations. Each Fund
may also experience delays in foreign securities settlement.
Depositary Receipts
Each Fund may make foreign investments through the purchase and sale of
sponsored or unsponsored American, European and Global Depositary Receipts
("Depositary Receipts"). Depositary Receipts are receipts typically issued by a
U.S. or foreign bank or trust company which evidence ownership of underlying
securities issued by a foreign corporation. "Sponsored" Depositary Receipts are
issued jointly by the issuer of the underlying security and a depository,
whereas "unsponsored" Depositary Receipts are issued without participation of
the issuer of the deposited security. Holders of unsponsored 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 Depositary Receipt.
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<PAGE>
(VGA-ABC)
Futures Contracts
Each Fund may enter into futures contracts on stocks, stock indices and
foreign currencies, and purchase or sell options on such futures contracts.
These activities will not be entered into for speculative purposes, but rather
for hedging purposes and to facilitate the ability to quickly deploy into the
stock market a Fund's positions in cash, short-term debt securities and other
money market instruments, at times when a Fund's assets are not fully invested
in equity securities. Such positions will generally be eliminated when it
becomes possible to invest in securities that are appropriate for the Fund
involved.
A futures contract is a bilateral agreement providing for the purchase
and sale of a specified type and amount of a financial instrument, or for the
making and acceptance of a cash settlement, at a stated time in the future for a
fixed price. By its terms, a futures contract provides for a specified
settlement date on which the securities, foreign currency or other financial
instrument underlying the contract are delivered, or in the case of securities
index futures contracts, the difference between the price at which the contract
was entered into and the contract's closing value is settled between the
purchaser and seller in cash. Futures contracts differ from options in that they
are bilateral agreements, with both the purchaser and the seller equally
obligated to complete the transaction. In addition, futures contracts call for
settlement only on the expiration date, and cannot be "exercised" at any other
time during their term.
The purchase or sale of a futures contract also differs from the
purchase or sale of a security or the purchase of an option in that no purchase
price is paid or received. Instead, an amount of cash or cash equivalents, which
varies but may be as low as 5% or less of the value of the contract, must be
deposited with the broker as "initial margin" as a good faith deposit. This
amount is generally maintained in a segregated account at the custodian bank.
Subsequent payments to and from the broker, referred to as "variation margin,"
are made on a daily basis as the value of the index or instrument underlying the
futures contract fluctuates, making positions in the futures contracts more or
less valuable, a process known as "marking to the market."
Purchases or sales of stock index futures contracts are used for
hedging purposes to attempt to protect a Fund's current or intended investments
from broad fluctuations in stock prices. For example, a Fund may sell stock
index futures contracts in anticipation of or during a market decline to attempt
to offset the decrease in market value of the Fund's securities portfolio that
might otherwise result. If such decline occurs, the loss in value of portfolio
securities may be offset, in whole or part, by gains on the futures position.
When a Fund is not fully invested in the securities market and anticipates a
significant market advance, it may purchase stock index futures contracts in
order to gain rapid market exposure that may, in part or entirely, offset
increases in the cost of securities that the Fund intends to purchase. As such
purchases are made, the corresponding positions in stock index futures contracts
will be closed out.
Each Fund may purchase and sell foreign currency futures contracts for
hedging purposes to attempt to protect its current or intended investments
denominated in foreign currencies from fluctuations in currency exchange rates.
Such fluctuations could reduce the dollar value of portfolio securities
denominated in foreign currencies, or increase the cost of foreign-denominated
securities to be acquired, even if the value of such securities in the
currencies in which they are denominated remains constant. Each Fund may sell
futures contracts on a foreign currency, for example, when it holds securities
denominated in such currency and it anticipates a decline in the value of such
currency relative to the dollar. In the event such decline occurs, the resulting
adverse effect on the value of foreign-denominated securities may be offset, in
whole or in part, by gains on the futures contracts. However, if the value of
the foreign currency increases relative to the dollar, a Fund's loss on the
foreign currency futures contract
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<PAGE>
(VGA-ABC)
may or may not be offset by an increase in the value of the securities because a
decline in the price of the security stated in terms of the foreign currency may
be greater than the increase in value as a result of the change in exchange
rates.
Conversely, a Fund could protect against a rise in the dollar cost of
foreign-denominated securities to be acquired by purchasing futures contracts on
the relevant currency, which could offset, in whole or in part, the increased
cost of such securities resulting from a rise in the dollar value of the
underlying currencies. When a Fund purchases futures contracts under such
circumstances, however, and the price of securities to be acquired instead
declines as a result of appreciation of the dollar, the Fund will sustain losses
on its futures position which could reduce or eliminate the benefits of the
reduced cost of portfolio securities to be acquired.
Each Fund may also purchase and write options on the types of futures
contracts in which the Fund may invest, and enter into related closing
transactions. Options on futures are similar to options on securities, as
described below, except that options on futures give the purchaser the right, in
return for the premium paid, to assume a position in a futures contract, rather
than to actually purchase or sell the futures contract, at a specified exercise
price at any time during the period of the option. In the event that an option
written by a Fund is exercised, the Fund will be subject to all the risks
associated with the trading of futures contracts, such as payment of variation
margin deposits. In addition, the writer of an option on a futures contract,
unlike the holder, is subject to initial and variation margin requirements on
the option position.
At any time prior to the expiration of a futures contract, a trader may
elect to close out its position by taking an opposite position on the contract
market on which the position was entered into, subject to the availability of a
secondary market, which will operate to terminate the initial position.
Likewise, a position in an option on a futures contract may be terminated by the
purchaser or seller prior to expiration by effecting a closing purchase or sale
transaction, subject to availability of a secondary market, which is the
purchase or sale of an option of the same series (i.e., the same exercise price
and expiration date) as the option previously purchased or sold. Each Fund may
realize a profit or a loss when closing out a futures contract or an option on a
futures contract.
To the extent that interest or exchange rates or securities prices move
in an unexpected direction, a Fund may not achieve the anticipated benefits of
investing in futures contracts and options thereon, or may realize a loss. To
the extent that a Fund purchases an option on a futures contract and fails to
exercise the option prior to the exercise date, it will suffer a loss of the
premium paid. Further, the possible lack of a secondary market could prevent a
Fund from closing out its positions relating to futures. See Part B for a
further discussion of this investment technique.
Options
Each Fund may write covered call options on individual issues as well
as write call options on stock indices. Each Fund may also purchase put options
on individual issues and on stock indices. The Sub-Adviser will employ these
techniques in an attempt to protect appreciation attained, to offset capital
losses and to take advantage of the liquidity available in the option markets.
The ability to hedge effectively using options on stock indices will depend, in
part, on the correlation between the composition of the index and a Fund's
portfolio as well as the price movement of individual securities. The Sub-
Adviser may also write covered call options to achieve income to offset the cost
of purchasing put options.
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<PAGE>
(VGA-ABC)
While there is no limit on the amount of a Fund's assets which may be
invested in covered call options, the Fund will not invest more than 2% of its
net assets in put options. Each Fund will only use Exchange-traded options.
Call Options
Writing Covered Call Options - A covered call option obligates a Fund
to sell one of its securities for an agreed price up to an agreed date. When a
Fund writes a call, it receives a premium and agrees to sell the callable
securities to a purchaser of a corresponding call during the call period
(usually, not more than nine months) at a fixed price regardless of market price
changes during the call period. The advantage is that the Fund receives premium
income for the limited purpose of offsetting the costs of purchasing put options
or offsetting any capital loss or decline in the market value of the security.
However, if the Sub-Adviser's forecast is wrong, the Fund may not fully
participate in the market appreciation if the security's price rises.
Writing a Call Option on Stock Indices - Writing a call option on stock
indices is similar to the writing of a call option on an individual stock. Stock
indices used will include, but not be limited to, the S&P 500, the S&P 100 and
the S&P Over-The-Counter ("OTC") 250.
Put Options
Purchasing a Put Option - A put option gives a Fund the right to sell
one of its securities for an agreed price up to an agreed date. The advantage is
that the Fund can be protected should the market value of the security decline.
However, the Fund must pay a premium for this right which would be lost if the
option is not exercised.
Purchasing a Put Option on Stock Indices - Purchasing a protective put
option on stock indices is similar to the purchase of protective puts on an
individual stock. Indices used will include, but not be limited to, the S&P 500,
the S&P 100 and the S&P OTC 250.
Closing Transactions - Closing transactions essentially let a Fund
offset a put option or covered call option prior to its exercise or expiration.
If the Fund cannot effect a closing transaction, it may have to hold a security
it would otherwise sell or deliver a security it might want to hold.
Restricted/Illiquid Securities
Each Fund may invest in restricted securities, including securities
eligible for resale without registration pursuant to Rule 144A ("Rule 144A
Securities") under the Securities Act of 1933 ("1933 Act"). Rule 144A exempts
many privately placed and legally restricted securities from the registration
requirements of the 1933 Act and permits such securities to be freely traded
among certain institutional buyers such as the Funds.
Each Fund may invest no more than 15% of the value of its net assets in
illiquid securities. Illiquid securities, for purposes of this policy, include
repurchase agreements maturing in more than seven days.
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<PAGE>
(VGA-ABC)
While maintaining oversight, the Board of Directors has delegated to
each Fund's Sub-Adviser the day-to-day functions of determining whether or not
individual Rule 144A Securities are liquid for purposes of a Fund's limitation
on investments in illiquid assets. The Board has instructed each Fund's Sub-
Adviser to consider the following factors in determining the liquidity of a Rule
144A Security: (i) the frequency of trades and trading volume for the security;
(ii) whether at least three dealers are willing to purchase or sell the security
and the number of potential purchasers; (iii) whether at least two dealers are
making a market in the security; and (iv) the nature of the security and the
nature of the marketplace trades (e.g., the time needed to dispose of the
security, the method of soliciting offers, and the mechanics of transfer).
If a Sub-Adviser determines that a Rule 144A Security which was
previously determined to be liquid is no longer liquid and, as a result, the
Fund's holdings of illiquid securities exceed the 15% limit on investment in
such securities, the Sub-Adviser will determine what action shall be taken to
ensure that the Fund continues to adhere to such limitation.
Short-Term Investments
The short-term investments in which the Funds will invest are:
(1) Time deposits, certificates of deposit (including marketable
variable rate certificates of deposit) and bankers' acceptances issued by a U.S.
commercial bank. Time deposits are non-negotiable deposits maintained in a
banking institution for a specified period of time at a stated interest rate.
Time deposits maturing in more than seven days will not be purchased by either
Fund, and time deposits maturing from two business days through seven calendar
days will not exceed 15% of either Fund's total assets. Certificates of deposit
are negotiable short-term obligations issued by commercial banks against funds
deposited in the issuing institution. Variable rate certificates of deposit are
certificates of deposit on which the interest rate is periodically adjusted
prior to their stated maturity based upon a specified market rate. A bankers'
acceptance is a time draft drawn on a commercial bank by a borrower usually in
connection with an international commercial transaction (to finance the import,
export, transfer or storage of goods).
Neither Fund will invest in any security issued by a commercial bank
unless (i) the bank has total assets of at least $1 billion or, in the case of a
bank which does not have total assets of at least $1 billion, the aggregate
investment made in any one such bank is limited to $100,000 and the principal
amount of such investment is insured in full by the Federal Deposit Insurance
Corporation, (ii) it is a member of the Federal Deposit Insurance Corporation,
and (iii) the bank or its securities have received the highest quality rating by
a nationally-recognized statistical rating organization;
(2) Commercial paper with the highest quality rating by a
nationally-recognized statistical rating organization (e.g., A-1 by S&P or
Prime-1 by Moody's) or, if not so rated, of comparable quality as determined by
each Fund's investment adviser;
(3) Short-term corporate obligations with the highest quality rating by
a nationally-recognized statistical rating organization (e.g., AAA by S&P or Aaa
by Moody's) or, if not so rated, of comparable quality as determined by each
Fund's investment adviser;
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(VGA-ABC)
(4) U.S. government securities; and
(5) Repurchase agreements collateralized by securities listed below.
See Appendix A of Part B for a description of applicable ratings.
When-Issued and Delayed Delivery Securities
Each Fund 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. Each Fund will maintain with its Custodian Bank a
separate account with a segregated portfolio of securities in an amount at least
equal to these commitments. The payment obligation and the interest rates that
will be received are each fixed at the time a Fund enters into the commitment
and no interest accrues to such 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. It is a
current policy of each Fund not to enter into when-issued commitments exceeding
in the aggregate 15% of the market value of the its total assets less
liabilities other than the obligations created by these commitments.
Repurchase Agreements
In order to invest its short-term cash reserves or when in a temporary
defensive posture, each Fund may enter into repurchase agreements with banks or
broker/dealers deemed to be creditworthy by its Sub- Adviser, under guidelines
approved by the Board of Directors. A repurchase agreement is a short-term
investment in which the purchaser (i.e., the Fund) acquires ownership of a debt
security and the seller agrees to repurchase the obligation at a future time and
set price, thereby determining the yield during the purchaser's holding period.
Generally, repurchase agreements are of short duration, often less than one week
but on occasion for longer periods. Not more than 15% of each Fund's assets may
be invested in repurchase agreement of over seven days' maturity or other
illiquid assets. Should an issuer of a repurchase agreement fail to repurchase
the underlying security, the loss, if any, would be the difference between the
repurchase price and the market value of the security. Each Fund will limit its
investments in repurchase agreements to those which its Sub-Adviser under
guidelines of the Board of Directors determines to present minimal credit risks
and which are of high quality. In addition, the Fund must have collateral of at
least 100% of the repurchase price, including the portion representing the
Fund's yield under such agreements, which is monitored on a daily basis.
Securities Lending Activities
Each Fund may loan up to 25% of its assets to qualified broker/dealers
or institutional investors for their use relating to short sales or other
security transactions.
The major risk to which each Fund would be exposed on a loan
transaction is the risk that the borrower would go bankrupt at a time when the
value of the security goes up. Therefore, each Fund will only enter into loan
arrangements after a review of all pertinent facts by the investment adviser,
subject to overall supervision by the Board of Directors, including the
creditworthiness of the borrowing broker,
-51-
<PAGE>
(VGA-ABC)
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 management for each Fund.
Borrowing from Banks
The Fund may borrow money as a temporary measure for extraordinary
purposes or to facilitate redemptions. The Fund will not borrow money in excess
of one-third of the value of its net assets. The Fund has no intention of
increasing its net income through borrowing. Any borrowing will be done from a
bank and, to the extent that such borrowing exceeds 5% of the value of the
Fund's net assets, asset coverage of at least 300% is required. In the event
that such asset coverage shall at any time fall below 300%, the Fund shall,
within three days thereafter (not including Sundays or holidays, or such longer
period as the Securities and Exchange Commission may prescribe by rules and
regulations), reduce the amount of its borrowings to such an extent that the
asset coverage of such borrowings shall be at least 300%. The Fund will not
pledge more than 10% of its net assets, or issue senior securities as defined in
the 1940 Act, except for notes to banks. Investment securities will not be
purchased while the Fund has an outstanding borrowing.
-52-
<PAGE>
APPENDIX A - INVESTMENT ILLUSTRATIONS
Illustrations of the Potential Impact on Investment Based on Purchase Option
$10,000 Purchase
<TABLE>
<CAPTION>
Scenario 1 Scenario 2
No Redemption Redeem 1st Year
- ------------------------------------------------------- ---------------------------------------
Year Class A Class B Class C Class A Class B Class C
- ---- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
0 9,525 10,000 10,000 9,525 10,000 10,000
1 10,478 10,930 10,930 10,478 10,530 10,830+
2 11,525 11,946 11,946
3 12,678 13,058 13,058
4 13,946 14,272 14,272
5 15,340 15,599 15,599
6 16,874 17,050 17,050
7 18,562 18,636 18,636
8 20,418+ 20,369 20,369
9 22,459 22,405* 22,263
10 24,705 24,646* 24,333
Scenario 3 Scenario 4
Redeem 3rd Year Redeem 5th Year
--------------------------------------- ---------------------------------------
Year Class A Class B Class C Class A Class B Class C
- ---- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
0 9,525 10,000 10,000 9,525 10,000 10,000
1 10,478 10,930 10,930 10,478 10,930 10,930
2 11,525 11,946 11,946 11,525 11,946 11,946
3 12,678 12,758 13,058+ 12,678 13,058 13,058
4 13,946 14,272 14,272
5 15,340 15,399 15,599+
6
7
8
9
10
</TABLE>
*This assumes that Class B Shares were converted to Class A
Shares at the end of the eighth year.
<PAGE>
<TABLE>
<CAPTION>
Scenario 1 Scenario 2
No Redemption Redeem 1st Year
- ------------------------------------------------------- ---------------------------------------
Year Class A Class B Class C Class A Class B Class C
- ---- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
0 243,750 250,000 250,000 243,750 250,000 250,000
1 268,125 273,250 273,250 268,125 263,250 270,750+
2 294,938 298,662 298,662
3 324,431 326,438 326,438
4 356,874+ 356,797 356,797
5 392,562 389,979 389,979
6 431,818 426,247 426,247
7 475,000 465,888 465,888
8 522,500 509,215 509,215
9 574,750 560,137* 556,572
10 632,225 616,150* 608,333
Scenario 3 Scenario 4
Redeem 3rd Year Redeem 5th Year
--------------------------------------- ---------------------------------------
Year Class A Class B Class C Class A Class B Class C
- ---- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
0 243,750 250,000 250,000 243,750 250,000 250,000
1 268,125 273,250 273,250 268,125 273,250 273,250
2 294,938 298,662 298,662 294,938 298,662 298,662
3 324,431 318,938 326,438+ 324,431 326,438 326,438
4 356,874+ 356,797 356,797
5 392,562 384,979 389,979
6
7
8
9
10
</TABLE>
*This assumes that Class B Shares were converted to Class A
Shares at the end of the eighth year.
Assumes a hypothetical return for Class A of 10% per year, a hypothetical return
for Class B of 9.3% for years 1-8 and 10% for years 9-10, and a hypothetical
return for Class C of 9.3% per year. Hypothetical returns vary due to the
different expense structures for each Class and do not represent actual
performance. Class A purchase subject to appropriate sales charge breakpoint
(4.75% @ $10,000; 3.75% @ $100,000; 2.50% @ $250,000).
Class B purchase assessed appropriate CDSC upon redemption (4%-4%-3%-3%-2%-1% in
years 1-2-3-4-5-6). Class C purchase assessed 1% CDSC upon redemption in year 1.
Figures marked "+" identify which Class offers the greater return potential
based on investment amount, holding period and the expense structure of each
Class.
<PAGE>
(VGA-ABC)
APPENDIX B--CLASSES OFFERED
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Growth of Capital A Class B Class C Class Consultant Class
Trend Fund x x x -
Enterprise Fund x x x -
DelCap Fund x x x -
Value Fund x x x -
U.S. Growth Fund x x x -
Quantum Fund x x x -
Total Return
Devon Fund x x x -
Decatur Total Return Fund x x x -
Decatur Income Fund x x x -
Delaware Fund x x x -
Blue Chip Fund x x x -
Global Diversification
Emerging Markets Fund x x x -
New Pacific Fund x x x -
International Equity Fund x x x -
World Growth Fund x x x -
Global Assets Fund x x x -
Global Bond Fund x x x -
Current Income
Delchester Fund x x x -
Strategic Income Fund x x x -
Corporate Income Fund x x x -
Federal Bond Fund x x x -
U.S. Government Fund x x x -
Limited-Term Government Fund x x x -
Tax-Free Current Income
Tax-Free Pennsylvania Fund x x x -
Tax-Free USA Fund x x x -
Tax-Free Insured Fund x x x -
Tax-Free USA Intermediate Fund x x x -
Money Market Funds
Delaware Cash Reserve x x x x
U.S. Government Money Fund x - - x
Tax-Free Money Fund x - - x
</TABLE>
-53-
<PAGE>
(VGA-IC) Subject to Completion
For more information contact the Delaware Group at 800-828-5052.
INVESTMENT MANAGER
Delaware Management Company, Inc.
One Commerce Square
Philadelphia, PA 19103
SUB-ADVISER
Vantage Global Advisors, Inc.
630 Fifth Avenue
New York, NY 10111
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
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
<PAGE>
BLUE CHIP FUND PROSPECTUS
QUANTUM FUND ________, 1997
INSTITUTIONAL CLASS SHARES
1818 Market Street, Philadelphia, PA 19103
------------------------------------
For more information about
the Blue Chip Institutional Class
and the Quantum Fund Institutional Class
call the Delaware Group at 800-828-5052.
This Prospectus describes two series, the Blue Chip Fund and
the Quantum Fund (individually a "Fund" and collectively the "Funds"), of
Delaware Group Equity Funds II, Inc. ("Equity Funds II, Inc."), a
professionally-managed mutual fund of the series type. The Blue Chip Fund offers
the Blue Chip Fund Institutional Class and the Quantum Fund offers the Quantum
Fund Institutional Class. Each class is referred to individually as a "Class"
and collectively as the "Classes."
The objective of Blue Chip Fund is 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. The objective of Quantum Fund is 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.
This Prospectus relates only to the Classes and sets forth information
that you should read and consider before you invest. Please retain it for future
reference. The Statement of Additional Information ("Part B") of Equity Funds
II, Inc.'s registration statement, dated ________, 1997, as it may be amended
from time to time, contains additional information about the Funds and has been
filed with the Securities and Exchange Commission. Part B is incorporated by
reference into this Prospectus and is available, without charge, by writing to
Delaware Distributors, L.P. at the above address or by calling the above number.
The Blue Chip Fund also offers the Blue Chip Fund A Class of shares,
the Blue Chip Fund B Class of shares and the Blue Chip Fund C Class of shares.
The Quantum Fund also offers the Quantum Fund A Class of shares, the Quantum
Fund B Class of shares and the Quantum Fund C Class of shares. Shares of these
classes are subject to sales charges and other expenses, which may affect their
performance. A prospectus for these classes can be obtained by writing to
Delaware Distributors, L.P. at the above address or by calling 800-523-4640.
-1-
<PAGE>
(VGA-IC)
TABLE OF CONTENTS
Cover Page
Synopsis
Summary of Expenses
Investment Objective and Policies
Suitability and Certain
Risk Factors
Investment Strategy
Classes of Shares
How to Buy Shares
Redemption and Exchange
Dividends and Distributions
Taxes
Calculation of Net Asset
Value Per Share
Management of the Fund
Other Investment Policies
and Risk Considerations
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
BE SURE TO CONSULT YOUR FINANCIAL ADVISER WHEN MAKING INVESTMENTS. MUTUAL FUNDS
CAN BE A VALUABLE PART OF YOUR FINANCIAL PLAN; HOWEVER, SHARES OF THE FUNDS ARE
NOT FDIC OR NCUSIF INSURED, ARE NOT GUARANTEED BY ANY BANK OR ANY CREDIT UNION,
ARE NOT OBLIGATIONS OF ANY BANK OR ANY CREDIT UNION, AND INVOLVE INVESTMENT
RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. SHARES OF THE FUNDS ARE NOT BANK
OR CREDIT UNION DEPOSITS.
-2-
<PAGE>
(VGA-IC)
SYNOPSIS
Investment Objective
Blue Chip Fund - The objective of Blue Chip Fund is 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.
Quantum Fund - The objective of Quantum Fund is 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.
Risk Factors and Special Considerations
Each Fund has the ability to enter into options and futures
transactions for hedging purposes and, among other reasons, to attempt to
counterbalance portfolio volatility. There are risks that result from the use of
options and futures and the investor should review the description of these
risks in this Prospectus. See Futures Contracts and Options under Other
Investment Policies and Risk Considerations.
Each Fund may invest up to 20% of its total assets directly or
indirectly in securities of issuers domiciled in foreign countries. Such
investments involve certain risk and opportunity considerations not typically
associated with investing in United States companies. See Foreign Securities
under Other Investment Policies and Risk Considerations.
Investment Manager, Distributor and Service Agent
Delaware Management Company, Inc. (the "Manager") furnishes investment
management services to each Fund, subject to the supervision and direction of
Equity Funds II, Inc.'s Board of Directors. The Manager also provides investment
management services to certain other funds in the Delaware Group. The Manager
has selected Vantage Global Advisors, Inc. (the "Sub-Adviser") to serve as
sub-adviser to each Fund and to provide the day-to-day management to each Fund.
Delaware Distributors, L.P. (the "Distributor") is the national distributor for
the Fund and for all of the other mutual funds in the Delaware Group. Delaware
Service Company, Inc. (the "Transfer Agent") is the shareholder servicing,
dividend disbursing, accounting services and transfer agent for the Fund and for
all of the other mutual funds in the Delaware Group. See Summary of Expenses and
Management of the Funds for other information regarding the Manager and the
Sub-Adviser and the fees payable under each Fund's Investment Management
Agreement and Sub-Advisory Agreement.
Purchase Price
Shares of each Class offered by this Prospectus are available at net
asset value, without a front-end or contingent deferred sales charge, and are
not subject to distribution fees under a Rule 12b-1 distribution plan. See
Classes of Shares.
-3-
<PAGE>
(VGA-IC)
Redemption and Exchange
Shares of each Class are redeemed or exchanged at the net asset value
calculated after receipt of the redemption or exchange request. See Redemption
and Exchange.
Open-End Investment Company
Equity Funds II, Inc., which was organized as a Maryland corporation in
1983, is an open-end management investment company. Each Fund's portfolio of
assets is diversified as defined by the Investment Company Act of 1940 (the
"1940 Act"). Equity Funds II, Inc. was previously organized as a Delaware
corporation in 1956. See Shares under Management of the Funds.
-4-
<PAGE>
(VGA-IC)
SUMMARY OF EXPENSES
Blue Chip Quantum
Shareholder Transaction Expenses Fund Fund
- ---------------------------------------------------------------------------
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price). . . . . None None
Maximum Sales Charge Imposed on
Reinvested Dividends (as a
percentage of offering price). . . . . . . . None None
Redemption Fees . . . . . . . . . . . . . . . . . None None
Exchange Fees . . . . . . . . . . . . . . . . . . None* None*
Annual Operating Expenses
(as a percentage of average daily net assets) Blue Chip Quantum
Fund Fund
- ----------------------------------------------------------------------------
Management Fees (after voluntary waivers) . . . . 0.00% 0.00%
12b-1 Fees. . . . . . . . . . . . . . . . . . . . None None
Other Operating Expenses. . . . . . . . . . . . . 1.20% 1.20%
----- -----
Total Operating Expenses+
(after voluntary waivers) . . . . . . 1.20% 1.20%
===== =====
Because the Funds have no operating history, "Other Operating Expenses"
are estimated based on expenses expected to be incurred during each Fund's first
fiscal year.
* Exchanges are subject to the requirements of each fund and a front-end sales
charge may apply.
+"Total Operating Expenses" and "Other Operating Expenses" for each Class are
based on estimated amounts for the first full fiscal year of the Class, after
giving effect to the voluntary expense waiver. The Manager has elected
voluntarily to waive that portion, if any, of the annual management fees payable
by each Fund and to pay certain expenses of that Fund to the extent necessary to
ensure that the Total Operating Expenses of the Class do not exceed 1.20% during
the commencement of the public offering of the Class through ____________, 1997.
If the voluntary expense waivers were not in effect, it is estimated that for
the first full fiscal year the Total Operating Expenses, as a percentage of
average daily net assets, would be 0.00% for the Blue Chip Fund Institutional
Class, reflecting management fees of 0.65% and 0.00% for the Quantum Fund
Institutional Class, reflecting management fees of 0.75%.
For expense information about Class A Shares, Class B Shares and Class
C Shares, see the separate prospectus relating to those classes.
-5-
<PAGE>
(VGA-IC)
The following example illustrates the expenses that an investor would
pay on a $1,000 investment over various time periods, assuming (1) a 5% annual
rate of return, and (2) redemption at the end of each time period. As noted in
the table above, the Fund charges no redemption fees.
1 year 3 years
------ -------
Blue Chip Fund $00 $00
Quantum Fund $00 $00
The purpose of the above tables is to assist the investor in
understanding the various costs and expenses that an investor in the Class will
bear directly or indirectly.
This example should not be considered a representation of past or future
expenses or performance. Actual expenses may be greater or less than those
shown.
-6-
<PAGE>
(VGA-IC)
INVESTMENT OBJECTIVE AND POLICIES
Blue Chip Fund - The objective of Blue Chip Fund is 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.
Quantum Fund - The objective of Quantum Fund is 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.
SUITABILITY
Blue Chip Fund - The Fund may be suitable for the patient investor
interested in long-term capital appreciation with the potential for current
income. Investors should be willing to accept the risks associated with
investments in equity securities and securities convertible into equity
securities, issued by domestic and foreign issuers. Because current income is a
secondary objective of the Fund, the Fund is not suitable as an investment
vehicle for investors whose primary investment goal is current income.
Quantum Fund - The Fund may be suitable for the patient investor
interested in capital appreciation. Investors should be willing to accept the
risks associated with investments in equity securities issued by domestic and
foreign issuers. The Fund is designed for capital appreciation; providing
current income is not a goal of the Fund. Any income produced, therefore, is
expected to be minimal.
* * *
Naturally, the Funds cannot assure a specific rate of return or that
principal will be protected. The value of each Fund's shares can be expected to
move up and down depending upon market conditions. Consequently, appreciation
may be obtained in periods of generally rising markets, while in declining
markets, the value of its shares may, of course, decline. For this reason,
neither Fund is appropriate for short-term investors. However, through the
cautious selection and supervision of its portfolio, each Fund will strive to
achieve its objective set forth above.
Investors should not consider a purchase of shares of either Fund as
equivalent to a complete investment program. The Delaware Group includes a
family of funds, generally available through registered investment dealers,
which may be used together to create a more complete investment program.
INVESTMENT STRATEGY
Blue Chip Fund - The objective of Blue Chip Fund is to achieve
long-term capital appreciation. Current income is a secondary objective. It
seeks to achieve these objectives by investing in equity securities and any
securities that are convertible into equity securities. The Sub-Adviser will
invest in companies which it believes exhibit growth potential that
significantly exceeds the average anticipated growth rate of companies included
in the Standard and Poor's 500 Index ("S&P 500"). Under normal market
conditions, at least 65% of these investments will be in companies determined by
the Sub-Adviser to be "Blue Chip." Generally, the median market capitalization
of companies targeted for investment by the Fund will be greater than $5
billion. For investment purposes, however, "Blue Chip" companies are those whose
market capitalization is greater than $1 billion at the time of investment.
The Sub-Adviser believes "Blue Chip" companies have characteristics
which are desirable in seeking to achieve the investment objectives of the Fund.
For example, such companies tend to have
-7-
<PAGE>
(VGA-IC)
a lengthy history of profit growth and dividend payment, and a reputation for
quality management structure, products and service. Securities of "Blue Chip"
companies generally are considered to be highly liquid, because compared to
those of lesser capitalized companies, more shares of these securities are
outstanding in the marketplace and their trading volume tends to be higher.
While it is anticipated that the Fund, under normal market conditions,
will invest principally in common stock and securities that are convertible into
common stock, the Fund may invest in all available types of equity securities,
including without limitation, preferred stock and warrants. Such investments may
be made in any proportion deemed prudent under existing market and economic
conditions. Convertible securities include preferred stock and debentures that
pay a stated interest rate or dividend and are convertible into common stock at
an established ratio. These securities, which are usually priced at a premium to
their conversion value, may allow the Fund to receive current income while
participating to some extent in any appreciation in the underlying common stock.
The value of a convertible security tends to be affected by changes in interest
rates as well as factors affecting the market value of the underlying common
stock. See Other Investment Policies and Risks Considerations.
Up to 20% of the Fund's total assets may be invested directly or
indirectly in securities of issuers domiciled in foreign countries, including
investments in American, European and Global Depositary Receipts. See Foreign
Investment Information under Other Investment Policies and Risk Considerations.
The Fund may enter into options and futures transactions for hedging
purposes and, among other reasons, to attempt to counterbalance portfolio
volatility. See Futures Contracts and Options under Other Investment Policies
and Risk Considerations.
The Fund may hold cash or invest in short-term debt securities and
other money market instruments when, in the Sub-Adviser's opinion, such holdings
are prudent given then prevailing market conditions. The Fund may also invest in
such instruments pending investment by the Fund of proceeds from the sale of
portfolio securities or proceeds from new sales of Fund shares pending
investment in other types of securities for the Fund or to maintain sufficient
liquidity to meet redemptions. All such short-term investments will be of the
highest quality as determined by a nationally-recognized statistical rating
organization (e.g., AAA by Standard & Poor's Rating Group ("S&P") or Aaa by
Moody's Investors Service, Inc. ("Moody's")) or, if unrated, judged to be of
comparable quality as determined by the Sub-Adviser. See Short-Term Investments
under Other Investment Policies and Risk Considerations.
The Fund will constantly strive to achieve its objectives and, in
investing to do so, may hold securities for any period of time. To the extent
the Fund engages in short-term trading in attempting to achieve its objectives,
it may increase the turnover rate and incur larger brokerage commissions and
other expenses than might otherwise be the case.
Quantum Fund - The objective of Quantum Fund is 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. Medium to large-size companies generally are those having a market
capitalization of greater than $1 billion at the time of investment. The
Sub-Adviser will invest in equity securities that it believes exhibit growth
potential that significantly exceeds the average anticipated growth rate of
companies included in the S&P 500 and meet the Fund's "Social Criteria"
strategy.
-8-
<PAGE>
(VGA-IC)
The Fund will adhere to a Social Criteria strategy, which can be
changed by action of Equity Funds II, Inc.'s Board of Directors. The Sub-Adviser
will utilize the Social Investment Database published by Kinder, Lydenberg,
Domini & Co. Inc. ("KLD") in determining whether a company is engaged in any
activity precluded by the Fund's Social Criteria. KLD specializes in providing
the financial community with social research on publicly traded U.S.
corporations. The Fund will not purchase securities of any company for which the
Social Investment Database indicates a concern or a major concern relating to
one or more of the Social Criteria. See Social Criteria under Other Investment
Policies and Risk Considerations.
While it is anticipated that the Fund, under normal market conditions,
will invest principally in common stock, the Fund may invest in all available
types of equity securities, including without limitation, preferred stock,
warrants and securities convertible into common stock such investments may be
made in any proportion deemed prudent under existing market and economic
conditions. See Other Investment Policies and Risk Considerations.
Up to 20% of the Fund's total assets may be invested directly or
indirectly in securities of issuers domiciled in foreign countries, including
investments in American, European or Global Depositary Receipts. See Foreign
Investment Information under Other Investment Policies and Risk Considerations.
The Fund may enter into options and futures transactions for hedging
purposes to counterbalance portfolio volatility. See Futures Contracts and
Options under Other Investment Policies and Risk Considerations.
The Fund may hold cash or invest in short-term debt securities
and other money market instruments when, in the Sub-Adviser's opinion, such
holdings are prudent given then prevailing market conditions. The Fund may also
invest in such instruments pending investment by the Fund of proceeds from the
sale of portfolio securities or proceeds from new sales of Fund shares pending
investment in other types of securities for the Fund as to maintain sufficient
liquidity to meet redemptions. All such short-term investments will be of the
highest quality as determined by a nationally-recognized statistical rating
organization (e.g., AAA by S&P or Aaa by Moody's) or, if unrated, judged to be
of comparable quality as determined by the Sub-Adviser. See Short-Term
Investments under Other Investment Policies and Risk Considerations.
The Fund will constantly strive to achieve its objective and, in
investing to do so, may hold securities for any period of time. To the extent
the Fund engages in short-term trading in attempting to achieve its objective,
it may increase the turnover rate and incur larger brokerage commissions and
other expenses than might otherwise be the case.
* * *
For additional information on each Fund's investment policies and
certain risks associated with investments in certain types of securities, see
Other Investment Policies and Risk Considerations.
Although each Fund will constantly strive to attain its respective
objectives, there can be no assurance that they will be attained.
-9-
<PAGE>
(VGA-IC)
CLASSES OF SHARES
The Distributor serves as the national distributor for each Fund.
Shares of each Class may be purchased directly by contacting a Fund or its agent
or through authorized investment dealers. All purchases of shares of each Class
are at net asset value. There is no front-end or contingent deferred sales
charge.
Investment instructions given on behalf of participants in an
employer-sponsored retirement plan are made in accordance with directions
provided by the employer. Employees considering purchasing shares of a Class as
part of their retirement program should contact their employer for details.
Shares of each Class are 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, a division 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; (d) banks, trust companies and similar financial institutions
investing for their own account or for the account of their trust customers for
whom such financial institution is exercising investment discretion in
purchasing shares of a Class; 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.
Blue Chip Fund A Class, Blue Chip Fund B Class, Blue Chip Fund C Class, Quantum
Fund A Class, Quantum Fund B Class and Quantum Fund C Class
In addition to offering the Blue Chip Fund Institutional Class, Blue
Chip Fund also offers the Blue Chip Fund A Class, the Blue Chip Fund B Class and
the Blue Chip Fund C Class and in addition to offering the Quantum Fund
Institutional Class, Quantum Fund also offers the Quantum Fund A Class, the
Quantum Fund B Class and the Quantum Fund C Class, which are described in a
separate prospectus. The Class A, Class B and Class C Shares of each Fund may be
purchased through authorized investment dealers or directly by contacting the
relevant Fund or its Distributor. The Class A Shares of each Fund carry a
front-end sales charge and have annual 12b-1 expenses equal to a maximum of
0.30%. The maximum front-end sales charge as a percentage of the offering price
is 4.75% and is reduced on certain transactions of $100,000 or more. The Class B
and Class C Shares of each Fund have no front-end sales charge but are subject
to annual 12b-1 expenses equal to a maximum of 1%. Class B Shares and Class C
Shares and certain Class A Shares may be subject to a contingent deferred sales
charge upon redemption. To obtain a prospectus relating to such classes, contact
the Distributor by writing to the address or by calling the phone numbers listed
on the cover of this Prospectus.
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(VGA-IC)
HOW TO BUY SHARES
Each Fund makes it easy to invest by mail, by wire, by exchange and by
arrangement with your investment dealer. In all instances, investors must
qualify to purchase shares of the Classes.
Investing Directly by Mail
1. Initial Purchases--An Investment Application, or in the case of a retirement
account, an appropriate retirement plan application, must be completed, signed
and sent with a check payable to specific Fund and Class, to Delaware Group at
1818 Market Street, Philadelphia, PA 19103.
2. Subsequent Purchases--Additional purchases may be made at any time by mailing
a check payable to the specific Fund and Class. Your check should be identified
with your name(s) and account number.
Investing Directly by Wire
You may purchase shares by requesting your bank to transmit funds by
wire to CoreStates Bank, N.A., ABA #031000011, account number 1412893401
(include your name(s) and your account number).
1. Initial Purchases--Before you invest, telephone the Fund's Client Services
Department at 800-828- 5052 to get an account number. If you do not call first,
it may delay processing your investment. In addition, you must promptly send
your Investment Application, or in the case of a retirement account, an
appropriate retirement plan application, to the specific Fund and Class, to
Delaware Group at 1818 Market Street, Philadelphia, PA 19103.
2. Subsequent Purchases--You may make additional investments anytime by wiring
funds to CoreStates Bank, N.A., as described above. You must advise your Client
Services Representative by telephone at 800- 828-5052 prior to sending your
wire.
Investing by Exchange
If you have an investment in another mutual fund in the Delaware Group
and you qualify to purchase shares of the Classes, you may write and authorize
an exchange of part or all of your investment into the Fund. However, Class B
Shares and Class C Shares of each Fund and the Class B Shares and Class C Shares
of the other funds in the Delaware Group offering such a class of shares may not
be exchanged into either Class. If you wish to open an account by exchange, call
your Client Services Representative at 800-828-5052 for more information.
Investing through Your Investment Dealer
You can make a purchase of Fund shares through most investment dealers
who, as part of the service they provide, must transmit orders promptly. They
may charge for this service.
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(VGA-IC)
Purchase Price and Effective Date
The purchase price (net asset value) is determined as of the close of
regular trading on the New York Stock Exchange (ordinarily, 4 p.m., Eastern
time) on days when the Exchange is open.
The effective date of a purchase made through an investment dealer is
the date the order is received by a Fund. The effective date of a direct
purchase is the day your wire, electronic transfer or check is received, unless
it is received after the time the share price is determined, as noted above.
Purchase orders received after such time will be effective the next business
day.
The Conditions of Your Purchase
Each Fund reserves the right to reject any purchase order. If a
purchase is canceled because your check is returned unpaid, you are responsible
for any loss incurred. A Fund can redeem shares from your account(s) to
reimburse itself for any loss, and you may be restricted from making future
purchases in any of the funds in the Delaware Group. Each Fund reserves the
right to reject purchase orders paid by third-party checks or checks that are
not drawn on a domestic branch of a United States financial institution. If a
check drawn on a foreign financial institution is accepted, you may be subject
to additional bank charges for clearance and currency conversion.
Each Fund also reserves the right, upon 60 days' written notice, to
involuntarily redeem accounts that remain under $250 as a result of redemptions.
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(VGA-IC)
REDEMPTION AND EXCHANGE
Redemption and exchange requests made on behalf of participants in an
employer-sponsored retirement plan are made in accordance with directions
provided by the employer. Employees should therefore contact their employer for
details.
Your shares will be redeemed or exchanged based on the net asset value
next determined after we receive your request in good order. Redemption and
exchange requests received in good order after the time the net asset value of
shares is determined, as noted above, will be processed on the next business
day. See Purchase Price and Effective Date under How to Buy Shares. Except as
otherwise 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. With regard to exchanges, you must
also provide the name of the fund you want to receive the proceeds. Exchange
instructions and redemption requests must be signed by the record owner(s)
exactly as the shares are registered. You may request a redemption or an
exchange by calling a Fund at 800-828-5052. Redemption proceeds will be
distributed promptly, as described below, but not later than seven days after
receipt of a redemption request.
All exchanges involve a purchase of shares of the fund into which the
exchange is made. As with any purchase, an investor should obtain and carefully
read that fund's prospectus before buying shares in an exchange. The prospectus
contains more complete information about the fund, including charges and
expenses.
Each Fund will process written and telephone redemption requests to the
extent that the purchase orders for the shares being redeemed have already
settled. Each Fund will honor redemption requests as to shares for which a check
was tendered as payment, but neither Fund will mail or wire the proceeds until
it is reasonably satisfied that the check has cleared, which may take up to 15
days from the purchase date. You can avoid this potential delay if you purchase
shares by wiring Federal Funds. 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.
Shares of each Class may be exchanged into any other Delaware Group
mutual fund, provided: (1) the investment satisfies the eligibility and other
requirements set forth in the prospectus of the fund being acquired, including
the payment of any applicable front-end sales charge; and (2) the shares of the
fund being acquired are in a state where that fund is registered. If exchanges
are made into other shares that are eligible for purchase only by those
permitted to purchase shares of a Class, such exchange will be exchanged at net
asset value. Shares of a Class may not be exchanged into the Class B Shares or
Class C Shares of the funds in the Delaware Group. Each Fund may suspend,
terminate or amend the terms of the exchange privilege upon 60 days' written
notice to shareholders.
Various redemption and exchange methods are outlined below. No fee is
charged by the Funds or the Distributor for redeeming or exchanging your shares.
You may also have your investment dealer arrange to have your shares redeemed or
exchanged. Your investment dealer may charge for this service.
All authorizations, including selection of any of the features
described below, shall continue in effect until such time as a written
revocation or modification has been received by a Fund or its agent.
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(VGA-IC)
Written Redemption and Exchange
You can write to each Fund at 1818 Market Street, Philadelphia, PA
19103 to redeem some or all of your shares or to request an exchange of any or
all of your shares into another mutual fund in the Delaware Group, subject to
the same conditions and limitations as other exchanges noted above. 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, each Fund requires a signature
by all owners of the account and may require a signature guarantee. Each
signature guarantee must be supplied by an eligible guarantor institution. The
Funds reserve the right to reject a signature guarantee supplied by an eligible
institution based on its creditworthiness. The Funds may require further
documentation from corporations, executors, retirement plans, administrators,
trustees or guardians.
Payment is normally mailed the next business day after receipt of your
redemption request. Certificates are issued for shares only if you submit a
specific request. If your shares are in certificate form, the certificate must
accompany your request and also be in good order.
You also may submit your written request for redemption or exchange by
facsimile transmission at the following number: 215-255-8864.
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 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 are investing in
writing that you do not wish to have such service available with respect to your
account. Each Fund reserves the right to modify, terminate or suspend these
procedures upon 60 days' written notice to shareholders. It may be difficult to
reach 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, the Fund or the Transfer Agent may be liable for any losses due to
unauthorized or fraudulent transactions. 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.
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(VGA-IC)
Telephone Redemption--Check to Your Address of Record
You or your investment dealer of record can have redemption proceeds of
$50,000 or less mailed to you at your record address. Checks will be payable to
the shareholder(s) of record. Payment is normally mailed the next business day
after receipt of the redemption request.
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 submit a written authorization and you may need to 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 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 fees for this redemption method, but the mail time may delay getting funds
into your bank account. Simply call your Client Services Representative prior to
the time the net asset value is determined, as noted above.
Telephone Exchange
You or your investment dealer of record can exchange shares into any
fund in the Delaware Group under the same registration. As with the written
exchange service, telephone exchanges are subject to the same conditions and
limitations as other exchanges noted above. Telephone exchanges may be subject
to limitations as to amounts or frequency.
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(VGA-IC)
DIVIDENDS AND DISTRIBUTIONS
Equity Funds II, Inc. currently intends to make quarterly payments from
Blue Chip Fund's net investment income and annual payments from Quantum Fund's
net investment income and [Payments from a Fund's net realized security profits
will be made during the first quarter of the next fiscal year.] Both dividends
and distributions are automatically reinvested in your account at net asset
value.
Each Class of each Fund will share proportionately in the investment
income and expenses of that Fund, except that a Class will not incur
distribution fees under the Rule 12b-1 Plans which apply to the Class A Shares,
Class B Shares and the Class C Shares.
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(VGA-IC)
TAXES
The tax discussion set forth below is included for general information
only. Investors should consult their own tax advisers concerning the federal,
state, local or foreign tax consequences of an investment in a Fund.
Each Fund 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.
Each Fund intends to distribute substantially all of its net investment
income and net capital gains, if any. Dividends from net investment income or
net short-term capital gains will be taxable to you as ordinary income, whether
received in cash or in additional shares. For corporate investors, dividends
from net investment income will generally qualify in part for the corporate
dividends-received deduction. The portion of dividends paid by a Fund that so
qualifies will be designated each year in a notice from Equity Funds II, Inc. to
the Fund's shareholders.
Distributions paid by a Fund from long-term capital gains, received in
additional shares, are taxable to those investors who are subject to income
taxes as long-term capital gains, regardless of the length of time an investor
has owned shares in the Fund. A Fund does not seek to realize any particular
amount of capital gains during a year; rather, realized gains are a byproduct of
Fund management activities. Consequently, capital gains distributions may be
expected to vary considerably from year to year. Also, for those investors
subject to tax, if purchases of shares in a Fund are made shortly before the
record date for a dividend or capital gains distribution, a portion of the
investment will be returned as a taxable distribution.
Although dividends generally will be treated as distributed when paid,
dividends which are declared in October, November or December to shareholders of
record on a specified date in one of those months, but which, for operational
reasons, may not be paid to the shareholder until the following January, will be
treated for tax purposes as if paid by a Fund and received by the shareholder on
December 31 of the calendar year in which they are declared.
The sale of shares of a Fund is a taxable event and may result in a
capital gain or loss to shareholders subject to tax. Capital gain or loss may be
realized from an ordinary redemption of shares or an exchange of shares between
a Fund and any other fund in the Delaware Group. Any loss incurred on a sale or
exchange of Fund shares that had been held for six months or less will be
treated as a long-term capital loss to the extent of capital gain dividends
received with respect to such shares.
In addition to federal taxes, shareholders may be subject to state and
local taxes on distributions. Distributions of interest income and capital gains
realized from certain types of U.S. government securities may be exempt from
state personal income taxes. Shares of each Fund are exempt from Pennsylvania
county personal property taxes.
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(VGA-IC)
Each year, Equity Funds II, Inc. will mail to you information on the
tax status of a Fund's dividends and distributions. Shareholders will also
receive each year information as to the portion of dividend income that is
derived from U.S. government securities that are exempt from state income tax.
Of course, shareholders who are not subject to tax on their income would not be
required to pay tax on amounts distributed to them by a Fund.
Each Fund is required to withhold 31% of taxable dividends, capital
gains distributions, and redemptions paid to shareholders who have not complied
with IRS taxpayer identification regulations. You may avoid this withholding
requirement by certifying on your Investment Application your proper Taxpayer
Identification Number and by certifying that you are not subject to backup
withholding.
See Accounting and Tax Issues and Distributions and Taxes in Part B for
additional information on tax matters relating to each Fund and its
shareholders.
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(VGA-IC)
CALCULATION OF NET ASSET VALUE PER SHARE
The purchase and redemption price of Class shares is the net asset
value ("NAV") per share of a Class next computed after the order is received.
The NAV is 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 NAV per share is computed by adding the value of all securities and
other assets in the portfolio, deducting any liabilities (expenses and fees are
accrued daily) and dividing by the number of shares outstanding. Debt securities
are priced on the basis of valuations provided by an independent pricing service
using methods approved by Equity Funds II, Inc.'s Board of Directors. Equity
securities for which marked quotations are available are priced at market value.
Short-term investments having a maturity of less than 60 days are valued at
amortized cost, which approximates market value. All other securities are valued
at their fair value as determined in good faith and in a method approved by
Equity Funds II, Inc.'s Board of Directors.
The net asset values of all outstanding shares of each class of a Fund
will be computed on a pro-rata basis for each outstanding share based on the
proportionate participation in the Fund represented by the value of shares of
that class. All income earned and expenses incurred by a Fund will be borne on a
pro-rata basis by each outstanding share of a class, based on each class'
percentage in the Fund represented by the value of shares of such classes,
except that the Class will not incur any of the expenses under the Fund's 12b-1
Plans and the Class A, B and C Shares alone will bear the 12b-1 Plan fees
payable under their respective Plans.
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(VGA-IC)
MANAGEMENT OF THE FUNDS
Directors
The business and affairs of Equity Funds II, Inc. are managed under the
direction of its Board of Directors. Part B contains additional information
regarding Equity Funds II, Inc.'s directors and officers.
Investment Manager
Directors
The business and affairs of Equity Funds II, Inc. are managed under the
direction of its Board of Directors. Part B contains additional information
regarding Equity Funds II, Inc.'s directors and officers.
Investment Manager
The Manager furnishes investment management services to each Fund.
The Manager and its predecessors have been managing the funds in the
Delaware Group since 1938. On September 30, 1996, the Manager and its affiliates
in the Delaware Group, including Delaware International Advisers Ltd., were
supervising in the aggregate more than $00 billion in assets in the various
institutional or separately managed (approximately $00,000,000,000) and
investment company (approximately $00,000,000,000) accounts.
The Manager is an indirect, wholly owned subsidiary of Delaware
Management Holdings, Inc. ("DMH"). On April 3, 1995, a merger between DMH and a
wholly owned subsidiary of Lincoln National Corporation ("Lincoln National") was
completed. DMH and the Manager are now indirect, wholly owned subsidiaries, and
subject to the ultimate control, of Lincoln National. Lincoln National, with
headquarters in Fort Wayne, Indiana, is a diversified organization with
operations in many aspects of the financial services industry, including
insurance and investment management.
The Manager administers the affairs of and is ultimately responsible
for the investment management of each of the Funds under separate Investment
Management Agreements with Equity Funds II, Inc. on behalf of each Fund dated ,
1997. Under the Investment Management Agreement for Blue Chip Fund, the Manager
is paid an annual fee equal to 0.65% on the first $500 million of average daily
net assets, 0.625% on the next $500 million and 0.60% on the average daily net
assets in excess of $1 billion. Under the Investment Management Agreement for
Quantum Fund, the Manager is paid an annual fee equal to 0.75% on the first $500
million of average daily net assets, 0.725% on the next $500 million and 0.70%
on the average daily net assets in excess of $1 billion.
Pursuant to the terms of a Sub-Advisory Agreement with the Manager, the
Sub-Adviser participates in the management of each Fund's assets, is responsible
for day-to-day investment management of each Fund, makes investment decisions
for each Fund in accordance with the Fund's investment objectives and stated
policies and places orders on behalf of each Fund to effect the investment
decisions made. The Manager continues to have ultimate responsibility for all
investment advisory services in connection with the management of the Funds
pursuant to the Investment Management Agreement and supervises the Sub-
Adviser's performance of such services For the services provided to the Manager,
the Manager pays the Sub-Adviser a fee equal to 00% of the fee paid to the
Manger under Blue Chip Fund's Investment Management Agreement and 00% of the fee
paid to the Manager under Quantum Fund's Investment Management Agreement.
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(VGA-IC)
The Sub-Adviser, 630 Fifth Avenue, New York, New York, 10111, is an
indirect, wholly-owned subsidiary of Lincoln National and an affiliate of the
Manager, Founded in 1979, it provides investment advice to pension plans,
endowments, insurance and commingled products and has assets under management,
as of , 1996, in excess of $4.7 billion. T. Scott Wittman, President and Chief
Investment Officer of the Sub-Adviser, has primary responsibility for making
day-to-day investment decisions for each Fund. He has had such responsibility
for the Funds since their inception. His responsibilities include both business
administration and equity portfolio management. A Chartered Financial Analyst,
Mr. Wittman received both graduate and undergraduate degrees in business
administration form Indiana University. He has spent his entire professional
career in quantitative investment firms, including TSA Capital Management, where
he was a managing director, and Mellon Bank, where he was Vice President and
Manager of Quantitative Analysis and Systems.
Mr. Wittman also serves as portfolio manager for Lincoln National
Growth and Income Fund, Inc. ("Lincoln Growth and Income Fund") and Lincoln
National Social Awareness Fund, Inc. ("Lincoln Social Awareness Fund"), which
are available only through variable annuity contracts issued by Lincoln National
Life Insurance Co. In the capacity as portfolio manager, Mr. Wittman has had
primary responsibility for making day-to-day investment decisions for each such
fund. The Sub-Adviser has served as sub-adviser for Lincoln National Growth and
Income Fund since ___________, 1984 and for Lincoln Social Awareness Fund since
inception. Mr. Wittman has served as portfolio manager for each fund since
October 1993.
The investment objectives, policies and strategies of Blue Chip Fund
and Lincoln Growth and Income Fund are substantially similar. Mr. Wittman makes
comparable selections of securities for each such fund. The table below presents
the prior performance history of total return on an annualized basis for Lincoln
Growth and Income Fund compared with the average of the performance of all funds
offered through variable annuity contracts included as part of Lipper Analytical
Services' growth and income category:
Since
1 Year 2 Years 3 Years 5 Years 10 Years Inception(1)
------ ------- ------- ------- -------- ---------
Lincoln Growth
and Income(2) 13.87% 22.54% 15.85% 13.04% 13.14% 13.15%
Average Growth
and Income(3) 17.39% 19.89% 13.61% 13.30% 12.89% 14.77%
(1) The fund's inception date is December 21, 1981.
(2) Returns reflect changes in share prices and reinvestment of dividends
and distributions and is net of all expenses, including insurance
related fees. The expense ratio of the Lincoln Growth and Income Fund,
including insurance related fees, has been capped at 1.50% since
inception.
(3) Returns represented in the Lipper Analytical Services growth and income
category reflect changes in share prices and reinvestment of dividends
and distributions and is net of all expenses, including insurance
related fees.
Please note that the historical performance presented above is for Lincoln
Growth and Income Fund, a separate and unrelated fund, and its performance is
not indicative of the potential performance of Blue Chip Fund. Share prices and
investment returns will fluctuate reflecting market conditions.
<PAGE>
The investment objectives, policies and strategies of Quantum Fund and
Lincoln Social Awareness Fund are substantially similar. Mr. Wittman makes
comparable selections of securities for each such fund. The table below presents
the prior performance history of total return on an annualized basis for Lincoln
Social Awareness Fund compared with the average of the performance of all funds
offered through variable annuity contracts included in Lipper Analytical
Services' growth category:
Since
1 Year 2 Years 3 Years 5 Years Inception(1)
------ ------- ------- ------- ---------
Lincoln Social
Awareness Fund(2) 25.61% 29.03% 18.50% 16.14% 15.19%
Average Growth
Funds(3) 15.31% 21.15% 13.99% 13.78% 14.29%
(1) The fund's inception date is May 2, 1988.
(2) Returns reflect changes in share prices and reinvestment of dividends
and distributions and is net of all expenses, including insurance
related fees. The expense ratio of the Lincoln Social Awareness Fund,
including insurance related fees, has been capped at 1.50% since
inception.
(3) Returns represented in the Lipper Analytical Services growth and income
category reflect changes in share prices and reinvestment of dividends
and distributions and is net of all expenses, including insurance
related fees.
Please note that the historical performance presented above is for Lincoln
Social Awareness Fund, a separate and unrelated fund, and its performance is not
indicative of the potential performance of Quantum Fund. Share prices and
investment returns will fluctuate reflecting market conditions.
Portfolio Trading Practices
Each Fund normally will not invest for short-term trading purposes.
However, a Fund may sell securities without regard to the length of time they
have been held. The degree of portfolio activity will affect brokerage costs of
a Fund and may affect taxes payable by such Fund's shareholders. Given each
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(VGA-IC)
Fund's investment objective, its annual portfolio turnover rate is not expected
to exceed 100%. A turnover rate of 100% would occur, for example, if all the
investments in the Fund's portfolio at the beginning of the year were replaced
by the end of the year.
Each Fund uses its best efforts to obtain the best available price and
most favorable execution for portfolio transactions. Orders may be placed with
brokers or dealers who provide brokerage and research services to the Manager or
to their advisory clients. These services may be used by the Manager in
servicing any of its accounts. Subject to best price and execution, each Fund
may consider a broker/dealer's sales of Fund shares in placing portfolio orders
and may place orders with broker/dealers that have agreed to defray certain Fund
expenses such as custodian fees.
Performance Information
From time to time, each Fund may quote total return performance of its
Class in advertising and other types of literature.
Total return will be based on a hypothetical $1,000 investment,
reflecting the reinvestment of all distributions. Each presentation will include
the average annual total return for one-, five- and ten-year periods or
life-of-fund, as relevant. Each Fund may also advertise aggregate and average
total return information concerning its Class over additional periods of time.
Net asset value fluctuates and is not guaranteed. Past performance is
not a guarantee of future results.
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(VGA-IC)
Statements and Confirmations
You will receive quarterly statements of your account summarizing all
transactions during the period. A confirmation statement will be sent following
all transactions other than those involving a reinvestment of dividends. You
should examine statements and confirmations immediately and promptly report any
discrepancy by calling your Client Services Representative.
Financial Information about the Fund
Each fiscal year, you will receive an audited annual report and an
unaudited semi-annual report. These reports provide detailed information about
the Fund's investments and performance. Equity Funds II, Inc.'s fiscal year ends
on November 30.
Distribution and Service
The Distributor, Delaware Distributors, L.P., serves as the national
distributor of each Fund's shares under separate Distribution Agreements with
Equity Funds II, Inc. dated as of ________, 1997. The Distributor bears all of
the costs of promotion and distribution.
The Transfer Agent, Delaware Service Company, Inc., serves as the
shareholder servicing, dividend disbursing and transfer agent for each Fund
under an amended and restated agreement dated as of ________, 1997. The Transfer
Agent also provides accounting services to each Fund pursuant to the terms of a
separate Fund Accounting Agreement. The directors annually review service fees
paid to the Transfer Agent. Certain recordkeeping and other shareholder services
that otherwise would be performed by the Transfer Agent may be performed by
certain other entities and the Transfer Agent may elect to enter into an
agreement to pay such other entities for their services. In addition,
participant account maintenance fees may be assessed for certain recordkeeping
provided as part of retirement plan and administration service packages. These
fees are based on the number of participants in the plan and the various
services selected.
Fees will be quoted upon request and are subject to change.
The Distributor and the Transfer Agent are also indirect, wholly owned
subsidiaries of DMH.
Expenses
Each Fund is responsible for all of its own expenses other than those
borne by the Manager under the Investment Management Agreement and those borne
by the Distributor under the Distribution Agreement.
Shares
Equity Funds II, Inc. is an open-end management investment company.
Each Fund's portfolio of assets is diversified as defined by the 1940 Act.
Commonly known as a mutual fund, Equity Funds II, Inc. was organized as a
Maryland corporation on March 4, 1983. Equity Funds II, Inc. was previously
organized as a Delaware corporation in 1970. In addition to each Fund, Equity
Funds II, Inc. presently offers two other series of shares, the Decatur Income
Fund series and the Decatur Total Return Fund series.
Equity Funds II, Inc.'s shares have a par value of $1.00, equal voting
rights, except as noted below, and are equal in all other respects. Equity Funds
II, Inc.'s shares have noncumulative voting rights which means that the holders
of more than 50% of Equity Funds II, Inc.'s shares voting for the election of
directors can elect 100% of the directors if they choose to do so. Under
Maryland law, Equity Funds II, Inc. is not required, and does not intend, to
hold annual meetings of shareholders unless, under certain circumstances, it is
required to do so under the 1940 Act. Shareholders of 10% or more of Equity
Funds II, Inc.'s outstanding shares may request that a special meeting be called
to consider the removal of a director.
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(VGA-IC)
In addition to Classes, each Fund also offers Class A Shares, Class B
Shares and Class C Shares. Shares of each class of a Fund represent
proportionate interests in the assets of that Fund and have the same voting and
other rights and preferences as the other classes of the Fund, except that
shares of the Class are not subject to, and may not vote on matters affecting,
the Distribution Plans under Rule 12b-1 relating to the Class A Shares, Class B
Shares and Class C Shares.
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<PAGE>
(VGA-IC)
OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS
Social Criteria
Quantum Fund will adhere to a Social Criteria strategy, which may be
changed by action of Equity Funds II, Inc.'s Board of Directors. The Sub-Adviser
will utilize the Social Investment Database published by KLD in determining
whether a company is engaged in any activity precluded by the Fund's Social
Criteria. The Social Investment Database reflects KLD's determination of the
extent to which a company's involvement in the activities prohibited by the
Social Criteria is significant enough to merit a concern or a major concern.
Significance may be determined on the basis of percentage of revenue generated
by, or the size of the operations attributable to, activities related to such
Social Criteria, or other factors selected by KLD. The social screening
undergoes continual refinement and modification. For specifics on the Social
Criteria see Part B.
Because of its Social Criteria, the Fund may not be able to take the
same advantage of certain investment opportunities as do funds which do not have
Social Criteria. Only securities of companies not excluded by any of the Social
Criteria will be eligible for consideration for purchase by the Fund according
to its objective and policies described in this Prospectus.
The Fund will commence the orderly sale of securities of a company when
it is determined by the Sub-Adviser that such company no longer adheres to the
Social Criteria. The Fund will sell such securities in a manner so as to
minimize any adverse affect on the Fund's assets. Typically, such sales will be
made within 90 days from the date of the Sub-Adviser's determination, unless a
sale within the 90 day period would produce a significant loss to the overall
value of the Fund's assets.
Convertible, Debt and Non-Traditional Equity Securities
Each Fund may invest in convertible and debt securities of issuers in
any industry. A convertible security is a security which may be converted at a
stated price within a specified period of time into a certain quantity of the
common stock of the same or a different issuer. Convertible and debt securities
are senior to common stocks in a corporation's capital structure, although
convertible securities are usually subordinated to similar nonconvertible
securities. Convertible and debt securities provide a fixed-income stream and
the opportunity, through its conversion feature, to participate in the capital
appreciation resulting from a market price advance in the convertible security's
underlying common stock. Just as with debt securities, convertible securities
tend to increase in market value when interest rates decline and tend to
decrease in value when interest rates rise. However, the price of a convertible
security is also influenced by the market value of the security's underlying
common stock and tends to increase as the market value of the underlying stock
rises, whereas it tends to decrease as the market value of the underlying stock
declines.
Each Fund 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).
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(VGA-IC)
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.
Each Fund 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 all 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.
Foreign Securities
Each Fund may invest up to 20% of its total assets in foreign
securities. Foreign markets may be more volatile than U.S. markets. Such
investments involve sovereign risk in addition to the normal risks associated
with securities of U.S. issuers. These risks include political risks, foreign
taxes and exchange controls and currency fluctuations. For example, foreign
portfolio investments may fluctuate in value due to changes in currency rates
(i.e., other things being equal, the value of foreign investments would increase
with a fall in the value of the dollar, and decrease with a rise in the value of
the dollar) and control regulations apart from market fluctuations. Each Fund
may also experience delays in foreign securities settlement.
Depositary Receipts
Each Fund may make foreign investments through the purchase and sale of
sponsored or unsponsored American, European and Global Depositary Receipts
("Depositary Receipts"). Depositary Receipts are receipts typically issued by a
U.S. or foreign bank or trust company which evidence ownership of underlying
securities issued by a foreign corporation. "Sponsored" Depositary Receipts are
issued jointly by the issuer of the underlying security and a depository,
whereas "unsponsored" Depositary Receipts are issued without participation of
the issuer of the deposited security. Holders of unsponsored 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 Depositary Receipt.
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<PAGE>
(VGA-IC)
Futures Contracts
Each Fund may enter into futures contracts on stocks, stock indices and
foreign currencies, and purchase or sell options on such futures contracts.
These activities will not be entered into for speculative purposes, but rather
for hedging purposes and to facilitate the ability to quickly deploy into the
stock market a Fund's positions in cash, short-term debt securities and other
money market instruments, at times when a Fund's assets are not fully invested
in equity securities. Such positions will generally be eliminated when it
becomes possible to invest in securities that are appropriate for the Fund
involved.
A futures contract is a bilateral agreement providing for the purchase
and sale of a specified type and amount of a financial instrument, or for the
making and acceptance of a cash settlement, at a stated time in the future for a
fixed price. By its terms, a futures contract provides for a specified
settlement date on which the securities, foreign currency or other financial
instrument underlying the contract are delivered, or in the case of securities
index futures contracts, the difference between the price at which the contract
was entered into and the contract's closing value is settled between the
purchaser and seller in cash. Futures contracts differ from options in that they
are bilateral agreements, with both the purchaser and the seller equally
obligated to complete the transaction. In addition, futures contracts call for
settlement only on the expiration date, and cannot be "exercised" at any other
time during their term.
The purchase or sale of a futures contract also differs from the
purchase or sale of a security or the purchase of an option in that no purchase
price is paid or received. Instead, an amount of cash or cash equivalents, which
varies but may be as low as 5% or less of the value of the contract, must be
deposited with the broker as "initial margin" as a good faith deposit. This
amount is generally maintained in a segregated account at the custodian bank.
Subsequent payments to and from the broker, referred to as "variation margin,"
are made on a daily basis as the value of the index or instrument underlying the
futures contract fluctuates, making positions in the futures contracts more or
less valuable, a process known as "marking to the market."
Purchases or sales of stock index futures contracts are used for
hedging purposes to attempt to protect a Fund's current or intended investments
from broad fluctuations in stock prices. For example, a Fund may sell stock
index futures contracts in anticipation of or during a market decline to attempt
to offset the decrease in market value of the Fund's securities portfolio that
might otherwise result. If such decline occurs, the loss in value of portfolio
securities may be offset, in whole or part, by gains on the futures position.
When a Fund is not fully invested in the securities market and anticipates a
significant market advance, it may purchase stock index futures contracts in
order to gain rapid market exposure that may, in part or entirely, offset
increases in the cost of securities that the Fund intends to purchase. As such
purchases are made, the corresponding positions in stock index futures contracts
will be closed out.
Each Fund may purchase and sell foreign currency futures contracts for
hedging purposes to attempt to protect its current or intended investments
denominated in foreign currencies from fluctuations in currency exchange rates.
Such fluctuations could reduce the dollar value of portfolio securities
denominated in foreign currencies, or increase the cost of foreign-denominated
securities to be acquired, even if the value of such securities in the
currencies in which they are denominated remains constant. Each Fund may sell
futures contracts on a foreign currency, for example, when it holds securities
denominated in such currency and it anticipates a decline in the value of such
currency relative to the dollar. In the event such decline occurs, the resulting
adverse effect on the value of foreign-denominated securities may be offset, in
whole or in part, by gains on the futures contracts. However, if the value of
the foreign currency increases relative to the dollar, a Fund's loss on the
foreign currency futures contract
-27-
<PAGE>
(VGA-IC)
may or may not be offset by an increase in the value of the securities because a
decline in the price of the security stated in terms of the foreign currency may
be greater than the increase in value as a result of the change in exchange
rates.
Conversely, a Fund could protect against a rise in the dollar cost of
foreign-denominated securities to be acquired by purchasing futures contracts on
the relevant currency, which could offset, in whole or in part, the increased
cost of such securities resulting from a rise in the dollar value of the
underlying currencies. When a Fund purchases futures contracts under such
circumstances, however, and the price of securities to be acquired instead
declines as a result of appreciation of the dollar, the Fund will sustain losses
on its futures position which could reduce or eliminate the benefits of the
reduced cost of portfolio securities to be acquired.
Each Fund may also purchase and write options on the types of futures
contracts in which the Fund may invest, and enter into related closing
transactions. Options on futures are similar to options on securities, as
described below, except that options on futures give the purchaser the right, in
return for the premium paid, to assume a position in a futures contract, rather
than to actually purchase or sell the futures contract, at a specified exercise
price at any time during the period of the option. In the event that an option
written by a Fund is exercised, the Fund will be subject to all the risks
associated with the trading of futures contracts, such as payment of variation
margin deposits. In addition, the writer of an option on a futures contract,
unlike the holder, is subject to initial and variation margin requirements on
the option position.
At any time prior to the expiration of a futures contract, a trader may
elect to close out its position by taking an opposite position on the contract
market on which the position was entered into, subject to the availability of a
secondary market, which will operate to terminate the initial position.
Likewise, a position in an option on a futures contract may be terminated by the
purchaser or seller prior to expiration by effecting a closing purchase or sale
transaction, subject to availability of a secondary market, which is the
purchase or sale of an option of the same series (i.e., the same exercise price
and expiration date) as the option previously purchased or sold. Each Fund may
realize a profit or a loss when closing out a futures contract or an option on a
futures contract.
To the extent that interest or exchange rates or securities prices move
in an unexpected direction, a Fund may not achieve the anticipated benefits of
investing in futures contracts and options thereon, or may realize a loss. To
the extent that a Fund purchases an option on a futures contract and fails to
exercise the option prior to the exercise date, it will suffer a loss of the
premium paid. Further, the possible lack of a secondary market could prevent a
Fund from closing out its positions relating to futures. See Part B for a
further discussion of this investment technique.
Options
Each Fund may write covered call options on individual issues as well
as write call options on stock indices. Each Fund may also purchase put options
on individual issues and on stock indices. The Sub- Adviser will employ these
techniques in an attempt to protect appreciation attained, to offset capital
losses and to take advantage of the liquidity available in the option markets.
The ability to hedge effectively using options on stock indices will depend, in
part, on the correlation between the composition of the index and a Fund's
portfolio as well as the price movement of individual securities. The
Sub-Adviser may also write covered call options to achieve income to offset the
cost of purchasing put options.
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<PAGE>
(VGA-IC)
While there is no limit on the amount of a Fund's assets which may be
invested in covered call options, the Fund will not invest more than 2% of its
net assets in put options. Each Fund will only use Exchange-traded options.
Call Options
Writing Covered Call Options - A covered call option obligates a Fund
to sell one of its securities for an agreed price up to an agreed date. When a
Fund writes a call, it receives a premium and agrees to sell the callable
securities to a purchaser of a corresponding call during the call period
(usually, not more than nine months) at a fixed price regardless of market price
changes during the call period. The advantage is that the Fund receives premium
income for the limited purpose of offsetting the costs of purchasing put options
or offsetting any capital loss or decline in the market value of the security.
However, if the Sub- Adviser's forecast is wrong, the Fund may not fully
participate in the market appreciation if the security's price rises.
Writing a Call Option on Stock Indices - Writing a call option on stock
indices is similar to the writing of a call option on an individual stock. Stock
indices used will include, but not be limited to, the S&P 500, the S&P 100 and
the S&P Over-The-Counter ("OTC") 250.
Put Options
Purchasing a Put Option - A put option gives a Fund the right to sell
one of its securities for an agreed price up to an agreed date. The advantage is
that the Fund can be protected should the market value of the security decline.
However, the Fund must pay a premium for this right which would be lost if the
option is not exercised.
Purchasing a Put Option on Stock Indices - Purchasing a protective put
option on stock indices is similar to the purchase of protective puts on an
individual stock. Indices used will include, but not be limited to, the S&P 500,
the S&P 100 and the S&P OTC 250.
Closing Transactions - Closing transactions essentially let a Fund
offset a put option or covered call option prior to its exercise or expiration.
If the Fund cannot effect a closing transaction, it may have to hold a security
it would otherwise sell or deliver a security it might want to hold.
Restricted/Illiquid Securities
Each Fund may invest in restricted securities, including securities
eligible for resale without registration pursuant to Rule 144A ("Rule 144A
Securities") under the Securities Act of 1933 ("1933 Act"). Rule 144A exempts
many privately placed and legally restricted securities from the registration
requirements of the 1933 Act and permits such securities to be freely traded
among certain institutional buyers such as the Funds.
Each Fund may invest no more than 15% of the value of its net assets in
illiquid securities. Illiquid securities, for purposes of this policy, include
repurchase agreements maturing in more than seven days.
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(VGA-IC)
While maintaining oversight, the Board of Directors has delegated to
each Fund's Sub-Adviser the day-to-day functions of determining whether or not
individual Rule 144A Securities are liquid for purposes of a Fund's limitation
on investments in illiquid assets. The Board has instructed each Fund's
Sub-Adviser to consider the following factors in determining the liquidity of a
Rule 144A Security: (i) the frequency of trades and trading volume for the
security; (ii) whether at least three dealers are willing to purchase or sell
the security and the number of potential purchasers; (iii) whether at least two
dealers are making a market in the security; and (iv) the nature of the security
and the nature of the marketplace trades (e.g., the time needed to dispose of
the security, the method of soliciting offers, and the mechanics of transfer).
If a Sub-Adviser determines that a Rule 144A Security which was
previously determined to be liquid is no longer liquid and, as a result, the
Fund's holdings of illiquid securities exceed the 15% limit on investment in
such securities, the Sub-Adviser will determine what action shall be taken to
ensure that the Fund continues to adhere to such limitation.
Short-Term Investments
The short-term investments in which the Funds will invest are:
(1) Time deposits, certificates of deposit (including marketable
variable rate certificates of deposit) and bankers' acceptances issued by a U.S.
commercial bank. Time deposits are non-negotiable deposits maintained in a
banking institution for a specified period of time at a stated interest rate.
Time deposits maturing in more than seven days will not be purchased by either
Fund, and time deposits maturing from two business days through seven calendar
days will not exceed 15% of either Fund's total assets. Certificates of deposit
are negotiable short-term obligations issued by commercial banks against funds
deposited in the issuing institution. Variable rate certificates of deposit are
certificates of deposit on which the interest rate is periodically adjusted
prior to their stated maturity based upon a specified market rate. A bankers'
acceptance is a time draft drawn on a commercial bank by a borrower usually in
connection with an international commercial transaction (to finance the import,
export, transfer or storage of goods).
Neither Fund will invest in any security issued by a commercial bank
unless (i) the bank has total assets of at least $1 billion or, in the case of a
bank which does not have total assets of at least $1 billion, the aggregate
investment made in any one such bank is limited to $100,000 and the principal
amount of such investment is insured in full by the Federal Deposit Insurance
Corporation, (ii) it is a member of the Federal Deposit Insurance Corporation,
and (iii) the bank or its securities have received the highest quality rating by
a nationally-recognized statistical rating organization;
(2) Commercial paper with the highest quality rating by a
nationally-recognized statistical rating organization (e.g., A-1 by S&P or
Prime-1 by Moody's) or, if not so rated, of comparable quality as determined by
each Fund's investment adviser;
(3) Short-term corporate obligations with the highest quality rating by
a nationally-recognized statistical rating organization (e.g., AAA by S&P or Aaa
by Moody's) or, if not so rated, of comparable quality as determined by each
Fund's investment adviser;
-30-
<PAGE>
(VGA-IC)
(4) U.S. government securities; and
(5) Repurchase agreements collateralized by securities listed below.
See Appendix A of Part B for a description of applicable ratings.
When-Issued and Delayed Delivery Securities
Each Fund 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. Each Fund will maintain with its Custodian Bank a
separate account with a segregated portfolio of securities in an amount at least
equal to these commitments. The payment obligation and the interest rates that
will be received are each fixed at the time a Fund enters into the commitment
and no interest accrues to such 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. It is a
current policy of each Fund not to enter into when-issued commitments exceeding
in the aggregate 15% of the market value of the its total assets less
liabilities other than the obligations created by these commitments.
Repurchase Agreements
In order to invest its short-term cash reserves or when in a temporary
defensive posture, each Fund may enter into repurchase agreements with banks or
broker/dealers deemed to be creditworthy by its Sub- Adviser, under guidelines
approved by the Board of Directors. A repurchase agreement is a short-term
investment in which the purchaser (i.e., the Fund) acquires ownership of a debt
security and the seller agrees to repurchase the obligation at a future time and
set price, thereby determining the yield during the purchaser's holding period.
Generally, repurchase agreements are of short duration, often less than one week
but on occasion for longer periods. Not more than 15% of each Fund's assets may
be invested in repurchase agreement of over seven days' maturity or other
illiquid assets. Should an issuer of a repurchase agreement fail to repurchase
the underlying security, the loss, if any, would be the difference between the
repurchase price and the market value of the security. Each Fund will limit its
investments in repurchase agreements to those which its Sub-Adviser under
guidelines of the Board of Directors determines to present minimal credit risks
and which are of high quality. In addition, the Fund must have collateral of at
least 100% of the repurchase price, including the portion representing the
Fund's yield under such agreements, which is monitored on a daily basis.
Securities Lending Activities
Each Fund may loan up to 25% of its assets to qualified broker/dealers
or institutional investors for their use relating to short sales or other
security transactions.
The major risk to which each Fund would be exposed on a loan
transaction is the risk that the borrower would go bankrupt at a time when the
value of the security goes up. Therefore, each Fund will only enter into loan
arrangements after a review of all pertinent facts by the investment adviser,
subject to overall supervision by the Board of Directors, including the
creditworthiness of the borrowing broker,
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<PAGE>
(VGA-IC)
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 management for each Fund.
Borrowing from Banks
The Fund may borrow money as a temporary measure for extraordinary
purposes or to facilitate redemptions. The Fund will not borrow money in excess
of one-third of the value of its net assets. The Fund has no intention of
increasing its net income through borrowing. Any borrowing will be done from a
bank and, to the extent that such borrowing exceeds 5% of the value of the
Fund's net assets, asset coverage of at least 300% is required. In the event
that such asset coverage shall at any time fall below 300%, the Fund shall,
within three days thereafter (not including Sundays or holidays, or such longer
period as the Securities and Exchange Commission may prescribe by rules and
regulations), reduce the amount of its borrowings to such an extent that the
asset coverage of such borrowings shall be at least 300%. The Fund will not
pledge more than 10% of its net assets, or issue senior securities as defined in
the 1940 Act, except for notes to banks. Investment securities will not be
purchased while the Fund has an outstanding borrowing.
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<PAGE>
Subject to Completion
(SAI-DIF&TR\VGA-PART B)
The Delaware Group includes funds with a wide range of investment
objectives. Stock funds, income funds, tax-free funds, money market funds,
global and international funds and closed-end equity funds give investors the
ability to create a portfolio that fits their personal financial goals. For more
information, shareholders of the Fund Classes should contact their financial
adviser or call Delaware Group at 800-523-4640, and shareholders of the
Institutional Class should contact Delaware Group at 800-828-5052.
INVESTMENT MANAGER
Delaware Management Company, Inc.
One Commerce Square
Philadelphia, PA 19103
SUB-ADVISER
Blue Chip Fund and
Quantum Fund:
Vantage Global Advisors, Inc.
630 Fifth Avenue
New York, NY 10111
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
Decatur Income Fund and
Decatur Total Return Fund:
Bankers Trust Company
One Bankers Trust Plaza
New York, NY 10006
Blue Chip Fund and
Quantum Fund:
The Chase Manhattan Bank
4 Chase Metrotech Center
Brooklyn, NY 11245
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
<PAGE>
- ---------------------------------------------------------
DECATUR INCOME FUND
DECATUR TOTAL RETURN FUND
BLUE CHIP FUND
QUANTUM FUND
- ---------------------------------------------------------
A CLASSES
- ---------------------------------------------------------
B CLASSES
- ---------------------------------------------------------
C CLASSES
- ---------------------------------------------------------
INSTITUTIONAL CLASSES
- ---------------------------------------------------------
CLASSES OF DELAWARE GROUP
EQUITY FUNDS II, INC.
- ---------------------------------------------------------
PART B
STATEMENT OF
ADDITIONAL INFORMATION
- ---------------------------------------------------------
______________, 1997
DELAWARE
GROUP
-----------
<PAGE>
(SAI-DIF&TR\VGA-PART B)
- --------------------------------------------------------------------------------
PART B--STATEMENT OF ADDITIONAL INFORMATION
________, 1997
- --------------------------------------------------------------------------------
DELAWARE GROUP EQUITY FUNDS II, INC.
- --------------------------------------------------------------------------------
1818 Market Street
Philadelphia, PA 19103
- --------------------------------------------------------------------------------
For more information about the Institutional Classes: 800-828-5052
For Prospectus and Performance of the Class A Shares, Class B Shares and
Class C Shares: Nationwide 800-523-4640
Information on Existing Accounts of the Class A Shares, Class B Shares and
Class C Shares: (SHAREHOLDERS ONLY) Nationwide 800-523-1918
Dealer Services: (BROKER/DEALERS ONLY) Nationwide 800-362-7500
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Cover Page
- --------------------------------------------------------------------------------
Investment Policies and Portfolio Techniques
- --------------------------------------------------------------------------------
Accounting and Tax Issues
- --------------------------------------------------------------------------------
Performance Information
- --------------------------------------------------------------------------------
Trading Practices and Brokerage
- --------------------------------------------------------------------------------
Purchasing Shares
- --------------------------------------------------------------------------------
Investment Plans
- --------------------------------------------------------------------------------
Determining Offering Price
and Net Asset Value
- --------------------------------------------------------------------------------
Redemption and Repurchase
- --------------------------------------------------------------------------------
Distributions and Taxes
- --------------------------------------------------------------------------------
Investment Management Agreements
and Sub-Advisory Agreements
- --------------------------------------------------------------------------------
Officers and Directors
- --------------------------------------------------------------------------------
Exchange Privilege
- --------------------------------------------------------------------------------
General Information
- --------------------------------------------------------------------------------
Appendix A--Ratings
- --------------------------------------------------------------------------------
Appendix B--IRA Information
- --------------------------------------------------------------------------------
Appendix C--Performance Overview
- --------------------------------------------------------------------------------
Appendix D--The Company Life Cycle
- --------------------------------------------------------------------------------
Financial Statements
- --------------------------------------------------------------------------------
-1-
<PAGE>
(SAI-DIF&TR\VGA-PART B)
Delaware Group Equity Funds II, Inc. ("Equity Funds II, Inc.") is a
professionally-managed mutual fund of the series type. This Statement of
Additional Information ("Part B" of the registration statement) describes the
Decatur Income Fund series, Decatur Total Return Fund series, Blue Chip Fund
series and Quantum Fund series (individually the "Fund" and collectively the
"Funds") of Equity Funds II, Inc. Decatur Income Fund, Decatur Total Return
Fund, Blue Chip Fund and Quantum Fund offer respectively, the Decatur Income
Fund A Class, Decatur Total Return Fund A Class, Blue Chip Fund A Class and
Quantum Fund A Class ("Class A Shares"), Decatur Income Fund B Class, Decatur
Total Return Fund B Class, Blue Chip Fund B Class and Quantum Fund B Class
("Class B Shares") and Decatur Income Fund C Class, Decatur Total Return Fund C
Class, Blue Chip Fund C Class and Quantum Fund C Class ("Class C Shares") (Class
A Shares, Class B Shares and Class C Shares together, the "Fund Classes") and
Decatur Income Fund Institutional Class, Decatur Total Return Fund Institutional
Class, Blue Chip Fund Institutional Class and Quantum Fund Institutional Class
(the "Institutional Classes").
Class B Shares, Class C Shares and Institutional Class shares may be
purchased at a price equal to the next determined net asset value per share.
Class A Shares may be purchased at the public offering price, which is equal to
the next determined net asset value per share, plus a front-end sales charge.
Class A Shares are subject to a maximum front-end sales charge of 4.75% and
annual 12b-1 Plan expenses of up to 0.30%. Class B Shares are subject to a
contingent deferred sales charge ("CDSC") which may be imposed on redemptions
made within six years of purchase and annual 12b-1 Plan expenses of up to 1%
which are assessed against Class B Shares for approximately eight years after
purchase. See Automatic Conversion of Class B Shares under Classes of Shares in
the Fund Classes' Prospectuses. Class C Shares are subject to a CDSC which may
be imposed on redemptions made within 12 months of purchase and annual 12b-1
Plan expenses of up to 1% which are assessed against the Class C Shares for the
life of the investment. All references to "shares" in this Part B refer to all
Classes of shares of each Fund, except where noted.
This Part B supplements the information contained in the current
Prospectuses for the Fund Classes dated, _____________, 1997 and the current
Prospectuses for the Institutional Classes dated ________, 1997, as they may be
amended from time to time. It 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. Prospectuses relating to
the Fund Classes and prospectuses relating to the Institutional Classes may be
obtained by writing or calling your investment dealer or by contacting Equity
Funds II, Inc.'s national distributor, Delaware Distributors, L.P. (the
"Distributor"), 1818 Market Street, Philadelphia, PA 19103.
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<PAGE>
(SAI-DIF&TR\VGA-PART B)
INVESTMENT POLICIES AND PORTFOLIO TECHNIQUES
Investment Restrictions--Each Fund has adopted the following
restrictions which cannot be changed without approval by the holders of a
"majority" of such Fund's outstanding shares, which is a vote by the holders of
the lesser of a) 67% or more of the voting securities present in person or by
proxy at a meeting, if the holders of more than 50% of the outstanding voting
securities are present or represented by proxy; or b) more than 50% of the
outstanding voting securities. The percentage limitations contained in the
restrictions and policies set forth herein apply at the time of purchase of
securities.
Decatur Income Fund shall not:
1. Invest more than 5% of the value of its assets in securities of any
one company (except U.S. government bonds) or purchase more than 10% of the
voting or nonvoting securities of any one company.
2. Acquire control of any company. (Equity Funds II, Inc.'s
Certificate of Incorporation permits control of companies to protect investments
already made, but its policy is not to acquire control.)
3. Purchase or retain securities of a company which has an officer or
director who is an officer or director of Equity Funds II, Inc., or an officer,
director or partner of its investment manager if, to the knowledge of Equity
Funds II, Inc., one or more of such persons own beneficially more than 1/2 of 1%
of the shares of the company, and in the aggregate more than 5% thereof.
4. Allow long or short positions on shares of the Fund to be taken by
Equity Funds II, Inc.'s officers, directors or any of its affiliated persons.
Such persons may buy shares of the Fund for investment purposes, however.
5. Purchase any security issued by any other investment company if
after such purchase it would: (a) own more than 3% of the voting stock of such
company, (b) own securities of such company having a value in excess of 5% of
the Fund's assets or (c) own securities of investment companies having an
aggregate value in excess of 10% of the Fund's assets.
6. Invest more than 10% of the value of its total assets in illiquid
assets.
7. Invest in securities of other investment companies except at
customary brokerage commission rates or in connection with mergers,
consolidations or offers of exchange.
8. Make any investment in real estate unless necessary for office
space or the protection of investments already made. (This restriction does not
preclude the Fund's purchase of securities issued by real estate investment
trusts.)
9. Sell short any security or property.
10. Deal in commodities, except that the Fund may invest in financial
futures, including futures contracts on stocks and stock indices, interest rates
and foreign currencies and other types of financial futures that may be
developed in the future, and may purchase or sell options on such futures, and
enter into closing transactions with respect to those activities.
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<PAGE>
(SAI-DIF&TR\VGA-PART B)
11. Borrow, except as a temporary measure for extraordinary or
emergency purposes, and then not in excess of 10% of gross assets taken at cost
or market, whichever is lower, and not to pledge more than 15% of gross assets
taken at cost. Any borrowing will be done from a bank, and to the extent that
such borrowing exceeds 5% of the value of the Fund's assets, asset coverage of
at least 300% is required. In the event that such asset coverage shall at any
time fall below 300%, the Fund shall, within three days thereafter (not
including Sunday and holidays) or such longer period as the Securities and
Exchange Commission (the "SEC") may prescribe by rules and regulations, reduce
the amount of its borrowings to an extent that the asset coverage of such
borrowings shall be at least 300%. The Fund shall not issue senior securities as
defined in the Investment Company Act of 1940, except for notes to banks.
12. Make loans. However, the purchase of a portion of an issue of
publicly distributed bonds, debentures, or other securities, whether or not the
purchase was made upon the original issuance of the securities, and the entry
into "repurchase agreements" are not to be considered the making of a loan by
the Fund and the Fund may loan up to 25% of its assets to qualified
broker/dealers or institutional investors for their use relating to short sales
or other transactions.
13. Invest more than 5% of the value of its total assets in securities
of companies less than three years old. Such three-year period shall include the
operation of any predecessor company or companies.
14. The Fund may act as an underwriter of securities of other issuers,
but its present policy is not to do so.
Notwithstanding restrictions 6 and 13 above and although not a matter
of fundamental policy, Equity Funds II, Inc. has made a commitment that the Fund
will not invest more than 10% of its total assets in a combination of illiquid
securities and securities of companies less than three years old, such
three-year old period to include the operation of any predecessor company or
companies. In addition, notwithstanding restriction 8 above and although not a
matter of fundamental policy, Equity Funds II, Inc. has made a commitment that
the Fund's investments in securities issued by real estate investment trusts
will not exceed 10% of its total assets.
Although it is not a matter of fundamental policy, Equity Funds II,
Inc. has also made a commitment that the Fund will not invest in warrants valued
at lower of cost or market exceeding 5% of the Fund's net assets. Included
within that amount, but not to exceed 2% of the Fund's net assets, may be
warrants not listed on the New York Stock Exchange or American Stock Exchange.
In addition, the Fund may not concentrate investments in any particular
industry, which means not investing more than 25% of its assets in any industry.
Although not a fundamental investment restriction, the Fund currently
does not invest its assets in real estate limited partnerships or oil, gas and
other mineral leases.
Decatur Total Return Fund shall not:
1. Invest more than 5% of the market or other fair value of its assets
in the securities of any one issuer (other than obligations of, or guaranteed
by, the U.S. government, its agencies or instrumentalities).
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<PAGE>
(SAI-DIF&TR\VGA-PART B)
2. Invest in securities of other investment companies except as part
of a merger, consolidation or other acquisition.
3. Make loans. However, (i) the purchase of a portion of an issue of
publicly distributed bonds, debentures or other securities, or of other
securities authorized to be purchased by the Fund's investment policies, whether
or not the purchase was made upon the original issuance of the securities, and
the entry into "repurchase agreements" are not to be considered the making of a
loan by the Fund; and (ii) the Fund may loan up to 25% of its assets to
qualified broker/dealers or institutional investors for their use relating to
short sales or other security transactions.
4. Purchase or sell real estate but this shall not prevent the Fund
from investing in companies which own real estate or in securities secured by
real estate or interests therein.
5. Purchase more than 10% of the outstanding voting or nonvoting
securities of any issuer, or invest in companies for the purpose of exercising
control or management.
6. Act as an underwriter of securities of other issuers, except that
the Fund may acquire restricted or not readily marketable securities under
circumstances where, if such securities are sold, the Fund might be deemed to be
an underwriter for the purposes of the Securities Act of 1933.
7. Make any investment which would cause more than 25% of the market
or other fair value of its total assets to be invested in the securities of
issuers all of which conduct their principal business activities in the same
industry. This restriction does not apply to obligations issued or guaranteed by
the U.S. government, its agencies or instrumentalities.
8. Deal in commodities, except that the Fund may invest in financial
futures, including futures contracts on stocks and stock indices, interest rates
and foreign currencies and other types of financial futures that may be
developed in the future, and may purchase or sell options on such futures, and
enter into closing transactions with respect to those activities.
9. Purchase securities on margin, make short sales of securities or
maintain a net short position.
10. Invest more than 5% of the value of its total assets in securities
of companies less than three years old. Such three-year period shall include the
operation of any predecessor company or companies.
11. Invest in warrants valued at the lower of cost or market exceeding
5% of the Fund's net assets. Included in that amount, but not to exceed 2% of
the Fund's net assets, may be warrants not listed on the New York Stock Exchange
or American Stock Exchange.
12. Purchase or retain the securities of any issuer which has an
officer, director or security holder who is a director or officer of Equity
Funds II, Inc. or of its investment manager if or so long as the directors and
officers of Equity Funds II, Inc. and of its investment manager together own
beneficially more than 5% of any class of securities of such issuer.
13. Invest in interests in oil, gas or other mineral exploration or
development programs.
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<PAGE>
(SAI-DIF&TR\VGA-PART B)
14. Invest more than 10% of the value of the Fund's net assets in
repurchase agreements maturing in more than seven days and in other illiquid
assets.
15. Borrow money in excess of one-third of the value of its net assets
and then only as a temporary measure for extraordinary purposes or to facilitate
redemptions. The Fund has no intention of increasing its net income through
borrowing. Any borrowing will be done from a bank and to the extent that such
borrowing exceeds 5% of the value of the Fund's net assets, asset coverage of at
least 300% is required. In the event that such asset coverage shall at any time
fall below 300%, the Fund shall, within three days thereafter (not including
Sunday or holidays) or such longer period as the Securities and Exchange
Commission (the "SEC") may prescribe by rules and regulations, reduce the amount
of its borrowings to such an extent that the asset coverage of such borrowings
shall be at least 300%. The Fund will not pledge more than 10% of its net
assets.
The Fund will not issue senior securities as defined in the Investment Company
Act of 1940, except for notes to banks.
Although not a fundamental investment restriction, the Fund currently
does not invest its assets in real estate limited partnerships.
Although it is not a matter of fundamental policy, Decatur Total Return
Fund may invest not more than 5% of its assets in foreign securities (other than
securities of Canadian issuers registered under the Securities Exchange Act of
1934 or American Depository Receipts, on which there are no such limits).
Foreign markets may be more volatile than U.S. markets. Such investments involve
sovereign risk in addition to the normal risks associated with American
securities. These risks include political risks, foreign taxes and exchange
controls and currency fluctuations. For example, foreign portfolio investments
may fluctuate in value due to changes in currency rates (i.e., the value of
foreign investments would increase with a fall in the value of the dollar, and
decrease with a rise in the value of the dollar) and control regulations apart
from market fluctuations. The Fund may also experience delays in foreign
securities settlement.
The application of the investment policy of Decatur Income Fund and
Decatur Total Return Fund will be dependent upon the judgment of Delaware
Management Company, Inc. (the "Manager"). In accordance with the judgment of the
Manager, the proportions of a Fund's assets invested in particular industries
will vary from time to time. The securities in which a Fund invests may or may
not be listed on a national stock exchange, but if they are not so listed will
generally have an established over-the-counter market. While management believes
that the investment objective of each Fund can be achieved by investing
primarily in common stocks, each Fund may be invested in other securities
including, but not limited to, convertible securities, preferred stocks, bonds,
warrants and foreign securities. Decatur Income Fund may invest up to 15% of its
net assets in high yield, high risk securities. In periods during which the
Manager feels that market conditions warrant a more defensive portfolio
positioning, each Fund may also invest in various types of fixed-income
obligations.
Blue Chip Fund will not:
1. With respect to 75% of its total assets, Blue Chip Fund will not
invest more than 5% of its total assets in the securities of any one issuer
(other than obligations issued or guaranteed by the U.S. government,
-6-
<PAGE>
(SAI-DIF&TR\VGA-PART B)
its agencies or instrumentalities or certificates of deposit for any such
securities and cash and cash items) or purchase more than 10% of the voting
securities of any one company.
2. Blue Chip Fund will not make any investment in real estate. This
restriction does preclude the Fund's purchase of securities issued by real
estate investment trusts, the purchase of securities issued by companies that
deal in real estate, or the investment in securities secured by real estate or
interests therein.
3. Blue Chip Fund will not sell short any security or property.
4. Blue Chip Fund will not buy or sell commodities or commodity
contracts except that the Fund may enter into futures contracts and options
thereon.
5. Blue Chip Fund will not borrow money in excess of one-third of the
value of its net assets. Any borrowing will be done in accordance with the rules
and regulations prescribed from time to time by the SEC with respect to open-end
investment companies.
6. Blue Chip Fund will not make loans. However, (i) the purchase of a
portion of an issue of publicly distributed bonds, debentures or other
securities, or of other securities authorized to be purchased by the Fund's
investment policies, whether or not the purchase was made upon the original
issuance of the securities, and the entry into "repurchase agreements" are not
to be considered the making of a loan by the Fund; and (ii) the Fund may loan
securities to qualified broker/dealers or institutional investors for their use
relating to short sales and other security transactions.
7. Blue Chip Fund will not act as an underwriter of securities of other
issuers, except that the Fund may acquire restricted or not readily marketable
securities under circumstances where, if such securities are sold, the Fund may
be deemed to be an underwriter for purposes of the Securities Act of 1933.
8. Blue Chip Fund will not invest more than 25% of its total assets in
securities of issuers all of which conduct their principal business activities
in the same industry. This restriction does not apply to obligations issued or
guaranteed by the U.S. government, its agencies or instrumentalities.
In addition to the above fundamental investment restrictions, Blue Chip
Fund has the following investment restrictions which may be amended or changed
without approval of shareholders.
1. Blue Chip Fund will not invest for the purpose of acquiring control
of any company.
2. Blue Chip Fund will not invest in securities of other investment
companies, except the Fund may invest in securities of open-end, closed-end and
unregistered investment companies, in accordance with the limitations contained
in the Investment Company Act at the time of the investment.
3. Blue Chip Fund will not purchase or retain the securities of any
issuer which has an officer, director or security holder who is a director or
officer of Equity Funds II, Inc. or of the Manager or Sub- Adviser if or so long
as the directors and officers of Equity Funds II, Inc. and of the Manager and
Sub-Adviser together own beneficially more than 5% of any class of securities of
such issuer.
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<PAGE>
(SAI-DIF&TR\VGA-PART B)
4. Blue Chip Fund will not invest in interests in oil, gas and other
mineral leases or other mineral exploration or development programs.
5. Blue Chip Fund will not purchase securities on margin except
short-term credits that may be necessary for the clearance of purchases and
sales of securities.
Quantum Fund will not:
1. With respect to 75% of its total assets, Quantum Fund will not
invest more than 5% of its total assets in the securities of any one issuer
(other than obligations issued or guaranteed by the U.S. government, its
agencies or instrumentalities or certificates of deposit for any such securities
and cash and cash items) or purchase more than 10% of the voting securities of
any one company.
2. Quantum Fund will not make any investment in real estate. This
restriction does preclude the Fund's purchase of securities issued by real
estate investment trusts, the purchase of securities issued by companies that
deal in real estate, or the investment in securities secured by real estate or
interests therein.
3. Quantum Fund will not sell short any security or property.
4. Quantum Fund will not buy or sell commodities or commodity contracts
except that the Fund may enter into futures contracts and options thereon.
5. Quantum Fund will not borrow money in excess of one-third of the
value of its net assets. Any borrowing will be done in accordance with the rules
and regulations prescribed from time to time by the SEC with respect to open-end
investment companies.
6. Quantum Fund will not make loans. However, (i) the purchase of a
portion of an issue of publicly distributed bonds, debentures or other
securities, or of other securities authorized to be purchased by the Fund's
investment policies, whether or not the purchase was made upon the original
issuance of the securities, and the entry into "repurchase agreements" are not
to be considered the making of a loan by the Fund; and (ii) the Fund may loan
securities to qualified broker/dealers or institutional investors for their use
relating to short sales and other security transactions.
7. Quantum Fund will not act as an underwriter of securities of other
issuers, except that the Fund may acquire restricted or not readily marketable
securities under circumstances where, if such securities are sold, the Fund may
be deemed to be an underwriter for purposes of the Securities Act of 1933.
8. Quantum Fund will not invest more than 25% of its total assets in
securities of issuers all of which conduct their principal business activities
in the same industry. This restriction does not apply to obligations issued or
guaranteed by the U.S. government, its agencies or instrumentalities.
In addition to the above fundamental investment restrictions, Quantum
Fund has the following investment restrictions which may be amended or changed
without approval of shareholders.
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<PAGE>
(SAI-DIF&TR\VGA-PART B)
1. Quantum Fund will not invest for the purpose of acquiring control of
any company.
2. Quantum Fund will not invest in securities of other investment
companies, except the Fund may invest in securities of open-end, closed-end and
unregistered investment companies, in accordance with the limitations contained
in the Investment Company Act at the time of the investment.
3. Quantum Fund will not purchase or retain the securities of any
issuer which has an officer, director or security holder who is a director or
officer of Equity Funds II, Inc. or of the Manager or Sub- Adviser if or so long
as the directors and officers of Equity Funds II, Inc. and of the Manager or
Sub-Adviser together own beneficially more than 5% of any class of securities of
such issuer.
4. Quantum Fund will not invest in interests in oil, gas and other
mineral leases or other mineral exploration or development programs.
5. Quantum Fund will not purchase securities on margin except
short-term credits that may be necessary for the clearance of purchases and
sales of securities.
Securities will not normally be purchased by a Fund while it has an
outstanding borrowing.
In addition, from time to time, each Fund may also engage in the
following investment techniques:
A. Rule 144A Securities--Each Fund may invest in restricted securities,
including unregistered securities eligible for resale without registration
pursuant to Rule 144A ("Rule 144A Securities") under the Securities Act of 1933
("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 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 Board of Directors and the
Manager will continue to monitor the liquidity of that security to ensure that
Decatur Income Fund and Decatur Total Return Fund each has no more than 10%, and
Blue Chip Fund and Quantum Fund each has no more than 15%, of its net assets in
illiquid securities.
B. Repurchase Agreements--In order to invest its cash reserves or when
in a temporary defensive posture, a Fund may enter into repurchase agreements
with banks or broker/dealers deemed to be creditworthy by the Manager, under
guidelines approved by the Board of Directors. A repurchase agreement is a
short-term investment in which the purchaser (i.e., a Fund) acquires ownership
of a debt security and the seller agrees to repurchase the obligation at a
future time and set price, thereby determining the yield during the purchaser's
holding period. Generally, repurchase agreements are of short duration, often
less than one week, but on occasion for longer periods. Not more than 10% of the
assets of each of Decatur Income Fund and Decatur Total Return Fund and 15% of
the assets of each of Blue Chip Fund and Quantum Fund may be invested in
repurchase agreements of over seven-days' maturity or other illiquid assets.
Should an issuer of a repurchase agreement fail to repurchase the underlying
security, the loss to a Fund, if any, would be the difference between the
repurchase price and the market value of the security. A Fund will limit its
investments in repurchase agreements, to those which the Manager, under the
guidelines of the Board of Directors, determines
-9-
<PAGE>
(SAI-DIF&TR\VGA-PART B)
to present minimal credit risks and which are of high quality. In addition, the
Fund must have collateral of at least 100% of the repurchase price, including
the portion representing a Fund's yield under such agreements, which is
monitored on a daily basis. Such collateral is held by the Custodian in book
entry form. Such agreements may be considered loans under the Investment Company
Act of 1940, but the Funds consider repurchase agreements contracts for the
purchase and sale of securities, and it seeks to perfect a security interest in
the collateral securities so that it has the right to keep and dispose of the
underlying collateral in the event of a default.
The funds in the Delaware Group have obtained an exemption from the
joint-transaction prohibitions of Section 17(d) of the Investment Company Act of
1940 to allow the Delaware Group funds jointly to invest cash balances. Each
Fund of the Company 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.
C. Portfolio Loan Transactions--Each Fund may loan up to 25% of its
assets to qualified broker/dealers or institutional investors for their use
relating to short sales or other security transactions.
It is the understanding of the Manager that the staff of the 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 the 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 Fund involved; 3) the Fund must be able to
terminate the loan after notice, at any time; 4) the Fund must receive
reasonable interest on any loan, and any dividends, interest or other
distributions on the lent securities, and any increase in the market value of
such securities; 5) the Fund may pay reasonable custodian fees in connection
with the loan; and 6) the voting rights on the lent securities may pass to the
borrower; however, if the directors of Equity Funds II, Inc. 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 Fund would be exposed on a loan transaction
is the risk that the borrower would go bankrupt at a time when the value of the
security goes up. Therefore, the Funds will only enter into loan arrangements
after a review of all pertinent facts by the Manager, under the supervision of
the Board of Directors, including the creditworthiness of the borrowing broker,
dealer or institution and then only if the consideration to be received from
such loans would justify the risk. Creditworthiness will be monitored on an
ongoing basis by the Manager.
D. Options--Each Fund may write call options on a covered basis only
and purchase put options, and will not engage in option writing strategies for
speculative purposes.
Covered Call Writing
Each Fund may write covered call options from time to time on such
portion of its portfolio, without limit, as the Manager determines is
appropriate in seeking to obtain the Fund's investment objective. A call option
gives the purchaser of such option the right to buy, and the writer, in this
case a Fund, has the obligation to sell the underlying security at the exercise
price during the option period. The advantage to a
-10-
<PAGE>
(SAI-DIF&TR\VGA-PART B)
Fund of writing covered calls is that the 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, the Fund may not
fully participate in the market appreciation.
During the option period, a covered call option writer may be assigned
an exercise notice by the broker/dealer through whom such call option was sold
requiring the writer to deliver the underlying security against payment of the
exercise price. This obligation is terminated upon the expiration of the option
period or at such earlier time in which the writer effects a closing purchase
transaction. A closing purchase transaction cannot be effected with respect to
an option once the option writer has received an exercise notice for such
option.
With respect to both options on actual portfolio securities owned by a
Fund and options on stock indices, a Fund may enter into closing purchase
transactions. A closing purchase transaction is one in which a 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 Fund
to write another call option on the underlying security with either a different
exercise price or expiration date or both. A 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 written by a Fund expires unexercised, the Fund will
realize a short-term capital gain in the amount of the premium on the option,
less the commission paid. Such a gain, however, may be offset by depreciation in
the market value of the underlying security during the option period. If a call
option written by a Fund is exercised, the Fund will realize a gain or loss from
the sale of the underlying security equal to the difference between the cost of
the underlying security, and the proceeds of the sale of the security plus the
amount of the premium on the option, less the commission paid.
The market value of a call option generally reflects the market price
of an underlying security. Other principal factors affecting market value
include supply and demand, interest rates, the price volatility of the
underlying security and the time remaining until the expiration date.
Each Fund will write call options only on a covered basis, which means
that a 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, the Fund would be required to continue to hold a security which it
might otherwise wish to sell, or deliver a security it would want to hold.
Options written by a 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.
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<PAGE>
(SAI-DIF&TR\VGA-PART B)
Purchasing Put Options
Each Fund may invest in put options, provided that each of Decatur
Income Fund and Decatur Total Return Fund may invest no more than 2% of its
total assets in the purchase of put options. A Fund will, at all times during
which it holds a put option, own the security covered by such option.
Each Fund 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 Fund to protect an unrealized gain in an
appreciated security in its portfolio without actually selling the security. If
the security does not drop in value, the Fund will lose the value of the premium
paid. A 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 Fund may sell a put option purchased on individual portfolio
securities or stock indices. Additionally, a Fund may enter into closing sale
transactions. A closing sale transaction is one in which a 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.
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 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 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 or the New York Stock Exchange Composite Index, or a
narrower market index such as the Standard & Poor's 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.
-12-
<PAGE>
(SAI-DIF&TR\VGA-PART B)
The effectiveness of purchasing or writing stock index options as a
hedging technique will depend upon the extent to which price movements in a
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 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 Fund's portfolio will not duplicate
the components of an index, the correlation will not be exact. Consequently, a
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 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 Fund's ability to effectively hedge
its securities. A Fund will enter into an option position only if there appears
to be a liquid secondary market for such options.
The 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.
E. Futures Contracts and Options on Futures Contracts--As noted in the
Prospectuses, each Fund may enter into futures contracts relating to securities,
securities indices, interest rates or foreign currencies. (Unless otherwise
specified, interest rate futures contracts, securities and securities index
futures contracts and foreign currency futures contracts are collectively
referred to as "futures contracts.") Such investment strategies will be used as
a hedge and not for speculation.
As noted in the Prospectuses, each Fund may purchase and write options
on the types of futures contracts, described in the Prospectuses.
The writing of a call option on a futures contract constitutes a
partial hedge against declining prices of the securities in a Fund's portfolio.
If the futures price at expiration of the option is below the exercise price, a
Fund will retain the full amount of the option premium, which provides a partial
hedge against any decline that may have occurred in the Fund's portfolio
holdings. The writing of a put option on a futures contract constitutes a
partial hedge against increasing prices of the securities or other instruments
required to be delivered under the terms of the futures contract. If the futures
price at expiration of the put option is higher than the exercise price, a Fund
will retain the full amount of the option premium, which provides a partial
hedge against any increase in the price of securities which a Fund intends to
purchase. If a put or call option that a Fund has written is exercised, the Fund
will incur a loss which will be reduced by the amount of the premium it
receives. Depending on the degree of correlation between changes in the value of
its portfolio securities and changes in the value of its options on futures
positions, a Fund's losses from exercised options on futures may to some extent
be reduced or increased by changes in the value of portfolio securities.
-13-
<PAGE>
(SAI-DIF&TR\VGA-PART B)
A Fund may purchase options on futures contracts for hedging purposes
instead of purchasing or selling the underlying futures contracts. For example,
where a decrease in the value of portfolio securities is anticipated as a result
of a projected market-wide decline or changes in interest or exchange rates, a
Fund could, in lieu of selling futures contracts, purchase put options thereon.
In the event that such decrease occurs, it may be offset, in whole or part, by a
profit on the option. If the market decline does not occur, the Fund will suffer
a loss equal to the price of the put. Where it is projected that the value of
securities to be acquired by a Fund will increase prior to acquisition, due to a
market advance or changes in interest or exchange rates, the Fund could purchase
call options on futures contracts, rather than purchasing the underlying futures
contracts. If the market advances, the increased cost of securities to be
purchased may be offset by a profit on the call. However, if the market
declines, the Fund will suffer a loss equal to the price of the call, but the
securities which the Fund intends to purchase may be less expensive.
In addition, from time to time, Blue Chip Fund and Quantum Fund each
may engage in the following investment techniques:
A. Foreign and Emerging Market Securities--Each Fund has the ability to
purchase securities in any foreign country. Investors should consider carefully
the substantial risks involved in investing in securities issued by companies
and governments of foreign nations. These risks are in addition to the usual
risks inherent in domestic investments. There is the possibility of
expropriation, nationalization or confiscatory taxation, taxation of income
earned in foreign nations or other taxes imposed with respect to investments in
foreign nations, foreign exchange controls (which may include suspension of the
ability to transfer currency from a given country), default in foreign
government securities, political or social instability or diplomatic
developments which could affect investments in securities of issuers in those
nations.
In addition, in many countries, there is substantially less publicly
available information about issuers than is available in reports about companies
in the United States. Foreign companies are not subject to uniform accounting,
auditing and financial reporting standards, and auditing practices and
requirements may not be comparable to those applicable to United States
companies. Consequently, financial data about foreign companies may not
accurately reflect the real condition of those issuers and securities markets.
Further, a Fund may encounter difficulty or be unable to pursue legal
remedies and obtain judgments in foreign courts. Commission rates on securities
transactions in foreign countries, which are sometimes fixed rather than subject
to negotiation as in the United States, are likely to be higher. Further, the
settlement period of securities transactions in foreign markets may be longer
than in domestic markets, and may be subject to administrative uncertainties. In
many foreign countries, there is less government supervision and regulation of
business and industry practices, stock exchanges, brokers and listed companies
than in the United States, and capital requirements for brokerage firms are
generally lower. The foreign securities markets of many of the countries in
which a Fund may invest may also be smaller, less liquid and subject to greater
price volatility than those in the United States.
Each Fund may also invest in securities of issuers located in emerging
market nations. Compared to the United States and other developed countries,
emerging countries may have volatile social conditions, relatively unstable
governments and political systems, economies based on only a few industries and
economic structures that are less diverse and mature, and securities markets
that trade a small number of securities, which can result in a low or
nonexistent volume of trading. Prices in these securities markets tend to be
volatile and,
-14-
<PAGE>
(SAI-DIF&TR\VGA-PART B)
in the past, securities in these countries have offered greater potential for
gain (as well as loss) than securities of companies located in developed
countries. Until recently, there has been an absence of a capital market
structure or market-oriented economy in certain emerging countries. Further,
investments and opportunities for investments by foreign investors are subject
to a variety of national policies and restrictions in many emerging countries.
Also, the repatriation of both investment income and capital from several
foreign countries is restricted and controlled under certain regulations,
including, in some cases, the need for certain governmental consents. Countries
such as those in which a Fund may invest have historically experienced and may
continue to experience, substantial, and in some periods extremely high rates of
inflation for many years, high interest rates, exchange rate fluctuations or
currency depreciation, large amounts of external debt, balance of payments and
trade difficulties and extreme poverty and unemployment. Other factors which may
influence the ability or willingness to service debt include, but are not
limited to, a country's cash flow situation, the availability of sufficient
foreign exchange on the date a payment is due, the relative size of its debt
service burden to the economy as a whole, its government's policy towards the
International Monetary Fund, the World Bank and other international agencies and
the political constraints to which a government debtor may be subject.
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 Fund. Payment of
such interest equalization tax, if imposed, would reduce the 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 the 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 Fund may make or enter into will be subject to the
special currency rules described above.
-15-
<PAGE>
(SAI-DIF&TR\VGA-PART B)
B. Foreign Currency Transactions--Although each Fund values its assets
daily in terms of U.S. dollars, they do not intend to convert holdings of
foreign currencies into U.S. dollars on a daily basis. Each Fund will, however,
from time to time, purchase or sell foreign currencies and/or engage in forward
foreign currency transactions in order to expedite settlement of portfolio
transactions and to minimize currency value fluctuations. A Fund may conduct its
foreign currency exchange transactions on a spot (i.e., cash) basis at the spot
rate prevailing in the foreign currency exchange market or through entering into
contracts to purchase or sell foreign currencies at a future date (i.e., a
"forward foreign currency" contract or "forward" contract). A forward contract
involves an obligation to purchase or sell a specific currency at a future date,
which may be any fixed number of days from the date of the contract, agreed upon
by the parties, at a price set at the time of the contract. The Fund will
convert currency on a spot basis from time to time, and investors should be
aware of the costs of currency conversion.
A Fund may enter into forward contracts to "lock in" the price of a
security it has agreed to purchase or sell, in terms of U.S. dollars or other
currencies in which the transaction will be consummated. By entering into a
forward contract for the purchase or sale, for a fixed amount of U.S. dollars or
foreign currency, of the amount of foreign currency involved in the underlying
security transaction, the Fund will be able to protect itself against a possible
loss resulting from an adverse change in currency exchange rates during the
period between the date the security is purchased or sold and the date on which
payment is made or received.
When the Sub-Adviser believes that the currency of a particular country
may suffer a significant decline against the U.S. dollar or against another
currency, a Fund may enter into a forward foreign currency 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 the Fund's securities
denominated in such foreign currency.
A Fund will not enter into forward contracts or maintain a net exposure
to such contracts where the consummation of the contracts would obligate the
Fund to deliver an amount of foreign currency in excess of the value of the
Fund's securities or other assets denominated in that currency.
At the maturity of a forward contract, a Fund may either sell the
portfolio security and make delivery of the foreign currency, or it may retain
the security and terminate its contractual obligation to deliver the foreign
currency by purchasing an "offsetting" contract with the same currency trader
obligating it to purchase, on the same maturity date, the same amount of the
foreign currency. The Fund may realize a gain or loss from currency
transactions. With respect to forward foreign currency contracts, the precise
matching of forward contract amounts and the value of the securities involved is
generally not possible since the future value of such securities in foreign
currencies will change as a consequence of market movements in the value of
those securities between the date the forward contract is entered into and the
date it matures. The projection of short-term currency strategy is highly
uncertain.
It is impossible to forecast the market value of Fund securities at the
expiration of the contract. Accordingly, it may be necessary for a Fund to
purchase additional foreign currency on the spot market (and bear the expense of
such purchase) if the market value of the security is less than the amount of
foreign currency the Fund is obligated to deliver and if a decision is made to
sell the security and make delivery of the foreign currency. Conversely, it may
be necessary to sell on the spot market some of the foreign currency received
upon the sale of a security if its market value exceeds the amount of foreign
currency the Fund is obligated to deliver.
-16-
<PAGE>
(SAI-DIF&TR\VGA-PART B)
C. Investment Company Securities--Any investments that a Fund makes 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 Fund may not (1) own more than 3% of the voting
stock of another investment company; (2) invest more than 5% of the Fund's total
assets in the shares of any one investment company; nor (3) invest more than 10%
of the Fund's total assets in shares of other investment companies. If a 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 the Fund's investments in
unregistered investment companies.
D. Unseasoned Companies--Each Fund 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 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 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.
In addition, as a matter of non-fundamental policy, the Quantum Fund
will adhere to a Social Criteria strategy:
The Sub-Adviser will utilize the Social Investment Database published
by KLD in determining whether a company is engaged in any activity precluded by
the Fund's Social Criteria. The Social Investment Database reflects KLD's
determination of the extent to which a company's involvement in the activities
prohibited by the Social Criteria is significant enough to merit a concern or a
major concern. Significance may be determined on the basis of percentage of
revenue generated by, or the size of the operations attributable to, activities
related to such Social Criteria, or other factors selected by KLD. The social
screening undergoes continual refinement and modification.
Pursuant to the Social Criteria presently in effect, the Fund will not
knowingly invest in or hold securities of companies which engage in:
1. Activities which result or are likely to result in damage to
the natural environment;
2. The production of nuclear power, the design or construction of
nuclear power plants, or the manufacture or equipment for the
production of nuclear power;
3. The manufacture of, or contracting for, military weapons; or
4. The liquor, tobacco or gambling industries.
-17-
<PAGE>
(SAI-DIF&TR\VGA-PART B)
Because of its Social Criteria, the Fund may not be able to take the
same advantage of certain investment opportunities as do funds which do not have
Social Criteria. Only securities of companies not excluded by any of the Social
Criteria will be eligible for consideration for purchase by the Fund according
to its objective and policies described in the Prospectus.
The Fund will commence the orderly sale of securities of a company when
it is determined by the Sub- Adviser that such company no longer adheres to the
Social Criteria. The Fund will sell such securities in a manner so as to
minimize any adverse affect on the Fund's assets. Typically, such sales will be
made within 90 days from the date of the Sub-Adviser's determination, unless a
sale within the 90 day period would produce a significant loss to the overall
value of the Fund's assets.
-18-
<PAGE>
(SAI-DIF&TR\VGA-PART B)
ACCOUNTING AND TAX ISSUES
When a Fund writes a call option, an amount equal to the premium
received by it is included in the section of the Fund's assets and liabilities
as an asset and as an equivalent liability. The amount of the liability is
subsequently "marked to market" to reflect the current market value of the
option written. The current market value of a written option is the last sale
price on the principal Exchange on which such option is traded or, in the
absence of a sale, the mean between the last bid and asked prices. If an option
which 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.
Other Tax Requirements--Decatur Income Fund and Decatur Total Return
Fund have qualified, and intend to continue to qualify, and Blue Chip Fund and
Quantum Fund intend to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). Each
Fund must meet several requirements to maintain its status as a regulated
investment company. Among these requirements are that at least 90% of its
investment company taxable income be derived from dividends, interest, payment
with respect to securities loans and gains from the sale or disposition of
securities; that at the close of each quarter of its taxable year at least 50%
of the value of its assets consists of cash and cash items, government
securities, securities of other regulated investment companies and, subject to
certain diversification requirements, other securities; and that less than 30%
of its gross income be derived from sales of securities held for less than three
months.
The requirement that not more than 30% of a Fund's gross income be
derived from gains from the sale or other disposition of securities held for
less than three months may restrict the Fund in its ability to write covered
call options on securities which it has held less than three months, to write
options which expire in less than three months, to sell securities which have
been held less than three months and to effect closing purchase transactions
with respect to options which have been written less than three months prior to
such transactions. Consequently, in order to avoid realizing a gain within the
three-month period, a Fund may be required to defer the closing out of a
contract beyond the time when it might otherwise be advantageous to do so.
The straddle rules of Section 1092 may apply. Generally, the straddle
provisions require the deferral of losses to the extent of unrecognized gains
related to the offsetting positions in the straddle. Excess losses, if any, can
be recognized in the year of loss. Deferred losses will be carried forward and
recognized in the following year, subject to the same limitation.
-19-
<PAGE>
(SAI-DIF&TR\VGA-PART B)
PERFORMANCE INFORMATION
From time to time, each Fund may state each of its Classes' total
return in advertisements and other types of literature. Any statement of total
return performance data for a Class will be accompanied by information on the
average annual compounded rate of return for that Class over, as relevant, the
most recent one-, five- and ten-year (or life-of-fund, if applicable) periods.
Each Fund may also advertise aggregate and average total return information for
its Classes over additional periods of time.
The average annual total rate of return for each Class is based on a
hypothetical $1,000 investment that includes capital appreciation and
depreciation during the stated periods. The following formula will be used for
the actual computations:
n
P(1 + T) = ERV
Where: P = a hypothetical initial purchase order of
$1,000 from which, in the case of only
Class A Shares, the maximum front-end
sales charge is deducted;
T = average annual total return;
n = number of years; and
ERV = redeemable value of the hypothetical
$1,000 purchase at the end of the period
after the deduction of the applicable CDSC,
if any, with respect to Class B Shares and
Class C Shares.
In presenting performance information for Class A Shares, the Limited
CDSC applicable to only certain redemptions of those shares will not be deducted
from any computation of total return. See the Prospectuses for the Fund Classes
for a description of the Limited CDSC and the limited instances in which it
applies. All references to a CDSC in this Performance Information section will
apply to Class B Shares or Class C Shares of the Funds.
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 the 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.
The performance of Class A Shares, Class B Shares, Class C Shares and
the Institutional Class of Decatur Income Fund and Decatur Total Return Fund, as
shown below, is the average annual total return quotations through November 30,
1995, computed as described above.
-20-
<PAGE>
(SAI-DIF&TR\VGA-PART B)
The average annual total return for Class A Shares at offer reflects
the maximum front-end sales charge of 4.75% paid on the purchase of shares. The
average annual total return for Class A Shares at net asset value (NAV) does not
reflect the payment of any front-end sales charge. Pursuant to applicable
regulation, total return shown for the Institutional Classes for the periods
prior to the commencement of operations of such Classes is calculated by taking
the performance of the respective Class A Shares and adjusting it to reflect the
elimination of all sales charges. However, for those periods, no adjustment has
been made to eliminate the impact of 12b-1 payments by Decatur Total Return
Fund, and performance for Decatur Total Return Fund Institutional Class would
have been affected had such an adjustment been made.
The average annual total return for Class B Shares and Class C Shares
including deferred sales charge reflects the deduction of the applicable CDSC
that would be paid if the shares were redeemed at November 30, 1996. The average
annual total return for Class B Shares and Class C Shares excluding deferred
sales charge assumes the shares were not redeemed at November 30, 1996 and
therefore does not reflect the deduction of a CDSC.
Securities prices fluctuated during the periods covered and past
results should not be considered as representative of future performance.
<TABLE>
<CAPTION>
Average Annual Total Return
Decatur Income Fund
Class A
Shares(1)(2)(3) Class A Shares Institutional
(at Offer) (at NAV)(3) Class(4)
<S> <C> <C> <C>
1 year ended 11/30/96 00.00% 00.00% 00.00%
3 years ended 11/30/96 00.00% 00.00% 00.00%
5 years ended 11/30/96 00.00% 00.00% 00.00%
10 years ended 11/30/96 00.00% 00.00% 00.00%
15 years ended 11/30/96 00.00% 00.00% 00.00%
3/18/57(5) through 11/30/96 00.00% 00.00% 00.00%
</TABLE>
(1) On May 2, 1994, the maximum front-end sales charge was reduced from
8.50% to 5.75%.
(2) Effective November 29, 1995, the maximum front-end sales charge was
reduced from 5.75% to 4.75%. The above performance numbers are
calculated using 4.75% as the applicable sales charge for all time
periods, and are more favorable than they would have been had they been
calculated using the former front-end sales charges.
(3) Performance figures reflect the applicable Rule 12b-1 distribution
expenses that apply on and after May 2, 1994.
(4) Date of initial public offering was January 13, 1994.
(5) Date of initial public offering of Class A Shares.
-21-
<PAGE>
(SAI-DIF&TR\VGA-PART B)
<TABLE>
<CAPTION>
Average Annual Total Return
Decatur Income Fund
Class B Shares Class B Shares Class C Shares Class C Shares
(Including (Excluding (Including (Excluding
Deferred Deferred Deferred Deferred
Sales Charge) Sales Charge) Sales Charge) Sales Charge)
<S> <C> <C> <C> <C> <C>
1 year ended 1 year ended
11/30/96 00.00% 00.00% 11/30/96(2) 00.00% 00.00%
Period
9/6/94(1)
through
11/30/96 00.00% 00.00%
</TABLE>
(1) Date of initial public offering.
(2) Date of initial public offering was November 29, 1995.
<TABLE>
<CAPTION>
Average Annual Total Return
Decatur Total Return Fund
Class A Shares Class A Shares Institutional
(at Offer)(1) (at NAV) Class(2)
<S> <C> <C> <C>
1 year ended 11/30/96 00.00% 00.00% 00.00%
3 years ended 11/30/96 00.00% 00.00% 00.00%
5 years ended 11/30/96 00.00% 00.00% 00.00%
10 years ended 11/30/96 00.00% 00.00% 00.00%
Period 8/27/86(3)
through 11/30/96 00.00% 00.00% 00.00%
</TABLE>
(1) Effective November 29, 1995, the maximum front-end sales charge was
reduced from 5.75% to 4.75%. The above performance numbers are
calculated using 4.75% as the applicable sales charge for all time
periods, and are more favorable than they would have been had they been
calculated using the former front-end sales charges.
(2) Date of initial public offering was July 26, 1993.
(3) Date of initial public offering of Class A Shares.
-22-
<PAGE>
(SAI-DIF&TR\VGA-PART B)
<TABLE>
<CAPTION>
Average Annual Total Return
Decatur Total Return Fund
Class B Shares Class B Shares Class C Shares Class C Shares
(Including (Excluding (Including (Excluding
Deferred Deferred Deferred Deferred
Sales Charge) Sales Charge) Sales Charge) Sales Charge)
<S> <C> <C> <C> <C> <C>
1 year ended 1 year ended
11/30/96 00.00% 00.00% 11/30/96(2) 00.00% 00.00%
Period
9/6/94(1)
through
11/30/96 00.00% 00.00%
</TABLE>
(1) Date of initial public offering.
(2) Date of initial public offering was November 29, 1995.
Total return information regarding the Blue Chip Fund and Quantum Fund
is not shown because such shares were not offered to be public until the date of
this Part B.
As stated in the Funds' Prospectuses, Decatur Income Fund and Decatur
Total Return Fund may also quote their respective Classes' current yield in
advertisements and investor communications.
The yield computation is determined by dividing the net investment
income per share earned during the period by the maximum offering price per
share on the last day of the period and annualizing the resulting figure,
according to the following formula:
a--b 6
YIELD = 2[(-------- + 1) -- 1]
cd
Where: a = dividends and interest earned during the period;
b = expenses accrued for the period (net of
reimbursements);
c = the average daily number of shares outstanding
during the period that were entitled to receive
dividends;
d = the maximum offering price per share on the last
day of the period.
-23-
<PAGE>
(SAI-DIF&TR\VGA-PART B)
The above formula will be used in calculating quotations of yield of
each Class, based on specified 30-day periods identified in advertising by the
Funds. The yields of each Class of Decatur Income Fund and Decatur Total Return
Fund as of November 30, 1996 were as follows:
Decatur Income Fund Decatur Total Return Fund
Class A Shares 0.00% 0.00%
Class B Shares 0.00% 0.00%
Class C Shares 0.00% 0.00%
Institutional Class Shares 0.00% 0.00%
Yield calculations assume the maximum front-end sales charge, if any,
and do not reflect the deduction of any contingent deferred sales charge. Actual
yield on Class A Shares may be affected by variations in front-end sales charges
on investments. Information regarding the performance of each Class of Blue Chip
Fund and Quantum Fund is not shown because such shares were not offered to the
public until the date of this Part B.
Past performance, such as reflected in quoted yields, should not be
considered as a representation of the results which may be realized from an
investment in any class of the Funds in the future. Investors should note that
the income earned and dividends paid by each Fund will vary with the fluctuation
of interest rates and performance of the portfolio.
Decatur's investment strategy relies on the consistency, reliability
and predictability of corporate dividends. Dividends tend to rise over time,
despite market conditions, and keep pace with rising prices; they are paid out
in "current" dollars. And, just as important, current dividend income can help
lessen the effects of adverse market conditions. Decatur's dividend discipline,
coupled with the potential for capital gains, seeks to provide investors with a
consistently higher total-rate-of-return over time.
In 1972, Delaware Investment Advisers, a division of the Manager,
offered Decatur's time-proven investment style to the institutional investing
community. As of December 31, 1996, Delaware Investment Advisers managed
approximately $00 billion in institutional assets under management in that
style.
From time to time, each Fund may also quote its Classes' actual total
return performance, dividend results and other performance information in
advertising and other types of literature and may compare that information to,
or may separately illustrate similar information reported by, the Standard &
Poor's 500 Stock Index and the Dow Jones Industrial Average and other unmanaged
indices.
-24-
<PAGE>
(SAI-DIF&TR\VGA-PART B)
The Standard & Poor's 500 Stock Index and the Dow Jones Industrial
Average are industry-accepted unmanaged indices of stocks which are
representative of and used to measure broad stock market performance. 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. In seeking a
particular investment objective, a Fund's portfolio may include common stocks
considered by the Manager to be more aggressive than those tracked by these
indices.
The 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 not reflect any income taxes
payable by shareholders on the reinvested distributions included in the
calculation. Because securities prices fluctuate, past performance should not be
considered as a representation of the results which may be realized from an
investment in either Fund in the future.
From time to time, each Fund may also quote actual total return
performance for its Classes in advertising and other types of literature
compared to indices or averages of alternative financial products available to
prospective investors. For example, the performance comparisons may include the
average return of various bank instruments, some of which may carry certain
return guarantees offered by leading banks and thrifts as monitored by Bank Rate
Monitor, and those of generally-accepted corporate bond and government security
price indices of various durations prepared by Lehman Brothers and Salomon
Brothers, Inc. These indices are not managed for any investment goal.
Comparative information on the Consumer Price Index may also be
included. The Consumer Price Index, as prepared by the U.S. Bureau of Labor
Statistics, is the most commonly used measure of inflation. It indicates the
cost fluctuations of a representative group of consumer goods. It does not
represent a return from an investment.
Statistical and performance information and various indices compiled
and maintained by organizations such as the following may also be used in
preparing exhibits comparing certain industry trends and competitive mutual fund
performance to comparable Fund activity and performance and in illustrating
general financial planning principles. From time to time, certain mutual fund
performance ranking information, calculated and provided by these organizations,
may also be used in the promotion of sales of a Fund. Any indices used are not
managed for any investment goal.
CDA Technologies, Inc., Lipper Analytical Services, Inc. and
Morningstar, Inc. are performance evaluation services that maintain
statistical performance databases, as reported by a diverse universe of
independently-managed mutual funds.
Ibbotson Associates, Inc. is a consulting firm that provides a variety
of historical data including total return, capital appreciation and
income on the stock market as well as other investment asset classes,
and inflation. With their permission, this information will be used
primarily for comparative purposes and to illustrate general financial
planning principles.
-25-
<PAGE>
(SAI-DIF&TR\VGA-PART B)
Interactive Data Corporation is a statistical access service that
maintains a database of various international industry indicators, such
as historical and current price/earning information, individual equity
and fixed-income price and return information.
Compustat Industrial Databases, a service of Standard & Poor's, may
also be used in preparing performance and historical stock and bond
market exhibits. This firm maintains fundamental databases that provide
financial, statistical and market information covering more than 7,000
industrial and non-industrial companies.
Russell Indexes is an investment analysis service that provides both
current and historical stock performance information, focusing on the
business fundamentals of those firms issuing the security.
Salomon Brothers and Lehman Brothers are statistical research firms
that maintain databases of international market, bond market, corporate
and government-issued securities of various maturities. This
information, as well as unmanaged indices compiled and maintained by
these firms, will be used in preparing comparative illustrations. In
addition, the performance of multiple indices compiled and maintained
by these firms may be combined to create a blended performance result
for comparative purposes. Generally, the indices selected will be
representative of the types of securities in which the Funds may invest
and the assumptions that were used in calculating the blended
performance will be described.
The following tables are examples, for purposes of illustration only,
of cumulative total return performance for the Class A Shares, Class B Shares,
Class C Shares and the Institutional Classes of Decatur Income Fund and Decatur
Total Return Fund through November 30, 1996. Pursuant to applicable regulation,
total return shown for the Institutional Classes for the periods prior to the
commencement of operations of such Classes is calculated by taking the
performance of the respective Class A Shares and adjusting it to reflect the
elimination of all sales charges. However, for those periods, no adjustment has
been made to eliminate the impact of 12b-1 payments by Decatur Total Return
Fund, and performance for Decatur Total Return Fund Institutional Class would
have been affected had such an adjustment been made. For these purposes, the
calculations assume the reinvestment of any realized securities profits
distributions and income dividends paid during the indicated periods.
Comparative information on the Standard & Poor's 500 Stock Index and the Dow
Jones Industrial Average is also included.
-26-
<PAGE>
(SAI-DIF&TR\VGA-PART B)
<TABLE>
<CAPTION>
Cumulative Total Return
Decatur Income Fund
Class A
Shares(1)(2)(3) Institutional Standard & Dow Jones
(at Offer) Class(4) Poor's 500(5) Industrial(5)
<S> <C> <C> <C> <C>
3 months ended 11/30/96 00.00% 00.00% 00.00% 00.00%
6 months ended 11/30/96 00.00%(6) 00.00% 00.00% 00.00%
9 months ended 11/30/96 00.00% 00.00% 00.00% 00.00%
1 year ended 11/30/96 00.00% 00.00% 00.00% 00.00%
3 years ended 11/30/96 00.00% 00.00% 00.00% 00.00%
5 years ended 11/30/96 00.00% 00.00% 00.00% 00.00%
10 years ended 11/30/96 00.00% 00.00% 00.00% 00.00%
15 years ended 11/30/96 00.00% 00.00% 00.00% 00.00%
3/18/57(7) through 11/30/96 00.00% 00.00% 00.00% 00.00%
</TABLE>
(1) On May 2, 1994, the maximum front-end sales charge was reduced from
8.50% to 5.75%.
(2) Effective November 29, 1995, the maximum front-end sales charge was
reduced to 4.75% from 5.75%. The above performance figures are
calculated using 4.75% as the applicable sales charge for all periods,
and are more favorable than they would have been had they been
calculated using the former sales charges.
(3) Performance figures for periods after May 1, 1994 reflect applicable
Rule 12b-1 distribution expenses. Future performance will be affected
by such expenses.
(4) Date of initial public offering was January 13, 1994.
(5) Source: Interactive Data Corp.
(6) For the six months ended November 30, 1996, cumulative total return at
net asset value for Decatur Income Fund A Class was 0.00%.
(7) Date of initial public offering of Class A Shares.
-27-
<PAGE>
(SAI-DIF&TR\VGA-PART B)
<TABLE>
<CAPTION>
Cumulative Total Return
Decatur Income Fund
Class B Shares Class B Shares
(Including (Excluding
Deferred Deferred Standard & Dow Jones
Sales Charge) Sales Charge) Poor's 500(1) Industrial(1)
<C> <C> <C> <C> <C>
3 months ended 11/30/96 00.00% 00.00% 00.00% 00.00%
6 months ended 11/30/96 00.00% 00.00% 00.00% 00.00%
9 months ended 11/30/96 00.00% 00.00% 00.00% 00.00%
1 year ended 11/30/96 00.00% 00.00% 00.00% 00.00%
Period 9/6/94(2)
through 11/30/96 00.00% 00.00% 00.00% 00.00%
</TABLE>
(1) Source: Interactive Data Corp.
(2) Date of initial public offering.
<TABLE>
<CAPTION>
Cumulative Total Return
Decatur Income Fund
Class C Shares Class C Shares
(Including (Excluding
Deferred Deferred Standard & Dow Jones
Sales Charge) Sales Charge) Poor's 500(1) Industrial(1)
<C> <C> <C> <C> <C>
3 months ended 11/30/96 00.00% 00.00% 00.00% 00.00%
6 months ended 11/30/96 00.00% 00.00% 00.00% 00.00%
9 months ended 11/30/96 00.00% 00.00% 00.00% 00.00%
1 year ended 11/30/96(2) 00.00% 00.00% 00.00% 00.00%
</TABLE>
(1) Source: Interactive Data Corp.
(2) Date of initial public offering was November 29, 1995.
-28-
<PAGE>
(SAI-DIF&TR\VGA-PART B)
<TABLE>
<CAPTION>
Cumulative Total Return
Decatur Total Return Fund
Class A Shares Institutional Standard & Dow Jones
(at Offer)(1) Class(2) Poor's 500(3) Industrial(3)
<S> <C> <C> <C> <C>
3 months ended 11/30/96 00.00% 00.00% 00.00% 00.00%
6 months ended 11/30/96 00.00%(4) 00.00% 00.00% 00.00%
9 months ended 11/30/96 00.00% 00.00% 00.00% 00.00%
1 year ended 11/30/96 00.00% 00.00% 00.00% 00.00%
3 years ended 11/30/96 00.00% 00.00% 00.00% 00.00%
5 years ended 11/30/96 00.00% 00.00% 00.00% 00.00%
10 years ended 11/30/96 00.00% 00.00% 00.00% 00.00%
Period 8/27/86(5)
through 11/30/96 00.00% 00.00% 00.00% 00.00%
</TABLE>
(1) Effective November 29, 1995, the maximum front-end sales charge was
reduced to 4.75% from 5.75%. The above performance figures are
calculated using 4.75% as the applicable sales charge for all periods,
and are more favorable than they would have been had they been
calculated using the former sales charges.
(2) Date of initial public offering was July 26, 1993.
(3) Source: Interactive Data Corp.
(4) For the six months ended November 30, 1996, cumulative total return at
net asset value for Decatur Total Return Fund A Class was 0.00%.
(5) Date of initial public offering of Class A Shares.
<TABLE>
<CAPTION>
Cumulative Total Return
Decatur Total Return Fund
Class B Shares Class B Shares
(Including (Excluding
Deferred Deferred Standard & Dow Jones
Sales Charge) Sales Charge) Poor's 500(1) Industrial(1)
<S> <C> <C> <C> <C>
3 months ended 11/30/96 00.00% 00.00% 00.00% 00.00%
6 months ended 11/30/96 00.00% 00.00% 00.00% 00.00%
9 months ended 11/30/96 00.00% 00.00% 00.00% 00.00%
1 year ended 11/30/96 00.00% 00.00% 00.00% 00.00%
Period 9/6/94(2)
through 11/30/96 00.00% 00.00% 00.00% 00.00%
</TABLE>
(1) Source: Interactive Data Corp.
(2) Date of initial public offering of Class B Shares.
-29-
<PAGE>
(SAI-DIF&TR\VGA-PART B)
<TABLE>
<CAPTION>
Cumulative Total Return
Decatur Total Return Fund
Class C Shares Class C Shares
(Including (Excluding
Deferred Deferred Standard & Dow Jones
Sales Charge) Sales Charge) Poor's 500(1) Industrial(1)
<C> <C> <C> <C> <C>
3 months ended 11/30/96 00.00% 00.00% 00.00% 00.00%
6 months ended 11/30/96 00.00% 00.00% 00.00% 00.00%
9 months ended 11/30/96 00.00% 00.00% 00.00% 00.00%
1 year ended 11/30/96(2) 00.00% 00.00% 00.00% 00.00%
</TABLE>
(1) Source: Interactive Data Corp.
(2) Date of initial public offering was November 29, 1995.
See Appendix C for additional performance information of Decatur Income
Fund.
Because every investor's goals and risk threshold are different, the
Distributor, as distributor for the Funds and other mutual funds in the Delaware
Group, will provide general information about investment alternatives and
scenarios that will allow investors to assess their personal goals. This
information will include general material about investing as well as materials
reinforcing various industry-accepted principles of prudent and responsible
personal financial planning. One typical way of addressing these issues is to
compare an individual's goals and the length of time the individual has to
attain these goals to his or her risk threshold. In addition, the Distributor
will provide information that discusses the Manager's overriding investment
philosophy and how that philosophy impacts a Fund's, and other Delaware Group
funds', investment disciplines employed in seeking their objectives. The
Distributor may also from time to time cite general or specific information
about the institutional clients of the Manager, including the number of such
clients serviced by the Manager.
-30-
<PAGE>
(SAI-DIF&TR\VGA-PART B)
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 and the following chart illustrates just how powerful
it can be.
COMPOUNDED RETURNS
Results at various assumed fixed rates of return on a $10,000
investment compounded monthly for 10 years:
<TABLE>
<CAPTION>
9% Rate 11% Rate 13% Rate
of Return of Return of Return
<S> <C> <C> <C>
1 year $10,938 $11,157 $11,380
2 years $11,964 $12,448 $12,951
3 years $13,086 $13,889 $14,739
4 years $14,314 $15,496 $16,773
5 years $15,657 $17,289 $19,089
6 years $17,126 $19,290 $21,723
7 years $18,732 $21,522 $24,722
8 years $20,489 $24,013 $28,134
9 years $22,411 $26,791 $32,018
10 years $24,514 $29,892 $36,437
</TABLE>
Results at various assumed fixed rates of return on a $10,000
investment compounded quarterly for 10 years:
<TABLE>
<CAPTION>
8% Rate 10% Rate 12% Rate 14% Rate
of Return of Return of Return of Return
<S> <C> <C> <C>
1 year $10,824 $11,038 $11,255 $11,475
2 years $11,717 $12,184 $12,668 $13,168
3 years $12,682 $13,449 $14,258 $15,111
4 years $13,728 $14,845 $16,047 $17,340
5 years $14,859 $16,386 $18,061 $19,898
6 years $16,084 $18,087 $20,328 $22,833
7 years $17,410 $19,965 $22,879 $26,202
8 years $18,845 $22,038 $25,751 $30,067
9 years $20,399 $24,325 $28,983 $34,503
10 years $22,080 $26,851 $32,620 $39,593
</TABLE>
These figures are calculated assuming a fixed constant investment
return and assume no fluctuation in the value of principal. These figures, which
do not reflect payment of applicable taxes, are not intended to be a projection
of investment results and do not reflect the actual performance results of any
of the Classes.
-31-
<PAGE>
(SAI-DIF&TR\VGA-PART B)
TRADING PRACTICES AND BROKERAGE
Equity Funds II, Inc. selects brokers or dealers to execute
transactions on behalf of a Fund 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 brokers or dealers
execute transactions at best price and execution. Best price and execution
refers to many factors, including the price paid or received for a security, the
commission charged, the promptness and reliability of execution, the
confidentiality and placement accorded the order and other factors affecting the
overall benefit obtained by the account on the transaction. Some trades are made
on a net basis where a Fund either buys securities directly from the dealer or
sells them to the dealer. In these instances, there is no direct commission
charged but there is a spread (the difference between the buy and sell price)
which is the equivalent of a commission. When a commission is paid, the Fund
involved pays reasonably competitive brokerage commission rates based upon the
professional knowledge of its trading department as to rates paid and charged
for similar transactions throughout the securities industry. In some instances,
the Fund pays a minimal share transaction cost when the transaction presents no
difficulty.
During the fiscal years ended November 30, 1994, 1995 and 1996, the
aggregate dollar amounts of brokerage commissions paid by the Decatur Income
Fund were $3,843,614, $3,039,414 and $0,000,000, respectively. During the same
periods, the aggregate dollar amounts of brokerage commissions paid by the
Decatur Total Return Fund were $895,815, $1,150,026 and $0,000,000,
respectively.
The Manager may allocate out of all commission business generated by
all of the funds and accounts under its management, brokerage business to
brokers or dealers who provide brokerage and research services. These services
include advice, either directly or through publications or writings, as to the
value of securities, the advisability of investing in, purchasing or selling
securities, and the availability of securities or purchasers or sellers of
securities; furnishing of analyses and reports concerning issuers, securities or
industries; providing information on economic factors and trends; assisting in
determining portfolio strategy; providing computer software and hardware used in
security analyses; and providing portfolio performance evaluation and technical
market analyses. Such services are used by the Manager in connection with its
investment decision-making process with respect to one or more funds and
accounts managed by it, and may not be used, or used exclusively, with respect
to the fund or account generating the brokerage.
During the fiscal year ended November 30, 1996, portfolio transactions
of Decatur Income Fund and Decatur Total Return Fund in the amounts of
$000,000,000 and $000,000,000, respectively, resulting in brokerage commissions
of $000,000 and $000,000, respectively, were directed to brokers for brokerage
and research services provided.
As provided in the Securities Exchange Act of 1934 and the Funds'
Investment Management Agreements, 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
-32-
<PAGE>
(SAI-DIF&TR\VGA-PART B)
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 Group. Subject to best price and execution, commissions allocated to
brokers providing such pricing services may or may not be generated by the funds
receiving the pricing service.
The Manager may place a combined order for two or more accounts or
funds engaged in the purchase or sale of the same security if, in its judgment,
joint execution is in the best interest of each participant and will result in
best price and execution. Transactions involving commingled orders are allocated
in a manner deemed equitable to each account or fund. When a combined order is
executed in a series of transactions at different prices, each account
participating in the order may be allocated an average price obtained from the
executing broker. It is believed that the ability of the accounts to participate
in volume transactions will generally be beneficial to the accounts and funds.
Although it is recognized that, in some cases, the joint execution of orders
could adversely affect the price or volume of the security that a particular
account or fund may obtain, it is the opinion of the Manager and Equity Funds
II, Inc.'s Board of Directors that the advantages of combined orders outweigh
the possible disadvantages of separate transactions.
Consistent with the Rules of Fair Practice of the National Association
of Securities Dealers, Inc. (the "NASD"), and subject to seeking best price and
execution, the Funds may place orders with broker/dealers that have agreed to
defray certain Fund expenses such as custodian fees, and may, at the request of
the Distributor, give consideration to sales of shares of a Fund as a factor in
the selection of brokers and dealers to execute Fund portfolio transactions.
Portfolio Turnover
Portfolio trading will be undertaken principally to accomplish a Fund's
objective in relation to anticipated movements in the general level of interest
rates. The Funds are free to dispose of portfolio securities at any time,
subject to complying with the Code and the Investment Company Act of 1940, when
changes in circumstances or conditions make such a move desirable in light of
the investment objective. The Funds will not attempt to achieve or be limited to
a predetermined rate of portfolio turnover, such a turnover always being
incidental to transactions undertaken with a view to achieving a Fund's
investment objective.
The degree of portfolio activity may affect brokerage costs of a Fund
and taxes payable by Fund shareholders to the extent of any net realized capital
gains. Each Fund's portfolio turnover rate is not expected to exceed 100%;
however, under certain market conditions a Fund may experience a high rate of
portfolio turnover which could exceed 100%. Each Fund's portfolio turnover rate
is calculated by dividing the lesser of purchases or sales of portfolio
securities for the particular fiscal year by the monthly average of the value of
the portfolio securities owned by such Fund during the particular fiscal year,
exclusive of securities whose maturities at the time of acquisition are one year
or less. A turnover rate of 100% would occur, for example, if all the
investments in a Fund's portfolio at the beginning of the year were replaced by
the end of the year.
-33-
<PAGE>
(SAI-DIF&TR\VGA-PART B)
During the fiscal years ended November 30, 1995 and 1996, Decatur
Income Fund's portfolio turnover rates were 74% and 00%, respectively, and
Decatur Total Return Fund's portfolio turnover rates were 81% and 00%,
respectively.
Each Fund may hold securities for any period of time. A Fund's
portfolio turnover will be increased if the Fund writes a large number of call
options which are subsequently exercised. The portfolio turnover rate also may
be affected by cash requirements from redemptions and repurchases of Fund
shares. Total brokerage costs generally increase with higher portfolio turnover
rates.
-34-
<PAGE>
(SAI-DIF&TR\VGA-PART B)
PURCHASING SHARES
The Distributor serves as the national distributor for each Fund's
classes of shares - Class A Shares, Class B Shares, Class C Shares and the
Institutional Class - and has agreed to use its best efforts to sell shares of
each Fund. See the Prospectuses for additional 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 Equity Funds II,
Inc. or the Distributor.
The minimum initial investment generally is $1,000 for Class A Shares,
Class B Shares and Class C Shares. Subsequent purchases generally must be at
least $100. The initial and subsequent minimum investments for Class A Shares
will be waived for purchases by officers, directors and employees of any
Delaware Group fund, the Manager or the Sub-Adviser or any of the their
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 Group 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
Funds' 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 limitations
applicable to retirement plans. Equity Funds II, Inc. will reject any purchase
order for more than $250,000 of Class B Shares and $1,000,000 or more of Class C
Shares. An investor may exceed these limitations by making cumulative purchases
over a period of time. An investor should keep in mind, however, that reduced
front-end sales charges apply to investments of $100,000 or more in Class A
Shares, and that Class A Shares are subject to lower annual 12b-1 Plan expenses
than Class B Shares and Class C Shares and generally are not subject to a CDSC.
Selling dealers have the responsibility of transmitting orders
promptly. Equity Funds II, Inc. reserves the right to reject any order for the
purchase of shares of either Fund if in the opinion of management such rejection
is in such Fund's best interests.
The NASD has adopted Rules of Fair Practice relating to investment
company sales charges. Equity Funds II, Inc. and the Distributor intend to
operate in compliance with these rules.
Class A Shares are purchased at the offering price which reflects a
maximum front-end sales charge of 4.75%; however, lower front-end sales charges
apply for larger purchases. See the table below. Class A Shares are also subject
to annual 12b-1 Plan expenses.
-35-
<PAGE>
(SAI-DIF&TR\VGA-PART B)
Class B Shares are purchased at net asset value and are subject to a
CDSC of: (i) 4% if shares are redeemed within two years of purchase; (ii) 3% if
shares are redeemed during the third or fourth year following purchase; (iii) 2%
if shares are redeemed during the fifth year following purchase; and (iv) 1% if
shares are redeemed during the sixth year following purchase. Class B Shares are
also subject to annual 12b-1 Plan expenses which, absent any applicable fee
waiver, are higher than those to which Class A Shares are subject and are
assessed against the Class B Shares for approximately eight years after
purchase. See Automatic Conversion of Class B Shares under Classes of Shares in
the Fund Classes' Prospectuses.
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. See Determining Offering Price and Net Asset Value and
Plans Under Rule 12b-1 for the Fund Classes in this Part B.
Class A Shares, Class B Shares, Class C Shares and Institutional Class
shares represent a proportionate interest in a Fund's assets and will receive a
proportionate interest in that Fund's income, before application, as to the
Class A, Class B and Class C Shares, of any expenses under that Fund's 12b-1
Plans.
Certificates representing shares purchased are not ordinarily issued
unless, in the case of Class A Shares or Institutional Class shares, a
shareholder submits a specific request. Certificates are not issued in the case
of Class B Shares or Class C Shares. However, purchases not involving the
issuance of certificates are confirmed to the investor and credited to the
shareholder's account on the books maintained by Delaware Service Company, Inc.
(the "Transfer Agent"). The investor will have the same rights of ownership with
respect to such shares as if certificates had been issued. An investor that is
permitted to obtain a certificate may receive a certificate representing shares
purchased by sending a letter to the Transfer Agent requesting the certificate.
No charge is assessed by Equity Funds II, Inc. for any certificate issued.
Investors who hold certificates representing any of their shares may only redeem
those shares by written request. The investor's certificate(s) must accompany
such request.
Alternative Purchase Arrangements
The alternative purchase arrangements of Class A, Class B and Class C
Shares of each Fund permit investors to choose the method of purchasing shares
that is most suitable for their needs given the amount of their purchase, the
length of time they expect to hold their shares and other relevant
circumstances. Investors should determine whether, given their particular
circumstances, it is more advantageous to purchase Class A Shares of a Fund and
incur a front-end sales charge and, absent any applicable fee waiver, 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 of a Fund and
have the entire initial purchase amount invested in the Fund with the investment
thereafter subject to a CDSC and annual 12b-1 Plan expenses. Class B Shares are
subject to a
-36-
<PAGE>
(SAI-DIF&TR\VGA-PART B)
CDSC if the shares are redeemed within six years of purchase, 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 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.
Class A Shares - Decatur Income Fund, Decatur Total Return Fund, Blue Chip
Fund and Quantum Fund
Purchases of $100,000 or more of Class A Shares at the offering price
carry reduced front-end sales charges as shown in the accompanying table, 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.
-37-
<PAGE>
(SAI-DIF&TR\VGA-PART B)
<TABLE>
<CAPTION>
Decatur Income Fund
Decatur Total Return Fund
Blue Chip Fund
Quantum Fund
Class A Shares
- -------------------------------------------------------------------------------------------------------------------------------
Dealer's
Commission***
Front-End Sales Charge as % of as % of
Offering Amount Offering
Amount of Purchase Price Invested** Price
- -------------------------------------------------------------------------------------------------------------------------------
Decatur
Decatur Total Blue
Income Return Chip Quantum
Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C> <C>
Less than $100,000 4.75% 0.00% 0.00% 0.00% 0.00% 4.00%
$100,000 but under $250,000 3.75 0.00 0.00 0.00 0.00 3.00
$250,000 but under $500,000 2.50 0.00 0.00 0.00 0.00 2.00
$500,000 but under $1,000,000* 2.00 0.00 0.00 0.00 0.00 1.60
</TABLE>
* There is no front-end sales charge on purchases of $1 million or more
of Class A Shares but, under certain limited circumstances, a 1%
contingent deferred sales charge may apply upon redemption of such
shares. The contingent deferred sales charge ("Limited CDSC") that may
be applicable arises only in the case of certain shares that were
purchased at net asset value and triggered the payment of a dealer's
commission.
** In the case of Decatur Income Fund and Decatur Total Return Fund, based
on the net asset value per share of the Class A Shares as of the end of
Equity Funds II, Inc.'s most recent fiscal year. In the case of Blue
Chip Fund and Quantum Fund, based on an initial net asset value of
$8.50 per share.
*** Financial institutions or their affiliated brokers may receive an
agency transaction fee in the percentages set forth above.
- --------------------------------------------------------------------------------
A Fund must be notified when a sale takes place which would qualify for
the reduced front-end sales charge on the basis of previous or current
purchases. The reduced front-end sales charge will be granted upon
confirmation of the shareholder's holdings by such Fund. Such reduced
front-end sales charges are not retroactive.
From time to time, upon written notice to all of its dealers, the
Distributor may hold special promotions for specified periods during
which the Distributor may reallow to dealers up to the full amount of
front- end sales charge shown above. Dealers who receive 90% or more of
the sales charge may be deemed to be underwriters under the Securities
Act of 1933.
- --------------------------------------------------------------------------------
-38-
<PAGE>
(SAI-DIF&TR\VGA-PART B)
Certain dealers who enter into an agreement to provide extra training
and information on Delaware Group products and services and who increase sales
of Delaware Group 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.
Dealer's Commission
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 in accordance with the following schedule:
Dealer's Commission
(as a percentage of
Amount of Purchase amount purchased)
Up to $2 million 1.00%
Next $1 million up to $3 million 0.75
Next $2 million up to $5 million 0.50
Amount over $5 million 0.25
In determining a financial adviser's eligibility for the dealer's
commission, purchases of Class A Shares of other Delaware Group funds as to
which a Limited CDSC applies (see Contingent Deferred Sales Charge for Certain
Redemptions of Class A Shares Purchased at Net Asset Value under Redemption and
Exchange in the Fund Classes' Prospectuses) 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 Group 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 and Class C Shares are purchased without a front-end sales
charge. Class B Shares redeemed within six years of purchase may be subject to a
CDSC at the rates set forth below, and Class C Shares redeemed within 12 months
of purchase may be subject to a CDSC of 1%. CDSCs are charged as a percentage of
the dollar amount subject to the CDSC. The charge will be assessed on an amount
equal to the lesser of the net asset value at the time of purchase of the shares
being redeemed or the net asset value of those
-39-
<PAGE>
(SAI-DIF&TR\VGA-PART B)
shares at the time of redemption. No CDSC will be imposed on increases in net
asset value above the initial purchase price, nor will a CDSC be assessed on
redemptions of shares acquired through reinvestment of dividends or capital
gains distributions. See Waiver of Contingent Deferred Sales Charge - Class B
and Class C Shares under Redemption and Exchange in the Prospectuses for the
Fund Classes for a list of the instances in which the CDSC is waived.
The following table sets forth the rates of the CDSC for Class B Shares
of each Fund:
Contingent Deferred
Sales Charge (as a
Percentage of
Dollar Amount
Year After Purchase Made Subject to Charge)
0-2 4%
3-4 3%
5 2%
6 1%
7 and thereafter None
During the seventh year after purchase and, thereafter, until converted
automatically into Class A Shares, Class B Shares will still be subject to the
annual 12b-1 Plan expenses of up to 1% of average daily net assets of those
shares. At the end of approximately eight years after purchase, the investor's
Class B Shares will be automatically converted into Class A Shares of the same
Fund. See Automatic Conversion of Class B Shares under Classes of Shares in the
Fund Classes' Prospectuses. Such conversion will constitute a tax-free exchange
for federal income tax purposes. See Taxes in the Prospectuses for the Fund
Classes.
Plans Under Rule 12b-1 for the Fund Classes
Pursuant to Rule 12b-1 under the 1940 Act, Equity Funds II, Inc. has
adopted a separate plan for each of the Class A Shares, Class B Shares and Class
C Shares of each Fund (the "Plans"). Each Plan permits the relevant Fund to pay
for certain distribution, promotional and related expenses involved in the
marketing of only the class to which the Plan applies. The Plans do not apply to
the 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 the Institutional Classes. Shareholders of the
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 the Class A Shares, Class B Shares and Class C Shares
monthly fees to the Distributor for its services and expenses in distributing
and promoting sales of shares of such classes. These expenses include, among
other things, preparing and distributing advertisements, sales literature and
prospectuses and reports used for sales purposes, compensating sales and
marketing personnel, and paying distribution and maintenance fees to securities
brokers and dealers who enter into agreements with the Distributor. The Plan
expenses relating to Class B 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.
-40-
<PAGE>
(SAI-DIF&TR\VGA-PART B)
In addition, each Fund may make payments out of the assets of the Class
A, Class B and Class C Shares directly to other unaffiliated parties, such as
banks, who either aid in the distribution of shares of, or provide services to,
such classes.
The maximum aggregate fee payable by a Fund under its Plans, and the
Funds' Distribution Agreements, is on an annual basis, up to 0.30% of the Class
A Shares' average daily net assets for the year, 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 the Class C Shares' average daily net assets for the year. Equity
Funds II, Inc.'s Board of Directors may reduce these amounts at any time.
Although the maximum fee payable under the 12b-1 Plan relating to the
Decatur Income Fund A Class is 0.30% of average daily net assets of such class,
the Board of Directors has determined that the annual fee, payable on a monthly
basis, under the Plan relating to the Decatur Income Fund A Class, will be equal
to the sum of: (i) the amount obtained by multiplying 0.30% by the average daily
net assets represented by the Decatur Income Fund A Class that were or are
acquired by shareholders on or after May 2, 1994, and (ii) the amount obtained
by multiplying 0.10% by the average daily net assets represented by Class A
Shares that were acquired before May 2, 1994. While this is the method to be
used to calculate the 12b-1 fees to be paid by the Decatur Income Fund A Class
under its Plan, the fee is a Class A Shares' expense so that all shareholders of
the Decatur Income Fund A Class, regardless of when they purchased their shares,
will bear 12b-1 expenses at the same rate. As Class A Shares are sold on or
after May 2, 1994, the initial rate of at least 0.10% will increase over time.
Thus as the proportion of Decatur Income Fund A Class shares purchased on or
after May 2, 1994 to outstanding Class A Shares increases, the expenses
attributable to payments under the Plan will also increase (but will not exceed
0.30% of average daily net assets. While this describes the current basis for
calculating the fees which will be payable under the Delchester Income Fund A
Class' Plan, such Plan permit a full 0.30% on all Class A Shares' assets to be
paid at any time following appropriate Board approval.
All of the distribution expenses incurred by the Distributor and
others, such as broker/dealers, in excess of the amount paid on behalf of Class
A, Class B and Class C Shares would be borne by such persons without any
reimbursement from such Fund Classes. Subject to seeking best price and
execution, a Fund may, from time to time, buy or sell portfolio securities from
or to firms which receive payments under the Plans.
From time to time, the Distributor may pay additional amounts from its
own resources to dealers for aid in distribution or for aid in providing
administrative services to shareholders.
The Plans and the Distribution Agreements, as amended, have all been
approved by the Board of Directors of Equity Funds II, Inc., including a
majority of the directors who are not "interested persons" (as defined in the
1940 Act) of Equity Funds II, Inc. and who have no direct or indirect financial
interest in the Plans, by vote cast in person at a meeting duly called for the
purpose of voting on the Plans and such Agreements. Continuation of the Plans
and the Distribution Agreements, as amended, must be approved annually by the
Board of Directors in the same manner as specified above.
-41-
<PAGE>
(SAI-DIF&TR\VGA-PART B)
Each year, the directors must determine whether continuation of the
Plans is in the best interest of shareholders of, respectively, Class A Shares,
Class B Shares and Class C Shares of each Fund and that there is a reasonable
likelihood of the Plan relating to a Fund Class providing a benefit to that
Class. The Plans and the Distribution Agreements, as amended, may be terminated
with respect to a Class at any time without penalty by a majority of those
directors who are not "interested persons" or by a majority vote of the
outstanding voting securities of the relevant Fund Class. Any amendment
materially increasing the percentage payable under the Plans must likewise be
approved by a majority vote of the outstanding voting securities of the relevant
Fund Class, as well as by a majority vote of those directors 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 Class B Shares of the same Fund. Also, any
other material amendment to the Plans must be approved by a majority vote of the
directors including a majority of the noninterested directors of Equity Funds
II, Inc. having no interest in the Plans. In addition, in order for the Plans to
remain effective, the selection and nomination of directors who are not
"interested persons" of Equity Funds II, Inc. must be effected by the directors
who themselves are not "interested persons" and who have no direct or indirect
financial interest in the Plans. Persons authorized to make payments under the
Plans must provide written reports at least quarterly to the Board of Directors
for their review.
For the fiscal year ended November 30, 1996, payments from the Decatur
Income Fund A Class and Decatur Income Fund B Class amounted to $000,000 and
$000,000, respectively. For the period November 29, 1995 (date of initial public
offering) through November 30, 1996, payments from the Decatur Income Fund C
Class amounted to $000,000. Such amounts were used for the following purposes:
<TABLE>
<CAPTION>
Decatur Income Decatur Income Decatur Income
Fund A Class Fund B Class Fund C Class
<S> <C> <C> <C>
Advertising $00,000 $00,000 $00,000
Annual/Semi-Annual Reports $00,000 $00,000 $00,000
Broker Trails $00,000 $00,000 $00,000
Broker Sales Charges $00,000 $00,000 $00,000
Dealer Service Expenses $00,000 $00,000 $00,000
Interest on Broker Sales Charges $00,000 $00,000 $00,000
Commissions to Wholesalers $00,000 $00,000 $00,000
Promotional-Broker Meetings $00,000 $00,000 $00,000
Promotional-Other $00,000 $00,000 $00,000
Prospectus Printing $00,000 $00,000 $00,000
Telephone $00,000 $00,000 $00,000
Wholesaler Expenses $00,000 $00,000 $00,000
Other $00,000 $00,000 $00,000
</TABLE>
-42-
<PAGE>
(SAI-DIF&TR\VGA-PART B)
For the fiscal year ended November 30, 1996, payments from the Decatur
Total Return Fund A Class and Decatur Total Return Fund B Class amounted to
$000,000 and $000,000, respectively. For the period November 29, 1995 (date of
initial public offering) through November 30, 1996, payments from the Decatur
Total Return Fund C Class amounted to $000,000. Such amounts were used for the
following purposes:
<TABLE>
<CAPTION>
Decatur Total Decatur Total Decatur Total
Return Fund A Class Return Fund B Class Return Fund C Class
<S> <C> <C> <C>
Advertising $00,000 $00,000 $00,000
Annual/Semi-Annual Reports $00,000 $00,000 $00,000
Broker Trails $00,000 $00,000 $00,000
Broker Sales Charges $00,000 $00,000 $00,000
Dealer Service Expenses $00,000 $00,000 $00,000
Interest on Broker Sales Charges $00,000 $00,000 $00,000
Commissions to Wholesalers $00,000 $00,000 $00,000
Promotional-Broker Meetings $00,000 $00,000 $00,000
Promotional-Other $00,000 $00,000 $00,000
Prospectus Printing $00,000 $00,000 $00,000
Telephone $00,000 $00,000 $00,000
Wholesaler Expenses $00,000 $00,000 $00,000
Other $00,000 $00,000 $00,000
</TABLE>
Other Payments to Dealers -- Class A, Class B and Class C Shares
From time to time, at the discretion of the Distributor, all registered
broker/dealers whose aggregate sales of 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 Group 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.
Payments to dealers made in connection with seminars, conferences or
contests relating to the promotion of Fund shares may be in an amount up to 100%
of the expenses incurred or awards made. The Distributor may also pay a portion
of the expense of preapproved dealer advertisements promoting the sale of
Delaware Group fund shares.
Special Purchase Features--Class A Shares
Buying Class A Shares at Net Asset Value
Class A Shares may be purchased without a front-end sales charge under
the Dividend Reinvestment Plan and, under certain circumstances, the Exchange
Privilege and the 12-Month Reinvestment Privilege.
Current and former officers, directors and employees of Equity Funds
II, Inc., any other fund in the Delaware Group, the Manager, or any of the
Manager's affiliates that may in the future be created, legal counsel to the
funds and registered representatives and employees of broker/dealers who have
entered into Dealer's Agreements with the Distributor may purchase Class A
Shares of the Funds and any such class of
-43-
<PAGE>
(SAI-DIF&TR\VGA-PART B)
shares of any of the funds in the Delaware Group, including any fund that may be
created, at the net asset value per share. Family members of such persons at
their direction, and any employee benefit plan established by any of the
foregoing funds, corporations, counsel or broker/dealers may also purchase Class
A Shares at net asset value.
Purchases of Class A Shares may also be made by clients of registered
representatives of an authorized investment dealer at net asset value within 12
months of a change of the registered representative's employment, if the
purchase is funded by proceeds from an investment where a front-end sales
charge, contingent deferred sales charge or other sales charge has been
assessed. Purchases of Class A Shares may also be made at net asset value by
bank employees who provide services in connection with agreements between the
bank and unaffiliated brokers or dealers concerning sales of shares of Delaware
Group funds. 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 Equity Funds II, Inc. may
reasonably require to establish eligibility for purchase at net asset value.
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 Delaware
Group account in connection with loans originated from accounts previously
maintained by another investment firm will also be invested at net asset value.
The Funds must be notified in advance that the trade qualifies for
purchase at net asset value.
Letter of Intention
The reduced front-end sales charges described above with respect to
Class A Shares are also applicable to the aggregate amount of purchases made
within a 13-month period pursuant to a written Letter of Intention provided by
the Distributor and signed by the purchaser, and not legally binding on the
signer or Equity Funds II, Inc., which provides for the holding in escrow by the
Transfer Agent of 5% of the total amount of the 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 the Class A Shares purchased at the
reduced rate and the front-end sales charge otherwise applicable to the total
shares purchased. If such payment is not made within 20 days following the
expiration of the 13-month period, the Transfer Agent will surrender an
appropriate number of the escrowed shares for redemption in order to realize the
difference. Such purchasers may include the value (at offering price at the
level designated in their Letter of Intention) of all their shares of the Funds
and of any class of any of the other mutual funds in the Delaware Group (except
shares of any Delaware Group fund which do not carry a front-end sales charge,
CDSC or Limited CDSC, other than shares of Delaware Group Premium Fund, Inc.
beneficially owned in connection with the ownership of variable insurance
products, unless they were
-44-
<PAGE>
(SAI-DIF&TR\VGA-PART B)
acquired through an exchange from a Delaware Group 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.
Employers offering a Delaware Group 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
Group 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 a Fund and other
Delaware Group 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 the Class A Shares, Class B Shares and/or
Class C Shares of the Funds, as well as shares of any other class of any of the
other Delaware Group funds (except shares of any Delaware Group fund which do
not carry a front-end sales charge, CDSC or Limited CDSC, other than shares of
Delaware Group Premium Fund, Inc. beneficially owned in connection with the
ownership of variable insurance products, unless they were acquired through an
exchange from a Delaware Group fund which carried a front-end sales charge, CDSC
or Limited CDSC).
The privilege also extends to all purchases made at one time by an
individual; or an individual, his or her spouse and their children under 21; or
a trustee or other fiduciary of trust estates or fiduciary accounts for the
benefit of such family members (including certain employee benefit programs).
Right of Accumulation
In determining the availability of the reduced front-end sales charge
with respect to Class A Shares, purchasers may also combine any subsequent
purchases of Class A Shares, Class B Shares and Class C Shares of a Fund, as
well as shares of any other class of any of the other Delaware Group funds which
offer such classes (except shares of any Delaware Group fund which do not carry
a front-end sales charge, CDSC or Limited CDSC, other than shares of Delaware
Group Premium Fund, Inc. beneficially owned in connection with the ownership of
variable insurance products, unless they were acquired through an exchange from
a Delaware Group fund which carried a front-end sales charge, CDSC or Limited
CDSC). If, for example, any such purchaser has previously purchased and still
holds Class A Shares and/or shares of any other of the classes described in the
previous sentence with a value of $40,000 and subsequently purchases $60,000 at
-45-
<PAGE>
(SAI-DIF&TR\VGA-PART B)
offering price of additional shares of Class A Shares, the charge applicable to
the $60,000 purchase would currently be 3.75%. 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 of a Fund (and of the Institutional Classes
holding shares which were acquired through an exchange from one of the other
mutual funds in the Delaware Group 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 Class A Shares of that Fund or in Class A
Shares of any of the other funds in the Delaware Group, subject to applicable
eligibility and minimum purchase requirements, in states where shares of such
other funds may be sold, at net asset value without the payment of a front-end
sales charge. This privilege does not extend to Class A Shares where the
redemption of the shares triggered the payment of a Limited CDSC. Persons
investing redemption proceeds from direct investments in mutual funds in the
Delaware Group offered without a front-end sales charge will be required to pay
the applicable sales charge when purchasing Class A Shares. The reinvestment
privilege does not extend to a redemption of either Class B Shares or Class C
Shares.
Any such reinvestment cannot exceed the redemption proceeds (plus any
amount necessary to purchase a full share). The reinvestment will be made at the
net asset value next determined after receipt of remittance. A redemption and
reinvestment could have income tax consequences. It is recommended that a tax
adviser be consulted with respect to such transactions. Any reinvestment
directed to a fund in which the investor does not then have an account will be
treated like all other initial purchases of a fund's shares. Consequently, an
investor should obtain and read carefully the prospectus for the fund in which
the investment is intended to be made before investing or sending money. The
prospectus contains more complete information about the fund, including charges
and expenses.
Investors should consult their financial advisers or the Transfer
Agent, which also serves as the Funds' shareholder servicing agent, about the
applicability of the Limited CDSC (see Contingent Deferred Sales Charge for
Certain Redemptions of Class A Shares Purchased at Net Asset Value under
Redemption and Exchange in the Fund Classes' Prospectuses) in connection with
the features described above.
Group Investment Plans
Group Investment Plans that 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 set forth in the table on page _____, based on
total plan assets. If a company has more than one plan investing in the Delaware
Group 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 the Fund in which the
investment is being made 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 Group investment accounts if they
so notify the Fund in connection with each purchase. For other retirement plans
and special services, see Retirement Plans for the Fund Classes under Investment
Plans.
-46-
<PAGE>
(SAI-DIF&TR\VGA-PART B)
The Institutional Classes
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, the Sub-Adviser or their affiliates and securities
dealer firms with a selling agreement with the Distributor; (c) institutional
advisory accounts of the Manager, the Sub-Adviser or their affiliates and those
having client relationships with Delaware Investment Advisers, a division 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; (d) banks, trust companies and
similar financial institutions investing for their own account or for the
accounts of their trust customers for whom such financial institution is
exercising investment discretion in purchasing shares of the Class; 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 Classes 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.
-47-
<PAGE>
(SAI-DIF&TR\VGA-PART B)
INVESTMENT PLANS
Reinvestment Plan/Open Account
Unless otherwise designated by shareholders in writing, dividends from
net investment income and distributions from realized securities profits, if
any, will be automatically reinvested in additional shares of the respective
Fund 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 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
distribution from realized securities profits, if any, will be mailed to
shareholders in the first quarter of the fiscal year.
Under the Reinvestment Plan/Open Account, shareholders may purchase and
add full and fractional shares to their plan accounts at any time either through
their investment dealers or by sending a check or money order to the specific
Fund and Class in which shares are being purchased. Such purchases, which must
meet the minimum subsequent purchase requirements set forth in the 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 the Institutional Classes 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 Group Funds
Subject to applicable eligibility and minimum initial purchase
requirements and the limitations set forth below, holders of Class A, Class B
and Class C Shares may automatically reinvest dividends and/or distributions in
any of the mutual funds in the Delaware Group, including the Funds, in states
where their shares may be sold. Such investments will be at net asset value at
the close of business on the reinvestment date without any front-end sales
charge or service fee. The shareholder must notify the Transfer Agent in writing
and must have established an account in the fund into which the dividends and/or
distributions are to be invested. Any reinvestment directed to a fund in which
the investor does not then have an account will be treated like all other
initial purchases of a fund's shares. Consequently, an investor should obtain
and read carefully the prospectus for the fund in which the investment is
intended to be made before investing or sending money. The prospectus contains
more complete information about the fund, including charges and expenses. See
also Additional Methods of Adding to Your Investment - Dividend Reinvestment
Plan under How to Buy Shares in the Prospectuses for the Fund Classes.
Subject to the following limitations, dividends and/or distributions
from other funds in the Delaware Group may be invested in shares of the Funds,
provided an account has been established. Dividends from Class A Shares may not
be directed to Class B Shares or Class C Shares. Dividends from Class B Shares
may only be directed to other Class B Shares and dividends from Class C Shares
may only be directed to other Class C Shares. See Appendix B--Classes Offered in
the Fund Classes' Prospectuses for the funds in the Delaware Group that are
eligible for investment by holders of Fund shares.
This option is not available to participants in the following plans:
SAR/SEP, SEP/IRA, Profit Sharing and Money Purchase Pension Plans, 401(k)
Defined Contribution Plans, 403(b)(7) Deferred Compensation Plans or 457
Deferred Compensation Plans.
-48-
<PAGE>
(SAI-DIF&TR\VGA-PART B)
Investing by Electronic Fund Transfer
Direct Deposit Purchase Plan -- Investors may arrange for a Fund to
accept for investment in Class A, Class B or Class C Shares, through an agent
bank, preauthorized government or private recurring payments. This method of
investment assures the timely credit to the shareholder's account of payments
such as social security, veterans' pension or compensation benefits, federal
salaries, Railroad Retirement benefits, private payroll checks, dividends, and
disability or pension fund benefits. It also eliminates lost, stolen and delayed
checks.
Automatic Investing Plan -- Shareholders of Class A, Class B and Class
C Shares may make automatic investments by authorizing, in advance, monthly
payments directly from their checking account for deposit into their Fund
account. This type of investment will be handled in either of the following
ways. (1) If the shareholder's bank is a member of the National Automated
Clearing House Association ("NACHA"), the amount of the investment will be
electronically deducted from his or her account by Electronic Fund Transfer
("EFT"). The shareholder's checking account will reflect a debit each month at a
specified date although no check is required to initiate the transaction. (2) If
the shareholder's bank is not a member of NACHA, deductions will be made by
preauthorized checks, known as Depository Transfer Checks. Should the
shareholder's bank become a member of NACHA in the future, his or her
investments would be handled electronically through EFT.
This option is not available to participants in the following plans:
SAR/SEP, SEP/IRA, Profit Sharing and Money Purchase Pension Plans, 401(k)
Defined Contribution Plans, 403(b)(7) Deferred Compensation Plans 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 the Fund.
Direct Deposit Purchases by Mail
Shareholders may authorize a third party, such as a bank or employer,
to make investments directly to their Fund accounts. A Fund will accept these
investments, such as bank-by-phone, annuity payments and payroll allotments, by
mail directly from the third party. Investors should contact their employers or
financial institutions who in turn should contact Equity Funds II, Inc. for
proper instructions.
-49-
<PAGE>
(SAI-DIF&TR\VGA-PART B)
Wealth Builder Option
Shareholders can use the Wealth Builder Option to invest in the Fund
Classes through regular liquidations of shares in their accounts in other mutual
funds in the Delaware Group. Shareholders of the Fund Classes may elect to
invest in one or more of the other mutual funds in the Delaware Group through
the Wealth Builder Option. See Wealth Builder Option and Redemption and Exchange
in the Prospectuses for the Fund Classes.
Under this automatic exchange program, shareholders can authorize
regular monthly investments (minimum of $100 per fund) to be liquidated from
their account and invested automatically into other mutual funds in the Delaware
Group, subject to the conditions and limitations set forth in the Fund Classes'
Prospectuses. The investment will be made on the 20th day of each month (or, if
the fund selected is not open that day, the next business day) at the public
offering price or net asset value, as applicable, of the fund selected on the
date of investment. No investment will be made for any month if the value of the
shareholder's account is less than the amount specified for investment.
Periodic investment through the Wealth Builder Option does not insure
profits or protect against losses in a declining market. The price of the fund
into which investments are made could fluctuate. Since this program involves
continuous investment regardless of such fluctuating value, investors selecting
this option should consider their financial ability to continue to participate
in the program through periods of low fund share prices. This program involves
automatic exchanges between two or more fund accounts and is treated as a
purchase of shares of the fund into which investments are made through the
program. See Exchange Privilege for a brief summary of the tax consequences of
exchanges. Shareholders can terminate their participation at any time by written
notice to their Fund.
This option is not available to participants in the following plans:
SAR/SEP, SEP/IRA, Profit Sharing and Money Purchase Pension Plans, 401(k)
Defined Contribution Plans, 403(b)(7) Deferred Compensation Plans or 457
Deferred Compensation Plans. This option also is not available to shareholders
of the Institutional Classes.
Retirement Plans for the Fund Classes
An investment in either Fund may be suitable for tax-deferred
retirement plans. Among the retirement plans noted below, Class B Shares are
available for investment only by Individual Retirement Accounts, Simplified
Employee Pension Plans, 457 Deferred Compensation Plans and 403(b)(7) 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 and Class C Shares under Redemption and Exchange in the Prospectuses for
the Fund Classes for a list of the instances in which the CDSC is waived.
Each purchase of Class B Shares is subject to a maximum purchase
limitation of $250,000 for retirement plans. Each purchase 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
-50-
<PAGE>
(SAI-DIF&TR\VGA-PART B)
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 Classes.
See The Institutional Classes, 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 and corporations which replace the former Keogh and corporate
retirement plans. These plans contain profit sharing or money purchase pension
plan provisions. Contributions for plans of this type may be invested only in
Class A and Class C Shares.
Individual Retirement Account ("IRA")
A document is available for an individual who wants to establish an IRA
by making 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 or elects to be treated
as having no compensation for the year. Investments in each of the Fund Classes
are permissible.
The Tax Reform Act of 1986 (the "Act") restructured, and in some cases
eliminated, the tax deductibility of IRA contributions. Under the Act, the full
deduction for IRAs ($2,000 for each working spouse and $2,250 for one-income
couples) was retained for all taxpayers who are not covered by an
employer-sponsored retirement plan. Even if a taxpayer (or his or her spouse) is
covered by an employer-sponsored retirement plan, the full deduction is still
available if the taxpayer's adjusted gross income is below $25,000 ($40,000 for
taxpayers filing joint returns). A partial deduction is allowed for married
couples with incomes between $40,000 and $50,000, and for single individuals
with incomes between $25,000 and $35,000. The Act does not permit deductions for
contributions to IRAs by taxpayers whose adjusted gross income before IRA
deductions exceeds $50,000 ($35,000 for singles) and who are active participants
in an employer-sponsored retirement plan. Taxpayers who are not allowed
deductions on IRA contributions still can make nondeductible IRA contributions
of as much as $2,000 for each working spouse ($2,250 for one-income couples),
and defer taxes on interest or other earnings from the IRAs. Special rules apply
for determining the deductibility of contributions made by married individuals
filing separate returns.
-51-
<PAGE>
(SAI-DIF&TR\VGA-PART B)
A company or association may establish a Group IRA for employees or
members who want to purchase shares of a Fund. Purchases of $1 million or more
of Class A Shares qualify for purchase at net asset value but may, under certain
circumstances, be subject to a Limited CDSC. See Purchasing Shares for
information on reduced front-end sales charges applicable to Class A Shares.
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. See Alternative Purchase Arrangements - Class B Shares and Class C
Shares under Classes of Shares, Contingent Deferred Sales Charge-Class B Shares
and Class C Shares under Classes of Shares, and Waiver of Contingent Deferred
Sales Charge - Class B and Class C Shares under Redemption and Exchange in the
Fund Classes' Prospectuses concerning the applicability of a CDSC upon
redemption.
See Appendix B--IRA Information for additional IRA information.
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 Fund Classes is available for investment by a
SEP/IRA.
Salary Reduction Simplified Employee Pension Plan ("SAR/SEP")
Employers with 25 or fewer eligible employees can establish this plan
which permits employer contributions and salary deferral contributions in Class
A Shares and Class C Shares only.
Prototype 401(k) Defined Contribution Plan
Section 401(k) of the Code permits employers to establish qualified
plans based on salary deferral contributions. 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 Group.
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 on
page .
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 any of
the Fund Classes in conjunction with such an arrangement. Applicable front-end
sales charges with respect to Class A Shares for such purchases are set forth in
the table on page _____.
-52-
<PAGE>
(SAI-DIF&TR\VGA-PART B)
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 any of the Fund Classes. Although investors
may use their own plan, there is available a Delaware Group 457 Deferred
Compensation Plan. Interested investors should contact the Distributor or their
investment dealers to obtain further information. Applicable front-end sales
charges for such purchases of Class A Shares are set forth in the table on
page _________.
.
-53-
<PAGE>
(SAI-DIF&TR\VGA-PART B)
DETERMINING OFFERING PRICE AND NET ASSET VALUE
Orders for purchases of Class A Shares are effected at the offering
price next calculated after receipt of the order by the Fund in which shares are
being purchased or its agent. Orders for purchases of Class B Shares, Class C
Shares and the Institutional Classes are effected at the net asset value per
share next calculated after receipt of the order by the Fund in which shares are
being purchased or its agent. 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 front-end sales charges. Offering price and net
asset value are computed as of the close of regular trading on the New York
Stock Exchange (ordinarily, 4 p.m., Eastern time) on days when the Exchange is
open. The New York Stock Exchange is scheduled to be open Monday through Friday
throughout the year except for New Year's Day, 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
Decatur Income Fund's and Decatur Total Return Fund's financial statements which
are incorporated by reference into this Part B.
Each Fund's net asset value per share is computed by adding the value
of all the Fund's securities and other assets, deducting any liabilities of the
Fund, and dividing by the number of Fund shares outstanding. Expenses and fees
are accrued daily. Portfolio securities, except for bonds, which are primarily
traded on a national or foreign securities exchange are valued at the last sale
price on that exchange. Options are valued at the last reported sales price or,
if no sales are reported, at the mean between bid and asked prices. Securities
not traded on a particular day, over-the-counter securities and government and
agency securities are valued at the mean value between bid and asked prices.
Money market instruments having a maturity of less than 60 days are valued at
amortized cost. Debt securities (other than short-term obligations) are valued
on the basis of valuations provided by a pricing service when such prices are
believed to reflect the fair value of such securities. Use of a pricing service
has been approved by the Board of Directors. Subject to the foregoing,
securities for which market quotations are not readily available and other
assets are valued at fair value as determined in good faith and in a method
approved by the Board of Directors.
Each Class of a Fund will bear, pro-rata, all of the common expenses of
that 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 the Fund represented by the value of shares
of that Class. All income earned and expenses incurred by a Fund will be borne
on a pro-rata basis by each outstanding share of a Class, based on each Class'
percentage in the Fund represented by the value of shares of such Classes,
except that the Institutional Classes will not incur any of the expenses under
the relevant Fund's 12b-1 Plans and Class A, Class B and Class C Shares alone
will bear the 12b-1 Plan expenses payable under their respective Plans. Due to
the specific distribution expenses and other costs that will be allocable to
each Class, the net asset value of each Class of a Fund will vary.
-54-
<PAGE>
(SAI-DIF&TR\VGA-PART B)
REDEMPTION AND REPURCHASE
Any shareholder may require a Fund to redeem shares by sending a
written request, signed by the record owner or owners exactly as the shares are
registered, to the Fund at 1818 Market Street, Philadelphia, PA 19103. In
addition, certain expedited redemption methods described below are available
when stock certificates have not been issued. Certificates are issued for Class
A Shares and Institutional Class shares only if a shareholder specifically
requests them. Certificates are not issued for Class B Shares or Class C Shares.
If stock certificates have been issued for shares being redeemed, they must
accompany the written request. For redemptions of $50,000 or less paid to the
shareholder at the address of record, the request must be signed by all owners
of the shares or the investment dealer of record, but a signature guarantee is
not required. When the redemption is for more than $50,000, or if payment is
made to someone else or to another address, signatures of all record owners are
required and a signature guarantee may be required. Each signature guarantee
must be supplied by an eligible guarantor institution. Each Fund reserves the
right to reject a signature guarantee supplied by an eligible institution based
on its creditworthiness. The Funds may request further documentation from
corporations, retirement plans, executors, administrators, trustees or
guardians.
In addition to redemption of Fund shares, the Distributor, acting as
agent of the Funds, offers to repurchase Fund shares from broker/dealers acting
on behalf of shareholders. The redemption or repurchase price, which may be more
or less than the shareholder's cost, is the net asset value per share next
determined after receipt of the request in good order by the respective Fund or
its agent, less any applicable CDSC or Limited CDSC. This is computed and
effective at the time the offering price and net asset value are determined. See
Determining Offering Price and Net Asset Value. The Funds and the Distributor
end their business days at 5 p.m., Eastern time. This offer is discretionary and
may be completely withdrawn without further notice by the Distributor.
Orders for the repurchase of Fund shares which are submitted to the
Distributor prior to the close of its business day will be executed at the net
asset value per share computed that day (subject to the applicable CDSC or
Limited CDSC), if the repurchase order was received by the broker/dealer from
the shareholder prior to the time the offering price and net asset value are
determined on such day. The selling dealer has the responsibility of
transmitting orders to the Distributor promptly. Such repurchase is then settled
as an ordinary transaction with the broker/dealer (who may make a charge to the
shareholder for this service) delivering the shares repurchased.
Certain redemptions of Class A Shares purchased at net asset value may
result in the imposition of a Limited CDSC. See Contingent Deferred Sales Charge
for Certain Redemptions of Class A Shares Purchased at Net Asset Value under
Redemption and Exchange in the Prospectuses for the Fund Classes. Class B Shares
are subject to a CDSC of: (i) 4% if shares are redeemed within two years of
purchase; (ii) 3% if shares are redeemed during the third or fourth year
following purchase; (iii) 2% if shares are redeemed during the fifth year
following purchase; and (iv) 1% if shares are redeemed during the sixth year
following purchase. Class C Shares are subject to a CDSC of 1% if shares are
redeemed within 12 months following purchase. See Contingent Deferred Sales
Charge - Class B Shares and Class C Shares under Classes of Shares in the
Prospectuses for the Fund Classes. Except for the applicable CDSC or Limited
CDSC and, with respect to the expedited payment by wire described below for
which there is currently a $7.50 bank wiring cost, neither the Funds nor the
Funds' Distributor charges a fee for redemptions or repurchases, but such fees
could be charged at any time in the future.
-55-
<PAGE>
(SAI-DIF&TR\VGA-PART B)
Payment for shares redeemed will ordinarily be mailed the next business
day, but in no case later than seven days, after receipt of a redemption request
in good order; provided, however, that each commitment to mail or wire
redemption proceeds by a certain time, as described below, is modified by the
qualifications described in the next paragraph.
Each Fund will process written or telephone redemption requests to the
extent that the purchase orders for the shares being redeemed have already
settled. A Fund will honor redemption requests as to shares for which a check
was tendered as payment, but a Fund will not mail or wire the proceeds until it
is reasonably satisfied that the check has cleared. This potential delay can be
avoided by making investments by wiring Federal Funds.
If a shareholder has been credited with a purchase by a check which is
subsequently returned unpaid for insufficient funds or for any other reason, the
Fund involved will automatically redeem from the shareholder's account the
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, Equity Funds
II, Inc. has elected to be governed by Rule 18f-1 under the Investment Company
Act of 1940 pursuant to which each Fund is obligated to redeem shares solely in
cash up to the lesser of $250,000 or 1% of the net asset value of such Fund
during any 90-day period for any one shareholder.
The value of a Fund's investments is subject to changing market prices.
Thus, a shareholder reselling shares to a Fund may sustain either a gain or
loss, depending upon the price paid and the price received for such shares.
Small Accounts
Before a Fund involuntarily redeems shares from an account that, under
the circumstances noted in the relevant Prospectus, has remained below the
minimum amounts required by the Funds' Prospectuses and sends the proceeds to
the shareholder, the shareholder will be notified in writing that the value of
the shares in the account is less than the minimum required and will be allowed
60 days from the date of notice to make an additional investment to meet the
required minimum. See The Conditions of Your Purchase under How to Buy Shares in
the Funds' Prospectuses. Any redemption in an inactive account established with
a minimum investment may trigger mandatory redemption. No CDSC or Limited CDSC
will apply to the redemptions described in this paragraph.
-56-
<PAGE>
(SAI-DIF&TR\VGA-PART B)
Effective November 29, 1995, the minimum initial investment in Class A
Shares of Decatur Income Fund and Decatur Total Return Fund was increased from
$250 to $1,000. Class A accounts that were established before November 29, 1995
and maintain a balance in excess of $250 will not presently be subject to the $9
quarterly service fee that may be assessed against accounts with balances below
the stated minimum, nor subject to involuntary redemption.
* * *
Each Fund has made available certain redemption privileges, as
described below. The Funds reserve the right to suspend or terminate these
expedited payment procedures upon 60 days' written notice to shareholders.
Expedited Telephone Redemptions
Shareholders of the Fund Classes or their investment dealers of record
wishing to redeem any amount of shares of $50,000 or less for which certificates
have not been issued may call the Shareholder Service Center at 800-523-1918 or,
in the case of shareholders of the Institutional Classes, their Client Services
Representative at 800-828-5052 prior to the time the offering price and net
asset value are determined, as noted above, and have the proceeds mailed to them
at the address of record. Checks payable to the shareholder(s) of record will
normally be mailed the next business day, but no later than seven days, after
the receipt of the redemption request. This option is only available to
individual, joint and individual fiduciary-type accounts.
In addition, redemption proceeds of $1,000 or more can be transferred
to your predesignated bank account by wire or by check by calling the phone
numbers listed above. An authorization form must have been completed by the
shareholder and filed with the relevant Fund before the request is received.
Payment will be made by wire or check to the bank account designated on the
authorization form as follows:
1. Payment by Wire: Request that Federal Funds be wired to the bank
account designated on the authorization form. Redemption proceeds will normally
be wired on the next business day following receipt of the redemption request.
There is a $7.50 wiring fee (subject to change) charged by CoreStates Bank, N.A.
which will be deducted from the withdrawal proceeds each time the shareholder
requests a redemption. If the proceeds are wired to the shareholder's account at
a bank which is not a member of the Federal Reserve System, there could be a
delay in the crediting of the funds to the shareholder's bank account.
2. Payment by Check: Request a check be mailed to the bank account
designated on the authorization form. Redemption proceeds will normally be
mailed the next business day, but no later than seven days, from the date of the
telephone request. This procedure will take longer than the Payment by Wire
option (1 above) because of the extra time necessary for the mailing and
clearing of the check after the bank receives it.
Redemption Requirements: In order to change the name of the bank and
the account number it will be necessary to send a written request to the
relevant Fund and a signature guarantee may be required. Each signature
guarantee must be supplied by an eligible guarantor institution. The Funds
reserve the right to reject a signature guarantee supplied by an eligible
institution based on its creditworthiness.
To reduce the shareholder's risk of attempted fraudulent use of the
telephone redemption procedure, payment will be made only to the bank account
designated on the authorization form.
-57-
<PAGE>
(SAI-DIF&TR\VGA-PART B)
If expedited payment under these procedures could adversely affect a
Fund, the Fund may take up to seven days to pay the shareholder.
Neither the Funds nor the Funds' Transfer Agent is responsible for any
shareholder loss incurred in acting upon written or telephone instructions for
redemption or exchange of Fund shares which are reasonably believed to be
genuine. With respect to such telephone transactions, each Fund will follow
reasonable procedures to confirm that instructions communicated by telephone are
genuine (including verification of a form of personal identification) as, if it
does not, such Fund or the Transfer Agent may be liable for any losses due to
unauthorized or fraudulent transactions. Telephone instructions received by
shareholders of the Fund Classes are generally tape recorded. A written
confirmation will be provided for all purchase, exchange and redemption
transactions initiated by telephone.
Systematic Withdrawal Plans
Shareholders of Class A, Class B and Class C Shares who own or purchase
$5,000 or more of shares at the offering price, or net asset value, as
applicable, for which certificates have not been issued may establish a
Systematic Withdrawal Plan for monthly withdrawals of $25 or more, or quarterly
withdrawals of $75 or more, although the Funds do not recommend any specific
amount of withdrawal. This $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 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.
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 Group 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. Redemptions of
Class B Shares or Class C Shares pursuant to a Systematic Withdrawal Plan may be
subject to a CDSC, unless the annual amount selected to be withdrawn is less
than 12% of the account balance on the date that the Systematic Withdrawal Plan
was
-58-
<PAGE>
(SAI-DIF&TR\VGA-PART B)
established. See Waiver of Contingent Deferred Sales Charge - Class B and Class
C Shares and Waiver of Limited Contingent Deferred Sales Charge - Class A Shares
under Redemption and Exchange in the Prospectuses for the Fund Classes.
Shareholders should consult their financial advisers to determine whether a
Systematic Withdrawal Plan would be suitable for them.
An investor wishing to start a Systematic Withdrawal Plan must complete
an authorization form. If the recipient of Systematic Withdrawal Plan payments
is other than the registered shareholder, the shareholder's signature on this
authorization must be guaranteed. Each signature guarantee must be supplied by
an eligible guarantor institution. The Funds reserve the right to reject a
signature guarantee supplied by an eligible institution based on its
creditworthiness. This plan may be terminated by the shareholder or the Transfer
Agent at any time by giving written notice.
The Systematic Withdrawal Plan is not available for the Institutional
Classes.
-59-
<PAGE>
(SAI-DIF&TR\VGA-PART B)
DISTRIBUTIONS AND TAXES
Decatur Income Fund and Decatur Total Return Fund have qualified, and
intend to continue to qualify, and Blue Chip Fund and Quantum Fund intend 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 on net investment income
and net realized capital gains which are distributed to shareholders.
Each Class of shares of a Fund will share proportionately in the
investment income and expenses of the Fund, except that Class A Shares, Class B
Shares and Class C Shares alone will incur distribution fees under their
respective 12b-1 Plans.
Decatur Income Fund intends to pay dividends from net investment income
on a monthly basis. Decatur Total Return Fund and Blue Chip Fund intend to pay
out all of its net investment income on a quarterly basis. Quantum Fund intends
to pay dividends from net investment income on an annual basis. Distributions of
net capital gains, if any, realized on sales of investments will be distributed
annually during the quarter following the close of the fiscal year.
All dividends and any capital gains distributions will be automatically
credited to the shareholder's account in additional shares of the same Class
unless, in the case of shareholders in the Fund Classes, the shareholder
requests in writing that such dividends and/or distributions be paid in cash.
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.
Any check in payment of dividends or other distributions which cannot
be delivered by the United States Post Office or which remains uncashed for a
period of more than one year may be reinvested in the shareholder's account at
the then-current net asset value and the dividend option may be changed from
cash to reinvest. A Fund may deduct from a shareholder's account the costs of
the Fund's effort to locate a shareholder if a shareholder's mail is returned by
the Post Office or the Fund is otherwise unable to locate the shareholder or
verify the shareholder's mailing address. These costs may include a percentage
of the account when a search company charges a percentage fee in exchange for
their location services. See also Other Tax Requirements under Accounting and
Tax Issues.
Persons not subject to tax will not be required to pay taxes on
distributions.
Dividends from investment income and short-term capital gains
distributions are treated by shareholders as ordinary income for federal income
tax purposes, whether received in cash or in additional shares. 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.
Under the Tax Reform Act of 1986, each Fund is treated as a separate
tax entity and capital gains and losses for each Fund are calculated separately.
-60-
<PAGE>
(SAI-DIF&TR\VGA-PART B)
A portion of a Funds' 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 Fund shareholders, and cannot exceed the gross amount of
dividends received by such Fund from domestic (U.S.) corporations that would
have qualified for the dividends-received deduction in the hands of the Fund if
the Fund was 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. For the fiscal
year ended November 30, 1996, 00% and 00% of the dividends from net investment
income of the Decatur Income Fund and Decatur Total Return Fund, respectively,
were eligible for this deduction.
Shareholders will be notified annually by Equity Funds II, Inc. as to
the federal income tax status of dividends and distributions paid by the Funds.
-61-
<PAGE>
(SAI-DIF&TR\VGA-PART B)
INVESTMENT MANAGEMENT AGREEMENTS AND SUB-ADVISORY AGREEMENTS
The Manager, located at One Commerce Square, Philadelphia, PA 19103,
furnishes investment management services to the Funds, subject to the
supervision and direction of Equity Funds II, Inc.'s Board of Directors.
The Manager and its predecessors have been managing the funds in the
Delaware Group since 1938. On November 30, 1996, the Manager and its affiliates
within the Delaware Group, including Delaware International Advisers Ltd., were
supervising in the aggregate more than $00 billion in assets in the various
institutional or separately managed (approximately $00,000,000,000) and
investment company (approximately $00,000,000,000) accounts.
The Investment Management Agreements for the Decatur Income Fund and
Decatur Total Return Fund are dated April 3, 1995 and were approved by
shareholders on March 29, 1995.
The Investment Management Agreements for Blue Chip Fund and Quantum
Fund are dated __________________ , 1997 and were approved by each Fund's
respective initial shareholder on _________________ , 1997.
Each Agreement has an initial term of two years and may be renewed each
year only so long as such renewal and continuance are specifically approved at
least annually by the Board of Directors or by vote of a majority of the
outstanding voting securities of the Fund to which the Agreement relates, and
only if the terms and the renewal thereof have been approved by the vote of a
majority of the directors of Equity Funds II, Inc. who are not parties thereto
or interested persons of any such party, cast in person at a meeting called for
the purpose of voting on such approval. Each Agreement is terminable without
penalty on 60 days' notice by the directors of Equity Funds II, Inc. or by the
Manager. Each Agreement will terminate automatically in the event of its
assignment.
The annual compensation paid by Decatur Income Fund for investment
management services is equal to 0.60% on the first $100 million of the Fund's
average daily net assets, 0.525% on the next $150 million, 0.50% on the next
$250 million and 0.475% on the average daily net assets in excess of $500
million, less all directors' fees paid to the unaffiliated directors by this
Fund.
The annual compensation paid by Decatur Total Return Fund for
investment management services is equal to 0.60% on the first $500 million of
the Fund's average daily net assets, 0.575% on the next $250 million and 0.55%
on the average daily net assets in excess of $750 million, less all directors'
fees paid to the unaffiliated directors by this Fund.
The annual compensation paid by Blue Chip Fund is equal to 0.65% on the
first $500 million of average daily net assets, 0.625% on the next $500 million
and 0.60% on the average daily net assets in excess of $1 billion
The annual compensation paid by Quantum Fund is equal to 0.75% on the
first $500 million of average daily net assets, 0.725% on the next $500 million
and 0.70% on the average daily net assets in excess of $1 billion.
-62-
<PAGE>
(SAI-DIF&TR\VGA-PART B)
Pursuant to the terms of a Sub-Advisory Agreement with the Manager, the
Sub-Adviser participates in the management of Blue Chip Fund's and Quantum
Fund's assets, is responsible for day-to-day investment management of both
Funds, makes investment decisions for both Funds in accordance with a Fund's
investment objectives and stated policies and places orders on behalf of each
Fund to effect the investment decisions made. The Manager continues to have
ultimate responsibility for all investment advisory services in connection with
the management of each of these Funds pursuant to the Investment Management
Agreement and supervises the Sub-Adviser's performance of such services. For the
services provided to the Manager, the Manager pays the Sub-Adviser the following
fee with respect to Blue Chip Fund: (i) 0.10% of the fee paid to the Manager
under Blue Chip Fund's Investment Management Agreement for the period _________,
1997 through December 31, 1997; (ii) 0.20% of the fee paid to the Manager under
Blue Chip Fund's Investment Management Agreement for the period January 1, 1998
through December 31, 1998; and (iii) 0.35% of the fee paid to the Manager under
Blue Chip Fund's Investment Management Agreement thereafter. For the services
provided to the Manager, the Manager pays the Sub-Adviser the following fee with
respect to Quantum Fund: (i) 0.10% of the fee paid to the Manager under Quantum
Fund's Investment Management Agreement for the period _________, 1997 through
December 31, 1997; (ii) 0.25% of the fee paid to the Manager under Quantum
Fund's Investment Management Agreement for the period January 1, 1998 through
December 31, 1998; and (iii) 0.40% of the fee paid to the Manager under Quantum
Fund's Investment Management Agreement thereafter.
The Sub-Adviser, 630 Fifth Avenue, New York, New York, 10111, is an
indirect, wholly-owned subsidiary of Lincoln National and an affiliate of the
Manager, Founded in 1979, it provides investment advice to pension plans,
endowments, insurance and commingled products and has assets under management,
as of , 1996, in excess of $4.7 billion.
On November 30, 1996, the total net assets of Equity Funds II, Inc.
were $0,000,000,000, broken down as follows: Decatur Income Fund -
$0,000,000,000 and Decatur Total Return Fund - $000,000,000. Investment
management fees paid by the Decatur Income Fund during the past three fiscal
years were $7,128,034 for 1994, $7,182,707 for 1995 and $0,000,000 for 1996.
Investment management fees paid by the Decatur Total Return Fund during the past
three fiscal years were $2,542,011 for 1994, $2,859,001 for 1995 and $0,000,000
for 1996.
Under the general supervision of the Board of Directors, the Manager
makes all investment decisions which are implemented by Equity Funds II, Inc.'s
Trading Department. The Manager pays the salaries of all directors, officers and
employees of Equity Funds II, Inc. who are affiliated with the Manager. Each
Fund pays all of its other expenses, including its proportionate share of rent
and certain other administrative expenses.
The ratios of expenses to average daily net assets for the fiscal year
ended November 30, 1996 for each Class of Decatur Income Fund and Decatur Total
Return Fund were as follows:
Decatur Income Fund Decatur Total Return Fund
Class A Shares 0.00% 0.00%
Class B Shares 0.00% 0.00%
Class C Shares 0.00% 0.00%
Institutional Class 0.00% 0.00%
-63-
<PAGE>
(SAI-DIF&TR\VGA-PART B)
The expense ratios for the Class A Shares, Class B Shares and Class C
Shares reflect the impact of their 12b-1 Plans.
-64-
<PAGE>
(SAI-DIF&TR\VGA-PART B)
Distribution and Service
The Distributor, Delaware Distributors, L.P. (which formerly conducted
business as Delaware Distributors, Inc.), located at 1818 Market Street,
Philadelphia, PA 19103, serves as the national distributor of Decatur Income
Fund and Decatur Total Return Fund shares under separate Distribution Agreements
dated April 3, 1995, as amended on November 29, 1995. The Distributor serves as
the national distributor of Blue Chip Fund and Quantum Fund shares under
separate Distribution Agreements dated ________, 1997. 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 the Class A, Class B
and Class C Shares under their respective 12b-1 Plans. Prior to January 3, 1995,
Delaware Distributors, Inc. ("DDI") served as the national distributor of each
Fund's shares. On that date, Delaware Distributors, L.P., a newly formed limited
partnership, succeeded to the business of DDI. All officers and employees of DDI
became officers and employees of Delaware Distributors, L.P. DDI is the
corporate general partner of Delaware Distributors, L.P. and both DDI and
Delaware Distributors, L.P. are indirect, wholly owned subsidiaries of Delaware
Management Holdings, Inc.
The Transfer Agent, Delaware Service Company, Inc., another affiliate
of the Manager located at 1818 Market Street, Philadelphia, PA 19103, serves as
the Funds' shareholder servicing, dividend disbursing and transfer agent
pursuant to an Amended and Restated Shareholders Services Agreement dated as of
________, 1997. The Transfer Agent also provides accounting services to the
Funds pursuant to the terms of a separate Fund Accounting Agreement. The
Transfer Agent is also an indirect, wholly owned subsidiary of Delaware
Management Holdings, Inc.
-65-
<PAGE>
(SAI-DIF&TR\VGA-PART B)
OFFICERS AND DIRECTORS
The business and affairs of Equity Funds II, Inc. are managed under the
direction of its Board of Directors.
Certain officers and directors of Equity Funds II, Inc. hold identical
positions in each of the other funds in the Delaware Group. On December 31,
1996, Equity Funds II, Inc.'s officers and directors owned
As of December 31, 1995, management believes the following shareholders
held 5% or more of the outstanding shares of a Class:
-66-
<PAGE>
(SAI-DIF&TR\VGA-PART B)
DMH Corp., Delaware Management Company, Inc., Delaware Distributors,
L.P., Delaware Distributors, Inc., Delaware Service Company, Inc., Delaware
Management Trust Company, Delaware International Holdings Ltd., Founders
Holdings, Inc., Delaware International Advisers Ltd., Delaware Capital
Management, Inc. and Delaware Investment & Retirement Services, Inc. are direct
or indirect, wholly owned subsidiaries of Delaware Management Holdings, Inc.
("DMH"). On April 3, 1995, a merger between DMH and a wholly owned subsidiary of
Lincoln National Corporation ("Lincoln National") was completed. In connection
with the merger, new Investment Management Agreements between Decatur Income
Fund and Decatur Total Return Fund and the Manager were executed following
shareholder approval. 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.
Directors and principal officers of Equity Funds II, Inc. are noted
below along with their ages and their business experience for the past five
years. Unless otherwise noted, the address of each officer and director is One
Commerce Square, Philadelphia, PA 19103.
*Wayne A. Stork (59)
Chairman,President, Chief Executive Officer, Director and/or Trustee
of Equity Funds II, Inc., 16 other investment companies in the
Delaware Group (which excludes Delaware Pooled Trust, Inc.),
Delaware Management Holdings, Inc., DMH Corp., Delaware
International Holdings Ltd.
and Founders Holdings, Inc.
Chairman and Director of Delaware Pooled Trust, Inc., Delaware
Distributors, Inc., Delaware Capital Management, Inc. and
Delaware Investment & Retirement Services, Inc.
Chairman,President, Chief Executive Officer, Chief Investment Officer
and Director of Delaware Management Company, Inc.
Chairman, Chief Executive Officer and Director of Delaware
International Advisers Ltd. Director of Delaware Service
Company, Inc.
During the past five years, Mr. Stork has served in various executive
capacities at different times within the Delaware
organization.
Winthrop S. Jessup (51)
Executive Vice President of Equity Funds II, Inc., 16 other investment
companies in the Delaware Group (which excludes Delaware
Pooled Trust, Inc.) and Delaware Management Holdings, Inc.
President and Chief Executive Officer of Delaware Pooled Trust, Inc.
President and Director of Delaware Capital Management, Inc.
Executive Vice President and Director of DMH Corp., Delaware Management
Company, Inc., Delaware International Holdings Ltd. and
Founders Holdings, Inc.
Vice Chairman and Director of Delaware Distributors, Inc.
Vice Chairman of Delaware Distributors, L.P.
Director of Delaware Service Company, Inc., Delaware International
Advisers Ltd., Delaware Management Trust Company and Delaware
Investment & Retirement Services, Inc.
During the past five years, Mr. Jessup has served in various
executive capacities at different times within the Delaware
organization.
- ----------------
*Director affiliated with Equity Funds II, Inc.'s investment manager and
considered an "interested person" as defined in the 1940 Act.
-67-
<PAGE>
(SAI-DIF&TR\VGA-PART B)
Richard G. Unruh, Jr. (57)
Executive Vice President of Equity Funds II, Inc. and each of the other
17 investment companies in the Delaware Group.
Executive Vice President and Director of Delaware Management Company,
Inc.
Senior 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 the Delaware
organization.
Paul E. Suckow (49)
ExecutiveVice President/Chief Investment Officer, Fixed Income of
Equity Funds II, Inc., each of the other 17 investment
companies in the Delaware Group and Delaware Management
Company, Inc.
Executive Vice President/Chief Investment Officer/Fixed Income and
Director of Founders Holdings, Inc.
Senior Vice President/Chief Investment Officer, Fixed Income of
Delaware Management Holdings, Inc.
Director of Founders CBO Corporation.
Senior Vice President of Delaware Capital Management, Inc.
Director, HYPPCO Finance Company Ltd.
Before returning to the Delaware Group in 1993, Mr. Suckow was
Executive Vice President and Director of Fixed Income for
Oppenheimer Management Corporation, New York, NY from 1985 to
1992. Prior to that, Mr. Suckow was a fixed-income portfolio
manager for the Delaware Group.
Walter P. Babich (69)
Director and/or Trustee of Equity Funds II, Inc. and each of the other
17 investment companies in the Delaware Group.
460 North Gulph Road, King of Prussia, PA 19406.
Board Chairman, Citadel Constructors, Inc.
From 1986 to 1988, Mr. Babich was a partner of Irwin & Leighton and
from 1988 to 1991, he was a partner of I&L Investors.
Anthony D. Knerr (57)
Director and/or Trustee of Equity Funds II, Inc. and each of the other
17 investment companies in the Delaware Group.
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.
-68-
<PAGE>
(SAI-DIF&TR\VGA-PART B)
Ann R. Leven (56)
Director and/or Trustee of Equity Funds II, Inc. and each of the other
17 investment companies in the Delaware Group.
785 Park Avenue, New York, NY 10021.
Treasurer, National Gallery of Art.
From 1984 to 1990, Ms. Leven was Treasurer and Chief Fiscal Officer
of the Smithsonian Institution, Washington, DC, and from 1975
to 1992, she was Adjunct Professor of Columbia Business
School.
W. Thacher Longstreth (76)
Director and/or Trustee of Equity Funds II, Inc. and each of the other
17 investment companies in the Delaware Group.
City Hall, Philadelphia, PA 19107.
Philadelphia City Councilman.
Charles E. Peck (71)
Director and/or Trustee of Equity Funds II, Inc. and each of the other
17 investment companies in the Delaware Group.
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.
David K. Downes (56)
Senior Vice President/Chief Administrative Officer/Chief Financial
Officer of Equity Funds II, Inc., each of the other 17
investment companies in the Delaware Group and Delaware
Management Company, Inc.
Chairman and Director of Delaware Management Trust Company.
Chief Executive Officer and Director of Delaware Investment &
Retirement Services, Inc.
ExecutiveVice President/Chief Administrative Officer/Chief Financial
Officer/Treasurer of Delaware Management Holdings, Inc.
Senior Vice President/Chief Financial Officer/Treasurer and Director
of DMH Corp.
Senior Vice President/Chief Administrative Officer and Director of
Delaware Distributors, Inc.
Senior Vice President/Chief Administrative Officer of Delaware
Distributors, L.P.
Senior Vice President/Chief Administrative Officer/Chief Financial
Officer and Director of Delaware Service Company, Inc.
Chief Financial Officer and Director of Delaware International
Holdings Ltd.
Senior Vice President/Chief Financial Officer/Treasurer of Delaware
Capital Management, Inc.
Senior Vice President/Chief Financial Officer and Director of
Founders Holdings, Inc.
Director of Delaware International Advisers Ltd.
Before joining the Delaware Group in 1992, Mr. Downes was Chief
Administrative Officer, Chief Financial Officer and Treasurer
of Equitable Capital Management Corporation, New York, from
December 1985 through August 1992, Executive Vice President
from December 1985 through March 1992 and Vice Chairman from
March 1992 through August 1992.
-69-
<PAGE>
(SAI-DIF&TR\VGA-PART B)
George M. Chamberlain, Jr. (49)
Senior Vice President and Secretary of Equity Funds II, Inc., each of
the other 17 investment companies in the Delaware Group,
Delaware Management Holdings, Inc. and Delaware Distributors,
L.P.
Executive Vice President, Secretary and Director of Delaware Management
Trust Company.
Senior Vice President, Secretary and Director of DMH Corp., Delaware
Management Company, Inc., Delaware Distributors, Inc.,
Delaware Service Company, Inc., Founders Holdings, Inc.,
Delaware Investment & Retirement Services, Inc. and Delaware
Capital Management, Inc.
Secretary and Director of Delaware International Holdings Ltd.
Director of Delaware International Advisers Ltd.
Attorney.
During the past five years, Mr. Chamberlain has served in various
capacities at different times within the Delaware
organization.
John B. Fields (51)
Vice President/Senior Portfolio Manager of Equity Funds II, Inc.,
of seven other equity investment companies in the Delaware
Group and of Delaware Management Company, Inc.
Before joining the Delaware Group in 1992, Mr. Fields served as a
director of domestic equity risk management for DuPont,
Wilmington, DE.
Joseph H. Hastings (46)
Vice President/Corporate Controller of Equity Funds II, Inc., each
of the other 17 investment companies in the Delaware Group,
Delaware Management Holdings, Inc., DMH Corp., Delaware
Management Company, Inc., Delaware Distributors, L.P.,
Delaware Distributors, Inc., Delaware Service Company, Inc.,
Delaware Capital Management, Inc., Founders Holdings, Inc.
and Delaware International Holdings Ltd.
Chief Financial Officer/Treasurer of Delaware Investment &
Retirement Services, Inc.
Executive Vice President/Chief Financial Officer/Treasurer of Delaware
Management Trust Company.
Assistant Treasurer of Founders CBO Corporation.
1818 Market Street, Philadelphia, PA 19103.
Before joining the Delaware Group in 1992, Mr. Hastings was Chief
Financial Officer for Prudential Residential Services, L.P.,
New York, NY from 1989 to 1992. Prior to that, Mr. Hastings
served as Controller and Treasurer for Fine Homes
International, L.P., Stamford, CT from 1987 to 1989.
Michael P. Bishof (34)
Vice President/Treasurer of Equity Funds II, Inc., each of the
other 17 investment companies in the Delaware Group, Delaware
Management Company, Inc., Delaware Distributors, Inc.,
Delaware Distributors, L.P., Delaware Service Company, Inc.
and Founders Holdings, Inc.
Vice President/Manager of Investment Accounting of Delaware
International Holdings Ltd.
Assistant Treasurer of Founders CBO Corporation.
Before joining the Delaware Group 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.
-70-
<PAGE>
(SAI-DIF&TR\VGA-PART B)
The following is a compensation table listing for each director
entitled to receive compensation, the aggregate compensation received from
Equity Funds II, Inc. and the total compensation received from all Delaware
Group funds for the fiscal year ended November 30, 1996 and an estimate of
annual benefits to be received upon retirement under the Delaware Group
Retirement Plan for Directors/Trustees as of November 30, 1996.
<TABLE>
<CAPTION>
Pension or
Retirement
Benefits Estimated Total
Aggregate Accrued Annual Compensation
Compensation as Part of Benefits from all 17
from Equity Equity Funds II, Upon Delaware
Name Funds II, Inc. Inc. Expenses Retirement* Group Funds
<S> <C> <C> <C>
W. Thacher Longstreth $0,000 None $30,000 $00,000
Ann R. Leven $0,000 None $30,000 $00,000
Walter P. Babich $0,000 None $30,000 $00,000
Anthony D. Knerr $0,000 None $30,000 $00,000
Charles E. Peck $0,000 None $30,000 $00,000
</TABLE>
* Under the terms of the Delaware Group Retirement Plan for
Directors/Trustees, each disinterested director who, at the time of his or
her retirement from the Board, has attained the age of 70 and served on the
Board for at least five continuous years, is entitled to receive payments
from each fund in the Delaware Group for a period equal to the lesser of the
number of years that such person served as a director or the remainder of
such person's life. The amount of such payments will be equal, on an annual
basis, to the amount of the annual retainer that is paid to directors of
each fund at the time of such person's retirement. If an eligible director
retired as of November 30, 1996, he or she would be entitled to annual
payments totaling $30,000, in the aggregate, from all of the funds in the
Delaware Group, based on the number of funds in the Delaware Group as of
that date.
-71-
<PAGE>
(SAI-DIF&TR\VGA-PART B)
EXCHANGE PRIVILEGE
The exchange privileges available for shareholders of the Classes and
for shareholders of classes of other funds in the Delaware Group are set forth
in the relevant prospectuses for such classes. The following supplements that
information. The Funds may modify, terminate or suspend the exchange privilege
upon 60 days' notice to shareholders.
All exchanges involve a purchase of shares of the fund into which the
exchange is made. As with any purchase, an investor should obtain and carefully
read that fund's prospectus before buying shares in an exchange. The prospectus
contains more complete information about the fund, including charges and
expenses. A shareholder requesting an exchange will be sent a current prospectus
and an authorization form for any of the other mutual funds in the Delaware
Group. Exchange instructions must be signed by the record owner(s) exactly as
the shares are registered.
An exchange constitutes, for tax purposes, the sale of one fund and the
purchase of another. The sale may involve either a capital gain or loss to the
shareholder for federal income tax purposes.
In addition, investment advisers and dealers may make exchanges between
funds in the Delaware Group on behalf of their clients by telephone or other
expedited means. This service may be discontinued or revised at any time by the
Transfer Agent. Such exchange requests may be rejected if it is determined that
a particular request or the total requests at any time could have an adverse
effect on any of the funds. Requests for expedited exchanges may be submitted
with a properly completed exchange authorization form, as described above.
Telephone Exchange Privilege
Shareholders owning shares for which certificates have not been issued
or their investment dealers of record may exchange shares by telephone for
shares in other mutual funds in the Delaware Group. This service is
automatically provided unless the relevant Fund receives written notice from the
shareholder to the contrary.
Shareholders or their investment dealers of record may contact the
Shareholder Service Center at 800-523-1918 or, in the case of shareholders of
the Institutional Classes, their Client Services Representative at 800-828-5052,
to effect an exchange. The shareholder's current Fund account number must be
identified, as well as the registration of the account, the share or dollar
amount to be exchanged and the fund into which the exchange is to be made.
Requests received on any day after the time the offering price and net asset
value are determined will be processed the following day. See Determining
Offering Price and Net Asset Value. Any new account established through the
exchange will automatically carry the same registration, shareholder information
and dividend option as the account from which the shares were exchanged. The
exchange requirements of the fund into which the exchange is being made, such as
sales charges, eligibility and investment minimums, must be met. (See the
prospectus of the fund desired or inquire by calling the Transfer Agent or, as
relevant, your Client Services Representative.) Certain funds are not available
for retirement plans.
The telephone exchange privilege is intended as a convenience to
shareholders and is not intended to be a vehicle to speculate on short-term
swings in the securities market through frequent transactions in and out of the
funds in the Delaware Group. Telephone exchanges may be subject to limitations
as to amounts or
-72-
<PAGE>
(SAI-DIF&TR\VGA-PART B)
frequency. The Transfer Agent and the Funds reserve the right to record exchange
instructions received by telephone and to reject exchange requests at any time
in the future.
As described in the Funds' Prospectuses, neither the Funds nor the
Transfer Agent is responsible for any shareholder loss incurred in acting upon
written or telephone instructions for redemption or exchange of Fund shares
which are reasonably believed to be genuine.
Right to Refuse Timing Accounts
With regard to accounts that are administered by market timing services
("Timing Firms") to purchase or redeem shares based on changing economic and
market conditions ("Timing Accounts"), each Fund will refuse any new timing
arrangements, as well as any new purchases (as opposed to exchanges) in Delaware
Group 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 the Fund within two weeks of an earlier
exchange request out of the Fund, or (ii) makes more than two exchanges out of
the Fund per calendar quarter, or (iii) exchanges shares equal in value to at
least $5 million, or more than 1/4 of 1% of the Fund's net assets. Accounts
under common ownership or control, including accounts administered so as to
redeem or purchase shares based upon certain predetermined market indicators,
will be aggregated for purposes of the exchange limits.
Restrictions on Timed Exchanges
Timing Accounts operating under existing timing agreements may only
execute exchanges between the following eight Delaware Group funds: (1) Decatur
Income Fund, (2) Decatur Total Return Fund, (3) Delaware Fund, (4) Limited-Term
Government Fund, (5) Tax-Free USA Fund, (6) Delaware Cash Reserve, (7)
Delchester Fund and (8) Tax-Free Pennsylvania Fund. No other Delaware Group
funds are available for timed exchanges. Assets redeemed or exchanged out of
Timing Accounts in Delaware Group 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
timing pattern (as described above).
Each Fund also reserves the right to refuse the purchase side of an
exchange request by any Timing Account, person, or group if, in the Manager's
judgment, the Fund would be unable to invest effectively in accordance with its
investment objectives and policies, or would otherwise potentially be adversely
affected. A shareholder's purchase exchanges may be restricted or refused if a
Fund receives or anticipates simultaneous orders affecting significant portions
of the Fund's assets. In particular, a pattern of exchanges that coincide with a
"market timing" strategy may be disruptive to a Fund and therefore may be
refused.
Except as noted above, only shareholders and their authorized brokers
of record will be permitted to make exchanges or redemptions.
* * *
Following is a summary of the investment objectives of the other
Delaware Group funds:
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<PAGE>
(SAI-DIF&TR\VGA-PART B)
Delaware Fund seeks long-term growth by a balance of capital
appreciation, income and preservation of capital. It uses a dividend-oriented
valuation strategy to select securities issued by established companies that are
believed to demonstrate potential for income and capital growth. Devon Fund
seeks current income and capital appreciation by investing primarily in
income-producing common stocks, with a focus on common stocks the Manager
believes have the potential for above average dividend increases over time.
Trend Fund seeks long-term growth by investing in common stocks issued
by emerging growth companies exhibiting strong capital appreciation potential.
Value Fund seeks capital appreciation by investing primarily in common
stocks whose market values appear low relative to their underlying value or
future potential.
DelCap Fund seeks long-term capital growth by investing in common
stocks and securities convertible into common stocks of companies that have a
demonstrated history of growth and have the potential to support continued
growth.
Delchester Fund seeks as high a current income as possible by investing
principally in high-yield, high risk corporate bonds, and also in U.S.
government securities and commercial paper. Strategic Income Fund seeks to
provide investors with high current income and total return by using a
multi-sector investment approach, investing principally in three sectors of the
fixed-income securities markets: high-yield, higher risk securities, investment
grade fixed-income securities and foreign government and other foreign
fixed-income securities.
U.S. Government Fund seeks high current income by investing primarily
in long-term debt obligations issued or guaranteed by the U.S. government, its
agencies or instrumentalities.
Limited-Term Government Fund seeks high, stable income by investing
primarily in a portfolio of short- and intermediate-term securities issued or
guaranteed by the U.S. government, its agencies or instrumentalities and
instruments secured by such securities. U.S. Government Money Fund seeks maximum
current income with preservation of principal and maintenance of liquidity by
investing only in short-term securities issued or guaranteed as to principal and
interest by the U.S. government, its agencies or instrumentalities, and
repurchase agreements collateralized by such securities, while maintaining a
stable net asset value.
Delaware Cash Reserve seeks the highest level of income consistent with
the preservation of capital and liquidity through investments in short-term
money market instruments, while maintaining a stable net asset value.
Tax-Free USA Fund seeks high current income exempt from federal income
tax by investing in municipal bonds of geographically-diverse issuers. Tax-Free
Insured Fund invests in these same types of securities but with an emphasis on
municipal bonds protected by insurance guaranteeing principal and interest are
paid when due. Tax-Free USA Intermediate Fund seeks a high level of current
interest income exempt from federal income tax, consistent with the preservation
of capital by investing primarily in municipal bonds.
Tax-Free Money Fund seeks high current income, exempt from federal
income tax, by investing in short-term municipal obligations, while maintaining
a stable net asset value.
-74-
<PAGE>
(SAI-DIF&TR\VGA-PART B)
Tax-Free Pennsylvania Fund seeks a high level of current interest
income exempt from federal and, to the extent possible, certain Pennsylvania
state and local taxes, consistent with the preservation of capital.
International Equity Fund seeks to achieve long-term growth without
undue risk to principal by investing primarily in international securities that
provide the potential for capital appreciation and income. Global Bond Fund
seeks to achieve current income consistent with the preservation of principal by
investing primarily in global fixed-income securities that may also provide the
potential for capital appreciation. Global Assets Fund seeks to achieve
long-term total return by investing in global securities which will provide
higher current income than a portfolio comprised exclusively of equity
securities, along with the potential for capital growth. Emerging Markets Fund
seeks long-term capital appreciation by investing primarily in equity securities
of issuers located or operating in emerging countries.
Enterprise Fund seeks to provide maximum appreciation of capital by
investing in medium-sized companies which have a dominant position within their
industry, are undervalued, or have potential for growth in earnings. U.S. Growth
Fund seeks to maximize capital appreciation by investing in companies of all
sizes which have low dividend yields, strong balance sheets and high expected
earnings growth rates relative to their industry. World Growth Fund seeks to
maximize total return (capital appreciation and income), principally through
investments in an internationally diversified portfolio of equity securities.
New Pacific Fund seeks long-term capital appreciation by investing primarily in
companies which are domiciled in or have their principal business activities in
the Pacific Basin. Federal Bond Fund seeks to maximize current income consistent
with preservation of capital. The fund attempts to achieve this objective by
investing primarily in securities issued by the U.S. government, its agencies
and instrumentalities. Corporate Income Fund seeks to provide high current
income consistent with preservation of capital. The fund attempts to achieve
this objective primarily by investing in a diversified portfolio of investment
grade fixed-income securities issued by U.S.
corporations.
Delaware Group Premium Fund offers ten funds available exclusively as
funding vehicles for certain insurance company separate accounts. Equity/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. High Yield 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. Money
Market Series seeks the highest level of income consistent with preservation of
capital and liquidity through investments in short-term money market
instruments. Growth Series seeks long-term capital appreciation by investing its
assets in a diversified portfolio of securities exhibiting the potential for
significant growth. Multiple Strategy Series seeks a balance of capital
appreciation, income and preservation of capital. It uses a dividend-oriented
valuation strategy to select securities issued by established companies that are
believed to demonstrate potential for income and capital growth. International
Equity Series seeks long-term growth without undue risk to principal by
investing primarily in equity securities of foreign issuers that provide the
potential for capital appreciation and income. Value Series seeks capital
appreciation by investing in small- to mid-cap common stocks whose market values
appear low relative to their underlying value or future earnings and growth
potential. Emphasis will also be placed on securities of companies that may be
temporarily out of favor or whose value is not yet recognized by the market.
Emerging Growth 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
-75-
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(SAI-DIF&TR\VGA-PART B)
will have been judged to be responsive to changes in the marketplace 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.
For more complete information about any of the Delaware Group funds,
including charges and expenses, you can obtain a prospectus from the
Distributor. Read it carefully before you invest or forward funds.
Each of the summaries above is qualified in its entirety by the
information contained in each fund's prospectus(es).
-76-
<PAGE>
(SAI-DIF&TR\VGA-PART B)
GENERAL INFORMATION
The Manager is the investment manager of the Funds. The Manager also
provides investment management services to certain of the other funds in the
Delaware Group. The Manager, through a separate division, 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.
Access persons and advisory persons of the Delaware Group of funds, as
those terms are defined in SEC Rule 17j-1 under the Investment Company Act of
1940, who provide services to the Manager, Delaware International Advisers Ltd.
or their affiliates, are permitted to engage in personal securities transactions
subject to the exceptions set forth in Rule 17j-1 and the following general
restrictions and procedures: (1) certain blackout periods apply to personal
securities transactions of those persons; (2) transactions must receive advance
clearance and must be completed on the same day as the clearance is received;
(3) certain persons are prohibited from investing in initial public offerings of
securities and other restrictions apply to investments in private placements of
securities; (4) opening positions may only be closed-out at a profit after a
60-day holding period has elapsed; and (5) the Compliance Officer must be
informed periodically of all securities transactions and duplicate copies of
brokerage confirmations and account statements must be supplied to the
Compliance Officer.
The Distributor acts as national distributor for each of the Funds and
for the other mutual funds in the Delaware Group. As previously described, prior
to January 3, 1995, DDI served as the national distributor for the Funds. In its
capacity as such, the Distributor ("DDLP") (for all periods after January 3,
1995) or DDI (prior to January 3, 1995) received net commissions from each Fund
on behalf of Class A Shares, after reallowances to dealers, as follows:
<TABLE>
<CAPTION>
Decatur Income Fund
Fiscal Total Amount Amounts Net
Year of Underwriting Reallowed Commission
Ended Commission to Dealers to DDLP/DDI
----- --------------- ---------- -----------
<S> <C> <C> <C>
11/30/96 $0,000,000 $0,000,000 $000,000
11/30/95 2,136,781 1,849,211 287,570
11/30/94 2,113,539 1,761,778 351,761
Decatur Total Return Fund
Fiscal Total Amount Amounts Net
Year of Underwriting Reallowed Commission
Ended Commission to Dealers to DDLP/DDI
----- ------------- ------------ --------------
11/30/96 $0,000,000 $0,000,000 $000,000
11/30/95 1,637,530 1,416,914 220,616
11/30/94 1,406,240 1,218,424 187,816
</TABLE>
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<PAGE>
(SAI-DIF&TR\VGA-PART B)
The Distributor and, in its capacity as such, DDI received Limited CDSC
payments as follows:
Limited CDSC Payments
Fiscal Decatur Income Decatur Total Return
Year Ended Fund A Class Fund A Class
11/30/96 $00,000 $0,000
11/30/95 -0- -0-
11/30/94 -0- -0-
The Distributor and, in its capacity as such, DDI received
CDSC payments with respect to the Class B Shares as follows:
CDSC Payments
Fiscal Decatur Income Decatur Total Return
Year Ended Fund B Class Fund B Class
11/30/96 $00,000 $00,000
11/30/95 21,252 15,098
11/30/94* 10 -0-
*Commenced operations on September 6, 1994.
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<PAGE>
(SAI-DIF&TR\VGA-PART B)
The Distributor received CDSC payments with respect to the Class C
Shares as follows:
CDSC Payments
Fiscal Decatur Income Decatur Total Return
Year Ended Fund C Class Fund C Class
11/30/96 $00,000 $00,000
11/30/95* -$0- -$0-
*Commenced operations on November 29, 1995.
Effective as of January 3, 1995, all such payments described above have
been paid to the Distributor.
The Transfer Agent, an affiliate of the Manager, acts as shareholder
servicing, dividend disbursing and transfer agent for each Fund and for the
other mutual funds in the Delaware Group. The Transfer Agent is paid a fee by
each Fund for providing these services consisting of an annual per account
charge of $5.50 plus transaction charges for particular services according to a
schedule. Compensation is fixed each year and approved by the Board of
Directors, including a majority of the unaffiliated directors. The Transfer
Agent also provides accounting services to the 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 Group 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 name "Delaware Group." Under
certain circumstances, including the termination of Equity Funds II, Inc.'s
advisory relationship with the Manager or its distribution relationship with the
Distributor, the Manager and its affiliates could cause Equity Funds II, Inc. to
delete the words "Delaware Group" from Equity Funds II, Inc.'s name.
Bankers Trust Company ("Bankers"), One Bankers Trust Plaza, New York,
NY 10006, is custodian of Decatur Income Fund's and Decatur Total Return Fund's
securities and cash. The Chase Manhattan Bank ("Chase"), 4 Chase Metrotech
Center, Brooklyn, NY 11245 is custodian of Blue Chip Fund's and Quantum Fund's
securities and cash. As custodian for a Fund, Bankers or, as relevant, Chase
maintains a separate account or accounts for the Fund; receives, holds and
releases portfolio securities on account of the Fund; receives and disburses
money on behalf of the Fund; and collects and receives income and other payments
and distributions on account of the Fund's portfolio securities.
The legality of the issuance of the shares offered hereby, registered
pursuant to Rule 24f-2 under the Investment Company Act of 1940 has been passed
upon for Equity Funds II, Inc. by Stradley, Ronon, Stevens & Young,
Philadelphia, Pennsylvania.
-79-
<PAGE>
(SAI-DIF&TR\VGA-PART B)
Capitalization
Equity Funds II, Inc. has a present authorized capitalization of seven
hundred fifty million shares of capital stock with a $1.00 par value per share.
The Board of Directors has allocated the following number of shares to
each Fund and their respective classes:
Decatur Income Fund million
----------
Decatur Income Fund A Class three hundred fifty million
Decatur Income Fund B Class fifty million
Decatur Income Fund C Class fifty million
Decatur Income Fund Institutional Class fifty million
Decatur Total Return Fund million
----------
Decatur Total Return Fund A Class one hundred million
Decatur Total Return Fund B Class fifty million
Decatur Total Return Fund C Class fifty million
Decatur Total Return Fund Institutional Class fifty million
Blue Chip Fund million
----------
Blue Chip Fund A Class million
----------
Blue Chip Fund B Class million
----------
Blue Chip Fund C Class million
----------
Blue Chip Fund Institutional Class million
----------
Quantum Fund million
Quantum Fund A Class million
Quantum Fund B Class million
Quantum Fund C Class million
Quantum Fund Institutional Class million
While all shares have equal voting rights on matters affecting Equity
Funds II, Inc. as a corporate entity, a Fund would vote separately on any matter
which affects only that Fund, such as any change in its own investment objective
and policy or action to dissolve the Fund and as otherwise prescribed by the
Investment Company Act of 1940. Shares of a Fund have a priority in that Fund's
assets, and in gains on and income from the portfolio of the Fund.
Shares have no preemptive rights, are fully transferable and, when
issued, are fully paid and nonassessable.
Shares of each Class of a Fund represent a proportionate interest in
the assets of such Fund, and have the same voting and other rights and
preferences as the other classes of that Fund, except that shares of a Fund's
Institutional Class may not vote on any matter affecting the Fund Classes' Plans
under Rule 12b-1. Similarly, as a general matter, shareholders of the Class A
Shares, Class B Shares and Class C Shares of a Fund may vote only on matters
affecting the 12b-1 Plan that relates to the Class of shares that they hold.
-80-
<PAGE>
(SAI-DIF&TR\VGA-PART B)
However, Class B Shares may vote on any proposal to increase materially the fees
to be paid by a Fund under the 12b-1 Plan relating to its Class A Shares.
General expenses of a Fund will be allocated on a pro-rata basis to the classes
according to asset size, except that expenses of the 12b-1 Plans of each Fund's
Class A, Class B and Class C Shares will be allocated solely to those classes.
Prior to January 13, 1994, Decatur Income Fund offered only one class
of shares, the class currently designated the Class A Shares. Beginning January
13, 1994, Decatur Income Fund began offering its Institutional Class, beginning
September 6, 1994, Decatur Income Fund began offering its Class B Shares, and
beginning November 29, 1995, Decatur Income Fund began offering its Class C
Shares. Prior to July 26, 1993, Decatur Total Return Fund offered only one class
of shares, the class currently designated the Class A Shares. Beginning July 26,
1993, Decatur Total Return Fund began offering its Institutional Class,
beginning September 6, 1994, Decatur Total Return Fund began offering its Class
B Shares, and beginning November 29, 1995, Decatur Total Return Fund began
offering its Class C Shares.
Prior to May 2, 1994, the Decatur Income Fund series was named the
Decatur I Series (which was known and did business as Decatur Fund I). From May
2, 1994 to September 5, 1994, the Decatur Income Fund A Class was known as the
Decatur Income Fund class and prior to May 2, 1994, it was known as the Decatur
Fund I class. From May 2, 1994 to September 5, 1994, the Decatur Income Fund
Institutional Class was known as the Decatur Income Fund (Institutional) class
and prior to May 2, 1994, it was known as the Decatur Fund I (Institutional)
class.
Prior to May 2, 1994, the Decatur Total Return Fund series was named
the Decatur II Series (which was known and did business as Decatur Fund II).
From May 2, 1994 to September 5, 1994, the Decatur Total Return Fund A Class was
known as the Decatur Total Return Fund class and prior to May 2, 1994, it was
known as the Decatur Fund II class. From May 2, 1994 to September 5, 1994, the
Decatur Total Return Fund Institutional Class was known as the Decatur Total
Return Fund (Institutional) class and prior to May 2, 1994, it was known as the
Decatur Fund II (Institutional) class.
Noncumulative Voting
Equity Funds II, Inc.'s shares have noncumulative voting rights which
means that the holders of more than 50% of the shares of Equity Funds II, Inc.
voting for the election of directors can elect all the directors if they choose
to do so, and, in such event, the holders of the remaining shares will not be
able to elect any directors.
This Part B does not include all of the information contained in the
Registration Statement which is on file with the SEC.
-81-
<PAGE>
(SAI-DIF&TR\VGA-PART B)
APPENDIX A--RATINGS
Bonds
Excerpts from Moody's description of its 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; Baa--considered
as medium grade obligations. Interest payments and principal security appear
adequate for the present but certain protective elements may be lacking or may
be characteristically unreliable over any great length of time; Ba--judged to
have speculative elements; their future cannot be considered as well assured.
Often the protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class; B--generally lack
characteristics of the desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over any long period
of time may be small; Caa--are of poor standing. Such issues may be in default
or there may be present elements of danger with respect to principal or
interest; Ca--represent obligations which are speculative in a high degree. Such
issues are often in default or have other marked shortcomings; C--the lowest
rated class of bonds and issues so rated can be regarded as having extremely
poor prospects of ever attaining any real investment standing.
Excerpts from S&P's description of its bond ratings: AAA--highest grade
obligations. They possess the ultimate degree of protection as to principal and
interest; AA--also qualify as high grade obligations, and in the majority of
instances differ from AAA issues only in a small degree; A--strong ability to
pay interest and repay principal although more susceptible to changes in
circumstances; BBB--regarded as having an adequate capacity to pay interest and
repay principal; BB, B, CCC, CC--regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB indicates the lowest degree of
speculation and CC the highest degree of speculation. While such debt will
likely have some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions; C--reserved
for income bonds on which no interest is being paid; D--in default, and payment
of interest and/or repayment of principal is in arrears.
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<PAGE>
(SAI-DIF&TR\VGA-PART B)
APPENDIX B--IRA INFORMATION
The Tax Reform Act of 1986 restructured, and in some cases eliminated,
the tax deductibility of IRA contributions. Under the Act, the full deduction
for IRAs ($2,000 for each working spouse and $2,250 for one-income couples) was
retained for all taxpayers who are not covered by an employer-sponsored
retirement plan. Even if a taxpayer (or his or her spouse) is covered by an
employer-sponsored retirement plan, the full deduction is still available if the
taxpayer's adjusted gross income is below $25,000 ($40,000 for taxpayers filing
joint returns). A partial deduction is allowed for married couples with incomes
between $40,000 and $50,000, and for single individuals with incomes between
$25,000 and $35,000. The Act does not permit deductions for contributions to
IRAs by taxpayers whose adjusted gross income before IRA deductions exceeds
$50,000 ($35,000 for singles) and who are active participants in an
employer-sponsored retirement plan. Taxpayers who were not allowed deductions on
IRA contributions still can make nondeductible IRA contributions of as much as
$2,000 for each working spouse ($2,250 for one-income couples), and defer taxes
on interest or other earnings from the IRAs. Special rules apply for determining
the deductibility of contributions made by married individuals filing separate
returns.
As illustrated in the following tables, maintaining an Individual
Retirement Account remains a valuable opportunity.
For many, an IRA will continue to offer both an up-front tax break with
its tax deduction each year and the real benefit that comes with tax-deferred
compounding. For others, losing the tax deduction will impact their taxable
income status each year. Over the long-term, however, being able to defer taxes
on earnings still provides an impressive investment opportunity--a way to have
money grow faster due to tax-deferred compounding.
-83-
<PAGE>
(SAI-DIF&TR\VGA-PART B)
Even if your IRA contribution is no longer deductible, the benefits of
saving on a tax-deferred basis can be substantial. The following tables
illustrate the benefits of tax-deferred versus taxable compounding. Each
reflects a constant 10% rate of return, compounded annually, with the
reinvestment of all proceeds. The tables do not take into account any sales
charges or fees. Of course, earnings accumulated in your IRA will be subject to
tax upon withdrawal. If you choose a mutual fund with a fluctuating net asset
value, like either Fund, your bottom line at retirement could be lower--it could
also be much higher.
$2,000 Invested Annually Assuming a 10% Annualized Return
<TABLE>
<CAPTION>
15% Tax Bracket Single -- $0 - $24,000
--------------- Joint -- $0 - $40,100
How Much You
End of Cumulative How Much You Have With Full
Year Investment Amount Have Without IRA IRA Deduction
<S> <C> <C> <C>
1 $ 2,000 $ 1,844 $ 2,200
5 10,000 10,929 13,431
10 20,000 27,363 35,062
15 30,000 52,074 69,899
20 40,000 89,231 126,005
25 50,000 145,103 216,364
30 60,000 229,114 361,887
35 70,000 355,438 596,254
40 80,000 545,386 973,704
</TABLE>
[Without IRA--investment of $1,700 ($2,000 less 15%) earning 8.5%
(10% less 15%)]
<TABLE>
<CAPTION>
28% Tax Bracket Single -- $24,001 - $58,150
--------------- Joint -- $40,101 - $96,900
End of Cumulative How Much You How Much You Have with Full IRA
Year Investment Amount Have Without IRA No Deduction Deduction
<S> <C> <C> <C> <C>
1 $ 2,000 $ 1,544 $ 1,584 $ 2,200
5 10,000 8,913 9,670 13,431
10 20,000 21,531 25,245 35,062
15 30,000 39,394 50,328 69,899
20 40,000 64,683 90,724 126,005
25 50,000 100,485 155,782 216,364
30 60,000 151,171 260,559 361,887
35 70,000 222,927 429,303 596,254
40 80,000 324,512 701,067 973,704
</TABLE>
[Without IRA--investment of $1,440 ($2,000 less 28%) earning 7.2% (10% less
28%)]
[With IRA--No Deduction--investment of $1,440 ($2,000 less 28%) earning 10%]
-84-
<PAGE>
(SAI-DIF&TR\VGA-PART B)
<TABLE>
<CAPTION>
31% Tax Bracket Single -- $58,151 - $121,300
--------------- Joint -- $96,901 - $147,700
End of Cumulative How Much You How Much You Have with Full IRA
Year Investment Amount Have Without IRA No Deduction Deduction
<S> <C> <C> <C> <C>
1 $ 2,000 $ 1,475 $ 1,518 $ 2,200
5 10,000 8,467 9,268 13,431
10 20,000 20,286 24,193 35,062
15 30,000 36,787 48,231 69,899
20 40,000 59,821 86,943 126,005
25 50,000 91,978 149,291 216,364
30 60,000 136,868 249,702 361,887
35 70,000 199,536 411,415 596,254
40 80,000 287,021 671,855 973,704
</TABLE>
[Without IRA--investment of $1,380 ($2,000 less 31%) earning 6.9% (10% less
31%)]
[With IRA--No Deduction--investment of $1,380 ($2,000 less 31%) earning 10%]
<TABLE>
<CAPTION>
36% Tax Bracket* Single -- $121,301 - $263,750
--------------- Joint -- $147,701 - $263,750
End of Cumulative How Much You How Much You Have with Full IRA
Year Investment Amount Have Without IRA No Deduction Deduction
<S> <C> <C> <C> <C>
1 $ 2,000 $ 1,362 $ 1,408 $ 2,200
5 10,000 7,739 8,596 13,431
10 20,000 18,292 22,440 35,062
15 30,000 32,683 44,736 69,899
20 40,000 52,308 80,643 126,005
25 50,000 79,069 138,473 216,364
30 60,000 115,562 231,608 361,887
35 70,000 165,327 381,602 596,254
40 80,000 233,190 623,170 973,704
</TABLE>
[Without IRA--investment of $1,280 ($2,000 less 36%) earning 6.4% (10% less
36%)]
[With IRA--No Deduction--investment of $1,280 ($2,000 less 36%) earning 10%]
-85-
<PAGE>
(SAI-DIF&TR\VGA-PART B)
<TABLE>
<CAPTION>
39.6% Tax Bracket* Single -- over $263,750
----------------- Joint -- over $263,750
End of Cumulative How Much You How Much You Have with Full IRA
Year Investment Amount Have Without IRA No Deduction Deduction
<S> <C> <C> <C> <C>
1 $ 2,000 $ 1,281 $ 1,329 $ 2,200
5 10,000 7,227 8,112 13,431
10 20,000 16,916 21,178 35,062
15 30,000 29,907 42,219 69,899
20 40,000 47,324 76,107 126,005
25 50,000 70,677 130,684 216,364
30 60,000 101,986 218,580 361,887
35 70,000 143,965 360,137 596,254
40 80,000 200,249 588,117 973,704
</TABLE>
[Without IRA--investment of $1,208 ($2,000 less 39.6%) earning 6.04% (10% less
39.6%)]
[With IRA--No Deduction--investment of $1,208 ($2,000 less 39.6%) earning 10%]
* For tax years beginning after 1992, a 36% tax rate applies to all taxable
income in excess of the maximum dollar amounts subject to the 31% tax rate.
In addition, a 10% surtax (not applicable to capital gains) applies to
certain high-income taxpayers. It is computed by applying a 39.6% rate to
taxable income in excess of $263,750. The above tables do not reflect the
personal exemption phaseout nor the limitations of itemized deductions that
may apply.
-86-
<PAGE>
(SAI-DIF&TR\VGA-PART B)
$2,000 SINGLE INVESTMENT AT A RETURN OF 10% COMPOUNDED QUARTERLY
<TABLE>
<CAPTION>
TAXABLE - TAXABLE - TAXABLE - TAXABLE - TAXABLE - TAX
YEARS 39.6%* 36%* 31% 28% 15% DEFERRED
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
10 $ 3,642 $ 3,774 $ 3,964 $ 4,083 $ 4,638 $ 5,370
15 4,915 5,184 5,581 5,833 7,062 8,800
20 6,633 7,121 7,857 8,334 10,755 14,419
30 12,081 13,436 15,572 17,012 24,939 38,716
40 22,001 25,352 30,865 34,728 57,831 103,956
</TABLE>
$2,000 INVESTED ANNUALLY AT A RETURN OF 10% COMPOUNDED QUARTERLY
<TABLE>
<CAPTION>
TAXABLE - TAXABLE - TAXABLE - TAXABLE - TAXABLE - TAX
YEARS 39.6%* 36%* 31% 28% 15% DEFERRED
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
10 $ 28,226 $ 28,833 $ 29,702 $ 30,239 $ 32,699 $ 35,834
15 50,104 51,753 54,152 55,654 62,755 72,298
20 79,629 83,239 88,573 91,966 108,525 132,049
30 173,245 185,894 205,256 217,971 284,358 390,394
40 343,773 379,596 436,523 475,187 692,097 1,084,066
</TABLE>
* For tax years beginning after 1992, a 36% tax rate applies to all
taxable income in excess of the maximum dollar amounts subject to the
31% tax rate. In addition, a 10% surtax (not applicable to capital
gains) applies to certain high-income taxpayers. It is computed by
applying a 39.6% rate to taxable income in excess of $263,750. The
above tables do not reflect the personal exemption phaseout nor the
limitations of itemized deductions that may apply.
-87-
<PAGE>
(SAI-DIF&TR\VGA-PART B)
THE VALUE OF STARTING YOUR IRA EARLY
The following illustrates how much more you would have contributing
$2,000 each January--the earliest opportunity--compared to contributing on April
15th of the following year--the latest, for each tax year.
After 5 years $3,528 more
10 years $6,113
20 years $17,228
30 years $47,295
Compounded returns for the longest period of time is the key. The above
illustration assumes a 10% rate of return and the reinvestment of all proceeds.
And it pays to shop around. If you get just 2% more per year, it can
make a big difference when you retire. A constant 8% versus 10% return, both
compounded quarterly, illustrates the point. This chart is based on a yearly
investment of $2,000 on January 1. After 30 years the difference can mean as
much as 50% more!
8% Return 10% Return
--------- ----------
10 years $31,726 $35,834
30 years $256,465 $390,394
The statistical exhibits above are for illustration purposes only and
do not reflect the actual performance for the Funds either in the past or in the
future.
-88-
<PAGE>
SAI-DIF-CHT
APPENDIX C
Decatur Income Fund Performance Overview*
The following table illustrates the total return on one share invested in
Decatur Income Fund A Class(1) during the 10-year period ended November 30,
1996. The results reflect the reinvestment of all dividends and realized
securities profits distributions at the net asset value reported at the time of
distribution. No adjustment has been made for any income taxes payable by
shareholders on income dividends or realized securities profits distributions
accepted in shares.
Decatur Income Fund A Class
<TABLE>
<CAPTION>
Cumula-
tive net
asset
Net Asset value at PERCENTAGE CHANGES DURING YEAR
Maximum Value Distributions year-end -----------------------------------------------------
offering --------------- ------------------ with all Decatur Income Fund
Year price at Begin- From From distribu- ---------------------------------------------------
ended begin- ning End invest- realized tions Maximum Offering Price Net Asset Value
Nov ning of of of ment securi- rein- to Net Asset Value to Net Asset Value
30 year(2) year year income ties profits vested Annual Cumulative(3) Annual Cumulative(4)
----- -------- ------ ---- ------ ------------ --------- ------ ------------- ------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1987 $00.00 $00.00 $00.00 $0.00 $0.00 $00.00 00.0% 00.0% 00.0% 00.0%
1988 00.00 00.00 00.00 0.00 0.00 00.00 00.00 00.0% 00.0% 00.0%
1989 00.00 00.00 00.00 0.00 0.00 00.00 00.00 00.0% 00.0% 00.0%
1990 00.00 00.00 00.00 0.00 0.00 00.00 00.00 00.0% 00.0% 00.0%
1991 00.00 00.00 00.00 0.00 0.00 00.00 00.00 00.0% 00.0% 00.0%
1992 00.00 00.00 00.00 0.00 0.00 00.00 00.00 00.0% 00.0% 00.0%
1993 00.00 00.00 00.00 0.00 0.00 00.00 00.00 00.0% 00.0% 00.0%
1994 00.00 00.00 00.00 0.00 0.00 00.00 00.00 00.0% 00.0% 00.0%
1995 00.00 00.00 00.00 0.00 0.00 00.00 00.00 00.0% 00.0% 00.0%
1996 00.00 00.00 00.00 0.00 0.00 00.00 00.00 00.0% 00.0% 00.0%
----- ------
Total Distributions $0.00 $00.00
PERCENTAGE CHANGES DURING YEAR
-----------------------------------------------------------------------
Year
ended Standard & Dow Jones Consumer
Nov Poor's 500(5) Industrial(5) Price Index(6)
30 Annual Cumulative Annual Cumulative Annual Cumulative
----- ------ ---------- ------ ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
1987 00.0% 00.0% 00.0% 00.0% 0.0% 00.0%
1988 00.0% 00.0% 00.0% 00.0% 0.0% 00.0%
1989 00.0% 00.0% 00.0% 00.0% 0.0% 00.0%
1990 00.0% 00.0% 00.0% 00.0% 0.0% 00.0%
1991 00.0% 00.0% 00.0% 00.0% 0.0% 00.0%
1992 00.0% 00.0% 00.0% 00.0% 0.0% 00.0%
1993 00.0% 00.0% 00.0% 00.0% 0.0% 00.0%
1994 00.0% 00.0% 00.0% 00.0% 0.0% 00.0%
1995 00.0% 00.0% 00.0% 00.0% 0.0% 00.0%
1996 00.0% 00.0% 00.0% 00.0% 0.0% 00.0%
</TABLE>
- ----------------------------
(1) The Decatur Income Fund A Class began paying 12b-1 payments on May 2, 1994
and performance prior to that date does not reflect such payments.
(2) Reflects a maximum sales charge of 4.75% of total investment. There are
reduced sales charges for investments of $100,000 or more.
(3) Reflects an offering price of $20.28 on November 30, 1986.
(4) Reflects a net asset value of $19.32 on November 30, 1986.
(5) Source: Interactive Data Corp.
(6) Source: John Russell Company.
This period was one of generally rising common stock prices but also covers
several years of declining prices. The results illustrated should not be
considered as representative of dividend income or capital gain or loss which
may be realized from an investment in the Series today.
The Standard & Poor's 500 Stock Index and the Dow Jones Industrial Average
are industry-accepted indices of unmanaged securities used for measuring general
market performance. The performance illustrated for these indices reflects the
reinvestment of all distributions on a quarterly basis and market price
fluctuations. The indices do not take into account any sales charges or other
fees. In seeking a particular investment objective, the Series' portfolio
primarily includes common stocks, which may differ from those in the indices,
and may also include investments in preferred and fixed income securities.
The Consumer Price Index, as prepared by the U.S. Bureau of Labor
Statistics, is the most commonly used measure of inflation. It indicates the
cost fluctuations of a representative group of consumer goods. It does not
represent a return from an investment.
*The Decatur Income Fund C Class commenced operations on November 29, 1995.
Total return for this short of a time period may not be representative of
longer-term results.
<PAGE>
SAI-DIF-CHT
APPENDIX C
Decatur Income Fund Performance Overview
The following table illustrates the total return on one share invested in
the Decatur Income Fund B Class during the period September 6, 1994 (date of
initial public offering) through November 30, 1996. The results reflect the
reinvestment of all dividends and realized securities profits distributions at
the net asset value reported at the time of distribution. No adjustment has been
made for any income taxes payable by shareholders on income dividends or
realized securities profits distributions accepted in shares.
Decatur Income Fund B Class
<TABLE>
<CAPTION>
Cumula-
tive net
asset
Net Asset value at PERCENTAGE CHANGES DURING YEAR
Maximum Value Distributions year-end -----------------------------------------------------
offering --------------- ------------------ with all Decatur Income Fund
Year price at Begin- From From distribu- ---------------------------------------------------
ended begin- ning End invest- realized tions Returns Including Returns Excluding
Nov ning of of of ment securi- rein- CDSC CDSC
30 year year(2) year income ties profits vested Annual Cumulative(2) Annual Cumulative(2)
----- -------- ------ ---- ------ ------------ --------- ------ ------------- ------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1994(1) $00.00 $00.00 $00.00 $0.00 $0.00 $00.02 00.0% 00.0% 00.0% 00.0%
1995 $00.00 00.00 00.00 0.00 0.00 00.02 00.0% 00.0% 00.0% 00.0%
1996 $00.00 00.00 00.00 0.00 0.00 00.02 00.0% 00.0% 00.0% 00.0%
----- -----
Total Distributions $0.00 $0.00
PERCENTAGE CHANGES DURING YEAR
-----------------------------------------------------------------------
Year
ended Standard & Dow Jones Consumer
Nov Poor's 500(3) Industrial(3) Price Index(4)
30 Annual Cumulative Annual Cumulative Annual Cumulative
----- ------ ---------- ------ ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
1994(1) 00.0% 00.0% 00.0% 00.0% 0.0% 0.0%
1995 00.0% 00.0% 00.0% 00.0% 0.0% 0.0%
1996 00.0% 00.0% 00.0% 00.0% 0.0% 0.0%
</TABLE>
(1) Total return provided for the period September 6, 1994 (date of initial
public offering) through November 30, 1994 is not annualized. Total return
for this short of a time period may not be representative of longer-term
results.
(2) Reflects a net asset value of $16.59 on September 2, 1994.
(3) Source: Interactive Data Corp.
(4) Source: John Russell Company.
The Standard & Poor's 500 Stock Index and the Dow Jones Industrial Average
are industry-accepted unmanaged indices of generally conservative securities
used for measuring general market performance. The performance illustrated for
these indices reflects the reinvestment of all distributions on a quarterly
basis and market price fluctuations. The indices do not take into account any
sales charges or other fees. In seeking a particular investment objective, the
Fund's portfolio primarily includes common stocks, which may differ from those
in the indices, and may also include investments in fixed income securities.
<PAGE>
SAI-DIF-CHT
APPENDIX C
Decatur Income Fund Performance Overview
The following table illustrates the total return on one share invested in
the Decatur Income Fund Institutional Class(1) during the 10-year period ended
November 30, 1996. The results reflect the reinvestment of all dividends and
realized securities profits distributions at the net asset value reported at the
time of distribution. No adjustment has been made for any income taxes payable
by shareholders on income dividends or realized securities profits distributions
accepted in shares.
Decatur Income Fund Institutional Class
<TABLE>
<CAPTION>
Cumula-
tive net
asset
Net Asset value at PERCENTAGE CHANGES DURING YEAR
Maximum Value Distributions year-end -----------------------------------------------------
offering --------------- ------------------ with all Decatur Income Fund
Year price at Begin- From From distribu- ------------------------
ended begin- ning End invest- realized tions Net Asset Value Standard &
Nov ning of of of ment securi- rein- to Net Asset Value Poor's 500(3)
30 year year year income ties profits vested Annual Cumulative(2) Annual Cumulative
----- -------- ------ ---- ------ ------------ --------- ------ ------------- ------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1987 $00.00 $00.00 $00.00 $0.00 $0.00 $00.00 00.0% 00.0% 00.0% 00.0%
1988 00.00 00.00 00.00 0.00 0.00 00.00 00.0% 00.0% 00.0% 00.0%
1989 00.00 00.00 00.00 0.00 0.00 00.00 00.0% 00.0% 00.0% 00.0%
1990 00.00 00.00 00.00 0.00 0.00 00.00 00.0% 00.0% 00.0% 00.0%
1991 00.00 00.00 00.00 0.00 0.00 00.00 00.0% 00.0% 00.0% 00.0%
1992 00.00 00.00 00.00 0.00 0.00 00.00 00.0% 00.0% 00.0% 00.0%
1993 00.00 00.00 00.00 0.00 0.00 00.00 00.0% 00.0% 00.0% 00.0%
1994 00.00 00.00 00.00 0.00 0.00 00.00 00.0% 00.0% 00.0% 00.0%
1995 00.00 00.00 00.00 0.00 0.00 00.00 00.0% 00.0% 00.0% 00.0%
1996 00.00 00.00 00.00 0.00 0.00 00.00 00.0% 00.0% 00.0% 00.0%
---- ----
Total Distributions $0.00 $00.00
PERCENTAGE CHANGES DURING YEAR
-----------------------------------------------
Year
ended Dow Jones Consumer
Nov Industrial(3) Price Index(4)
30 Annual Cumulative Annual Cumulative
----- ------ ---------- ------ ----------
<S> <C> <C> <C> <C>
1987 00.0% 00.0% 0.0% 0.0%
1988 00.0% 00.0% 0.0% 0.0%
1989 00.0% 00.0% 0.0% 0.0%
1990 00.0% 00.0% 0.0% 0.0%
1991 00.0% 00.0% 0.0% 0.0%
1992 00.0% 00.0% 0.0% 0.0%
1993 00.0% 00.0% 0.0% 0.0%
1994 00.0% 00.0% 0.0% 0.0%
1995 00.0% 00.0% 0.0% 0.0%
1996 00.0% 00.0% 0.0% 0.0%
</TABLE>
(1) Performance for Decatur Income Fund Institutional Class for periods prior to
January 13, 1994 (date of initial public offering) is calculated by taking
the performance of the Decatur Income Fund A Class and adjusting it to
reflect the elimination of all sales charges.
(2) Reflects a net asset value of $19.32 on November 30, 1986.
(3) Source: Interactive Data Corp.
(4) Source: John Russell Company.
This period was one of generally rising common stock prices but also covers
several years of declining prices. The results illustrated should not be
considered as representative of dividend income or capital gain or loss which
may be realized from an investment in the Fund today.
The Standard & Poor's 500 Stock Index and the Dow Jones Industrial Average
are industry-accepted unmanaged indices of generally-conservative securities
used for measuring general market performance. The performance illustrated for
these indices reflects the reinvestment of all distributions on a quarterly
basis and market price fluctuations. The indices do not take into account any
sales charges or other fees. In seeking a particular investment objective, the
Series' portfolio primarily includes common stocks, which may differ from those
in the indices, and may also include investments in fixed income securities.
The Consumer Price Index, as prepared by the U.S. Bureau of Labor
Statistics, is the most commonly used measure of inflation. It indicates the
cost fluctuations of a representative group of consumer goods. It does not
represent a return from an investment.
<PAGE>
(SAI-DIF&TR\VGA-PART B)
APPENDIX D--THE COMPANY LIFE CYCLE
Traditional business theory contends that a typical company progresses
through basically four stages of development, keyed closely to a firm's sales.
1. Emerging Growth--a period of experimentation in which the company
builds awareness of a new product or firm.
2. Accelerated Development--a period of rapid growth with potentially
high profitability and acceptance of the product.
3. Maturing Phase--a period of diminished real growth due to dependence
on replacement or sustained product demand.
4. Cyclical Stage--a period in which a company faces a potential
saturation of demand for its product. At this point, a firm either diversifies
or becomes obsolete.
Hypothetical Corporate Life Cycle
Hypothetical Corporate Life Cycle Chart shows in a line illustration,
the stages that a typical company would go through, beginning with the emerging
state where sales growth continues at a steep pace to the mature phase where
growth levels off to the cyclical stage where sales show more definitive highs
and lows.
The above chart illustrates the path traditionally followed by
companies that successfully survive the growth sequence.
-89-
<PAGE>
(SAI-DIF&TR\VGA-PART B)
FINANCIAL STATEMENTS
Ernst & Young LLP serves as the independent auditors for Equity Funds
II, Inc. and, in its capacity as such, audits the financial statements contained
in the Funds' Annual Report. The Delaware Group Equity Funds II, Inc. - Decatur
Income Fund's and Delaware Group Equity Funds II, Inc. - Decatur Total Return
Fund's Statements of Net Assets, Statements of Operations, Statements of Changes
in Net Assets, and Notes to Financial Statements, as well as the report of Ernst
& Young LLP, independent auditors, for the fiscal year ended November 30, 1996
are included in the Funds' Annual Report to shareholders. The financial
statements, 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. Blue Chip Fund and Quantum Fund were not offered to the public prior to the
date of this Part B.
-90-
<PAGE>
PART C
Other Information
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Part A - Financial Highlights
*Part B - Statements of Net Assets
Statements of Operations
Statements of Changes in Net Assets
Notes to Financial Statements
Accountant's Reports
* The financial statements and Accountant's Reports listed above
for Decatur Income Fund and Decatur Total Return Fund for the
fiscal year ended November 30, 1996 to be filed by
Post-Effective Amendment. Blue Chip Fund and Quantum Fund are
expected to commence operations on or about January 29, 1997.
(b) Exhibits:
(1) Articles of Incorporation.
(a) Articles of Incorporation, as amended
and supplemented to date, incorporated
into this filing by reference to
Post-Effective Amendment No. 104 filed
November 27, 1995.
(b) Executed Articles Supplementary
(November 28, 1995) incorporated into
this filing by reference to
Post-Effective Amendment No. 105 filed
January 30, 1996.
(c) Form of Articles Supplementary (1997)
attached as Exhibit.
(d) Form of Articles of Amendment (1997)
attached as Exhibit.
(2) By-Laws. By-Laws, as amended to date,
incorporated into this filing by reference to
Post-Effective Amendment No. 104 filed November
27, 1995.
(3) Voting Trust Agreement. Inapplicable.
(4) Copies of All Instruments Defining the Rights of
Holders.
(a) Articles of Incorporation, Articles of
Amendment and Articles Supplementary.
(i) Article Second of Articles
Supplementary (June 30, 1993,
April 27, 1994 and September 2,
1994), Article Fifth of the
Articles of Incorporation (March
4, 1983) and Article Eleventh of
Articles of Amendment (May 2,
1985) incorporated into this
filing by reference to
Post-Effective Amendment No. 104
filed November 27, 1995.
(ii) Articles Third and Fourth of
Articles Supplementary
(November 28, 1995)
incorporated into this filing
by reference to Post-Effective
Amendment No. 105 filed January
30, 1996.
<PAGE>
PART C - Other Information
(Continued)
(iii) Form of Articles Supplementary
(1997) attached as Exhibit
24(b)(1)(c).
(b) By-Laws. Article II, Article III, as
amended, and Article XIII, which was
subsequently redesignated as Article
XIV, incorporated into this filing by
reference to Post-Effective Amendment
No. 104 filed November 27, 1995.
(5) Investment Management Agreements.
(a) Investment Management Agreement (April
3, 1995) between Delaware Management
Company, Inc. and the Registrant on
behalf of Decatur Income Fund
incorporated into this filing by
reference to Post-Effective Amendment
No. 104 filed November 27, 1995.
(b) Investment Management Agreement (April
3, 1995) between Delaware Management
Company, Inc. and the Registrant on
behalf of Decatur Total Return Fund
incorporated into this filing by
reference to Post-Effective Amendment
No. 104 filed November 27, 1995.
(c) Proposed Investment Management Agreement
(1997) between Delaware Management
Company, Inc. and the Registrant on
behalf of Blue Chip Fund attached as
Exhibit.
(d) Proposed Investment Management Agreement
(1997) between Delaware Management
Company, Inc. and the Registrant on
behalf of Quantum Fund attached as
Exhibit.
(e) Proposed Sub-Advisory Agreement (1997)
between Delaware Management Company,
Inc. and Vantage Global Advisors, Inc.
on behalf of Blue Chip Fund attached as
Exhibit.
(f) Proposed Sub-Advisory Agreement (1997)
between Delaware Management Company,
Inc. and Vantage Global Advisors, Inc.
on behalf of Quantum Fund attached as
Exhibit.
(6) (a) Distribution Agreements.
(i) Form of Distribution Agreements
(April 1995) between Delaware
Distribution, L.P. and the
Registrant on behalf of Decatur
Income Fund and Decatur Total
Return Fund incorporated into
this filing by reference to
Post-Effective Amendment No. 104
filed November 27, 1995.
(ii) Form of Amendment No. 1 to
Distribution Agreement (November
1995) on behalf of Decatur
Income Fund and Decatur Total
Return Fund incorporated into
this filing by reference to
Post-Effective Amendment No. 104
filed November 27, 1995.
<PAGE>
PART C - Other Information
(Continued)
(iii) Proposed Distribution Agreement
(1997) between Delaware
Distribution, L.P. and the
Registrant on behalf of Blue
Chip Fund and Quantum Fund
included as Module.
(b) Administration and Service Agreement.
Form of Administration and Service
Agreement (as amended November 1995)
(Module) incorporated into this filing
by reference to Post-Effective Amendment
No. 104 filed November 27, 1995.
(c) Dealer's Agreement. Dealer's Agreement
(Module) (as amended November 1995)
incorporated into this filing by
reference to Post-Effective Amendment
No. 104 filed November 27, 1995.
(d) Mutual Fund Agreement for the Delaware
Group of Funds (Module) (November 1995)
incorporated into this filing by
reference to Post-Effective Amendment
No. 105 filed January 30, 1996.
(7) Bonus, Profit Sharing, Pension Contracts.
(a) Amended and Profit Sharing Plan
incorporated into this filing by
reference to Post-Effective Amendment
No. 104 filed November 27, 1995.
(b) Amendment to Profit Sharing Plan
(December 21, 1995) (Module)
incorporated into this filing by
reference to Post-Effective Amendment
No. 105 filed January 30, 1996.
(8) Custodian Agreements.
(a) Form of Custodian Agreement (1996)
between Bankers Trust Company and the
Registrant on behalf of Decatur Income
Fund and Decatur Total Return Fund
attached as Exhibit.
(b) Form of Securities Lending Agreement
(1996) between Bankers Trust Company
and the Registrant on behalf of Decatur
Income Fund and Decatur Total Return
Fund attached as Exhibit.
(c) Proposed Custodian Agreement (1997)
between The Chase Manhattan Bank and the
Registrant on behalf of Blue Chip Fund
and Quantum Fund attached as Exhibit.
(d) Proposed Securities Lending Agreement
(1997) between The Chase Manhattan Bank
and the Registrant on behalf of Blue
Chip Fund and Quantum Fund attached as
Exhibit.
(9) Other Material Contracts.
(a) Proposed Amended and Restated
Shareholders Services Agreement (1997)
between Delaware Service Company, Inc.
and the Registrant on behalf of each
Fund included as Module.
<PAGE>
PART C - Other Information
(Continued)
(b) Executed Fund Accounting Agreement
(August 19, 1996) between Delaware
Service Company, Inc. and the Registrant
attached as Exhibit.
(c) Executed Amendment No. 1 (September 30,
1996) to Schedule A to Delaware Group of
Funds Fund Accounting Agreement attached
as Exhibit.
(d) Proposed Amendment to Schedule A to
Delaware Group of Funds Fund Accounting
Agreement for Blue Chip Fund and Quantum
Fund included as Module.
(10) Opinion of Counsel. To be filed with letter
relating to Rule 24f-2 on or about January 29,
1997.
(11) Consent of Auditors. To be filed by
Post-Effective Amendment.
(12-13) Inapplicable.
(14) Model Plans. Incorporated into this filing by
reference to Post-Effective Amendment No. 93
filed February 1, 1993, Post-Effective Amendment
No. 95 filed May 27, 1993 and Post-Effective
Amendment No. 104 filed November 27, 1995.
(15) Plans under Rule 12b-1.
(a) Form of Plan under Rule 12b-1 for Class
A (November 1995) for Decatur Income
Fund and Decatur Total Return Fund
incorporated into this filing by
reference to Post-Effective Amendment
No. 104 filed November 27, 1995.
(b) Form of Plan under Rule 12b-1 for Class
B (November 1995) for Decatur Income
Fund and Decatur Total Return Fund
incorporated into this filing by
reference to Post-Effective Amendment
No. 104 filed November 27, 1995.
(c) Form of Plan under Rule 12b-1 for Class
C (November 1995) for Decatur Income
Fund and Decatur Total Return Fund
incorporated into this filing by
reference to Post-Effective Amendment
No. 104 filed November 27, 1995.
(d) Proposed Plan under Rule 12b-1 for Blue
Chip Fund and Quantum Fund Class A
(1997) included as Module.
(e) Proposed Plan under Rule 12b-1 for Blue
Chip Fund and Quantum Fund Class B
(1997) included as Module.
<PAGE>
PART C - Other Information
(Continued)
(f) Proposed Plan under Rule 12b-1 for Blue
Chip Fund and Quantum Fund Class C
(1997) included as Module.
(16) Schedules of Computation for each Performance
Quotation.
(a) Incorporated into this filing by
reference to Post-Effective Amendment
No. 104 filed November 27, 1995 and
Post-Effective Amendment No. 105 filed
January 30, 1996.
(b) Schedules of Computation for each
Performance Quotation for periods not
previously electronically filed to be
filed by Post-Effective Amendment.
(17) Financial Data Schedules. To be filed by
Post-Effective Amendment.
(18) Plan under Rule 18f-3.
(a) Plan under Rule 18f-3 (November 29,
1995) (Module) incorporated into this
filing by reference to Post-Effective
Amendment No. 105 filed January 30,
1996.
(b) Amended Appendix A (September 30, 1996)
to Plan under Rule 18f-3 attached as
Exhibit.
(c) Proposed Amended Appendix A to Plan
under Rule 18f-3 included as Module.
(19) Other: Directors' Power of Attorney.
Incorporated into this filing by
reference to Post-Effective Amendment
No. 104 filed November 27, 1995.
Item 25. Persons Controlled by or under Common Control with Registrant.
None.
<PAGE>
PART C - Other Information
(Continued)
Item 26. Number of Holders of Securities.
(1) (2)
Number of
Title of Class Record Holders*
-------------- ---------------
Delaware Group Decatur Fund, Inc.'s
Decatur Income Fund series:
Decatur Income Fund A Class
Common Stock Par Value 75,341 Accounts as of
$1.00 Per Share October 31, 1996
Decatur Income Fund B Class
Common Stock Par Value 2,903 Accounts as of
$1.00 Per Share October 31, 1996
Decatur Income Fund C Class
Common Stock Par Value 241 Accounts as of
$1.00 Per Share October 31, 1996
Decatur Income Fund Institutional Class
Common Stock Par Value 93 Accounts as of
$1.00 Per Share October 31, 1996
Delaware Group Decatur Fund, Inc.'s
Decatur Total Return Fund series:
Decatur Total Return Fund A Class
Common Stock Par Value 36,432 Accounts as of
$1.00 Per Share October 31, 1996
Decatur Total Return Fund B Class
Common Stock Par Value 3,193 Accounts as of
$1.00 Per Share October 31, 1996
Decatur Total Return Fund C Class
Common Stock Par Value 383 Accounts as of
$1.00 Per Share October 31, 1996
<PAGE>
PART C - Other Information
(Continued)
(1) (2)
Number of
Title of Class Record Holders
-------------- --------------
Decatur Total Return Fund Institutional Class
Common Stock Par Value 23 Accounts as of
$1.00 Per Share October 31, 1996
Delaware Group Decatur Fund, Inc.'s
Blue Chip Fund series:
Blue Chip Fund A Class
Common Stock Par Value 0 Accounts as of
$1.00 Per Share October 31, 1996
Blue Chip Fund B Class
Common Stock Par Value 0 Accounts as of
$1.00 Per Share October 31, 1996
Blue Chip Fund C Class
Common Stock Par Value 0 Accounts as of
$1.00 Per Share October 31, 1996
Blue Chip Fund Institutional Class 0 Accounts as of
Common Stock Par Value October 31, 1996
$1.00 Per Share
Delaware Group Decatur Fund, Inc.'s
Quantum Fund series:
Quantum Fund A Class
Common Stock Par Value 0 Accounts as of
$1.00 Per Share October 31, 1996
Quantum Fund B Class
Common Stock Par Value 0 Accounts as of
$1.00 Per Share October 31, 1996
Quantum Fund C Class
Common Stock Par Value 0 Accounts as of
$1.00 Per Share October 31, 1996
<PAGE>
PART C - Other Information
(Continued)
(1) (2)
Number of
Title of Class Record Holders
-------------- --------------
Quantum Fund Institutional Class 0 Accounts as of
Common Stock Par Value October 31, 1996
$1.00 Per Share
*Shares of Blue Chip Fund and Quantum Fund Classes were not offered prior to the
effective date of this Registration Statement.
Item 27. Indemnification. Incorporated into this filing by reference to
Post-Effective Amendment No. 75 filed May 23, 1986 and Article
VII of the By-Laws, as amended, incorporated into this filing by
reference to Post-Effective Amendment No. 104 filed November 27,
1995.
Item 28. Business and Other Connections of Investment Adviser.
Delaware Management Company, Inc. (the "Manager") also serves as
investment manager to the Registrant and also serves as investment manager or
sub-adviser to certain of the other funds in the Delaware Group (Delaware Group
Delaware Fund, Inc., Delaware Group Trend Fund, Inc., Delaware Group Value Fund,
Inc., Delaware Group DelCap Fund, Inc., Delaware Group Income Funds, Inc.,
Delaware Group Government Fund, Inc., Delaware Group Limited-Term Government
Funds, Inc., Delaware Group Cash Reserve, Inc., Delaware Group Tax-Free Fund,
Inc., DMC Tax-Free Income Trust-Pennsylvania, Delaware Group Tax-Free Money
Fund, Inc., Delaware Group Premium Fund, Inc., Delaware Group Global &
International Funds, Inc., Delaware Pooled Trust, Inc., Delaware Group Adviser
Funds, Inc., Delaware Group Dividend and Income Fund, Inc. and Delaware Group
Global Dividend and Income Fund, Inc.) and provides investment advisory services
to institutional accounts, primarily retirement plans and endowment funds. In
addition, certain directors of the Manager also serve as directors/trustees of
the other Delaware Group funds, and certain officers are also officers of these
other funds. A company indirectly owned by the Manager's parent company acts as
principal underwriter to the mutual funds in the Delaware Group (see Item 29
below) and another such company acts as the shareholder servicing, dividend
disbursing, accounting services and transfer agent for all of the mutual funds
in the Delaware Group.
<PAGE>
PART C - Other Information
(Continued)
The following persons serving as directors or officers of the
Manager have held the following positions during the past two years:
Name and Principal Positions and Offices with the Manager and its
Business Address* Affiliates and Other Positions and Offices Held
- -------------------------- -----------------------------------------------
Wayne A. Stork Chairman of the Board, President, Chief
Executive Officer, Chief Investment Officer and
Director of Delaware Management Company, Inc.;
President, Chief Executive Officer, Chairman of
the Board and Director of the Registrant and,
with the exception of Delaware Pooled Trust,
Inc., each of the other funds in the Delaware
Group, Delaware Management Holdings, Inc., DMH
Corp., Delaware International Holdings Ltd. and
Founders Holdings, Inc.; Chairman of the Board
and Director of Delaware Pooled Trust, Inc.,
Delaware Distributors, Inc., Delaware Capital
Management, Inc. and Delaware Investment &
Retirement Services, Inc.; Chairman, Chief
Executive Officer and Director of Delaware
International Advisers Ltd.; and Director of
Delaware Service Company, Inc.
Winthrop S. Jessup Executive Vice President and Director of
Delaware Management Company, Inc., DMH Corp.,
Delaware International Holdings Ltd. and
Founders Holdings, Inc.; Executive Vice
President of the Registrant and, with the
exception of Delaware Pooled Trust, Inc., each
of the other funds in the Delaware Group and
Delaware Management Holdings, Inc.; President
and Chief Executive Officer of Delaware Pooled
Trust, Inc.; Vice Chairman of Delaware
Distributors, L.P.; Vice Chairman and Director
of Delaware Distributors, Inc.; Director of
Delaware Service Company, Inc., Delaware
Management Trust Company, Delaware International
Advisers Ltd. and Delaware Investment &
Retirement Services, Inc.; and President and
Director of Delaware Capital Management, Inc.
Richard G. Unruh, Jr. Executive Vice President and Director of
Delaware Management Company, Inc.; Executive
Vice President of the Registrant and each of the
other funds in the Delaware Group; Senior Vice
President of Delaware Management Holdings, Inc.
and Delaware Capital Management, Inc; and
Director of Delaware International Advisers Ltd.
Board of Directors, Chairman of Finance
Committee, Keystone Insurance Company since
1989, 2040 Market Street, Philadelphia, PA;
Board of Directors, Chairman of Finance
Committee, Mid Atlantic, Inc. since 1989, 2040
Market Street, Philadelphia, PA
*Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
PART C - Other Information
(Continued)
Name and Principal Positions and Offices with the Manager and its
Business Address* Affiliates and Other Positions and Offices Held
- ------------------------ -----------------------------------------------
Paul E. Suckow Executive Vice President/Chief Investment
Officer, Fixed Income of Delaware Management
Company, Inc., the Registrant and each of the
other funds in the Delaware Group; Executive
Vice President/Chief Investment Officer and
Director of Founders Holdings, Inc.; Senior Vice
President/Chief Investment Officer, Fixed Income
of Delaware Management Holdings, Inc.; Senior
Vice President of Delaware Capital Management,
Inc.; and Director of Founders CBO Corporation
Director, HYPPCO Finance Company Ltd.
David K. Downes Senior Vice President, Chief Administrative
Officer and Chief Financial Officer of Delaware
Management Company, Inc., the Registrant and
each of the other funds in the Delaware Group;
Chairman and Director of Delaware Management
Trust Company; Executive Vice President and
Chief Operating Officer, Chief Administrative
Officer, Chief Financial Officer and Treasurer
of Delaware Management Holdings, Inc.; Senior
Vice President, Chief Financial Officer,
Treasurer and Director of DMH Corp.; Senior Vice
President and Chief Administrative Officer of
Delaware Distributors, L.P.; Senior Vice
President, Chief Administrative Officer and
Director of Delaware Distributors, Inc.; Senior
Vice President, Chief Administrative Officer,
Chief Financial Officer and Director of Delaware
Service Company, Inc.; Chief Financial Officer
and Director of Delaware International Holdings
Ltd.; Senior Vice President, Chief Financial
Officer and Treasurer of Delaware Capital
Management, Inc.; Senior Vice President, Chief
Financial Officer and Director of Founders
Holdings, Inc.; Chief Executive Officer and
Director of Delaware Investment & Retirement
Services, Inc.; and Director of Delaware
International Advisers Ltd.
Chief Executive Officer, Chief Financial Officer
and Treasurer of Forewarn, Inc. since 1992, 8
Clayton Place, Newtown Square, PA
George M. Chamberlain, Jr. Senior Vice President, Secretary and Director of
Delaware Management Company, Inc., DMH Corp.,
Delaware Distributors, Inc., Delaware Service
Company, Inc., Founders Holdings, Inc., Delaware
Capital Management, Inc. and Delaware Investment
& Retirement Services, Inc.; Senior Vice
President and Secretary of the Registrant, each
of the other funds in the Delaware Group,
Delaware Distributors, L.P. and Delaware
Management Holdings, Inc.; Executive Vice
President, Secretary and Director of Delaware
Management Trust Company; Secretary and Director
of Delaware International Holdings Ltd.; and
Director of Delaware International Advisers Ltd.
*Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
PART C - Other Information
(Continued)
Name and Principal Positions and Offices with the Manager and its
Business Address* Affiliates and Other Positions and Offices Held
- ------------------------ -----------------------------------------------
Richard J. Flannery Managing Director/Corporate Tax & Affairs of
Delaware Management Company, Inc., Delaware
Management Holdings, Inc., DMH Corp., Delaware
Distributors, L.P., Delaware Distributors, Inc.,
Delaware Service Company, Inc., Delaware
Management Trust Company, Founders CBO
Corporation, Delaware Capital Management, Inc.
and Delaware Investment & Retirement Services,
Inc.; Vice President of the Registrant and each
of the other funds in the Delaware Group;
Managing Director/Corporate Tax & Affairs and
Director of Founders Holdings, Inc.; Managing
Director and Director of Delaware International
Holdings Ltd.; and Director of Delaware
International Advisers Ltd.
Director, HYPPCO Finance Company Ltd.
Limited Partner of Stonewall Links, L.P. since
1991, Bulltown Rd., Elverton, PA; Director and
Member of Executive Committee of Stonewall
Links, Inc. since 1991, Bulltown Rd., Elverton,
PA
Michael P. Bishof(1) Vice President and Treasurer of Delaware
Management Company, Inc., the Registrant, each
of the other funds in the Delaware Group,
Delaware Distributors, L.P., Delaware
Distributors, Inc., Delaware Service Company,
Inc. and Founders Holdings, Inc.; Assistant
Treasurer of Founders CBO Corporation; and Vice
President and Manager of Investment Accounting
of Delaware International Holdings Ltd.
Eric E. Miller Vice President and Assistant Secretary of
Delaware Management Company, Inc., the
Registrant, each of the other funds in the
Delaware Group, Delaware Management Holdings,
Inc., DMH Corp., Delaware Distributors, L.P.,
Delaware Distributors Inc., Delaware Service
Company, Inc., Delaware Management Trust
Company, Founders Holdings, Inc., Delaware
Capital Management, Inc. and Delaware Investment
& Retirement Services, Inc.
Richelle S. Maestro Vice President and Assistant Secretary of
Delaware Management Company, Inc., the
Registrant, each of the other funds in the
Delaware Group, Delaware Management Holdings,
Inc., Delaware Distributors, L.P., Delaware
Distributors, Inc., Delaware Service Company,
Inc., DMH Corp., Delaware Management Trust
Company, Delaware Capital Management, Inc.,
Delaware Investment & Retirement Services, Inc.
and Founders Holdings, Inc.; Secretary of
Founders CBO Corporation; and Assistant
Secretary of Delaware International Holdings
Ltd.
General Partner of Tri-R Associates since 1989,
10001 Sandmeyer Ln., Philadelphia, PA
*Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
PART C - Other Information
(Continued)
Name and Principal Positions and Offices with the Manager and its
Business Address* Affiliates and Other Positions and Offices Held
- ------------------------ -----------------------------------------------
Joseph H. Hastings Vice President/Corporate Controller of Delaware
Management Company, Inc., the Registrant, each
of the other funds in the Delaware Group,
Delaware Management Holdings, Inc., DMH Corp.,
Delaware Distributors, L.P., Delaware
Distributors, Inc., Delaware Service Company,
Inc., Delaware Capital Management, Inc.,
Founders Holdings, Inc. and Delaware
International Holdings Ltd.; Executive Vice
President, Chief Financial Officer and Treasurer
of Delaware Management Trust Company; Chief
Financial Officer and Treasurer of Delaware
Investment & Retirement Services, Inc.; and
Assistant Treasurer of Founders CBO Corporation
Bruce A. Ulmer Vice President/Director of Internal Audit of
Delaware Management Company, Inc., the
Registrant, each of the other funds in the
Delaware Group, Delaware Management Holdings,
Inc., DMH Corp. and Delaware Management Trust
Company; and Vice President/Internal Audit of
Delaware Investment & Retirement Services, Inc.
Steven T. Lampe(2) Vice President/Taxation of Delaware Management
Company, Inc., the Registrant, each of the other
funds in the Delaware Group, Delaware Management
Holdings, Inc., DMH Corp., Delaware
Distributors, L.P., Delaware Distributors, Inc.,
Delaware Service Company, Inc., Delaware
Management Trust Company, Founders Holdings,
Inc., Founders CBO Corporation, Delaware Capital
Management, Inc. and Delaware Investment &
Retirement Services, Inc.
Lisa O. Brinkley Vice President/Compliance of Delaware Management
Company, Inc., the Registrant, each of the other
funds in the Delaware Group, DMH Corp., Delaware
Distributors, L.P., Delaware Distributors, Inc.,
Delaware Service Company, Inc., Delaware
Management Trust Company, Delaware Capital
Management, Inc. and Delaware Investment &
Retirement Services, Inc.
Rosemary E. Milner Vice President/Legal of Delaware Management
Company, Inc., the Registrant, each of the other
funds in the Delaware Group, Delaware
Distributors, L.P. and Delaware Distributors,
Inc.
*Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
PART C - Other Information
(Continued)
Name and Principal Positions and Offices with the Manager and its
Business Address* Affiliates and Other Positions and Offices Held
- ------------------------ -----------------------------------------------
Douglas L. Anderson Vice President/Operations of Delaware Management
Company, Inc., Delaware Investment and
Retirement Services, Inc. and Delaware Service
Company, Inc.; and Vice President/Operations and
Director of Delaware Management Trust Company
Michael T. Taggart Vice President/Facilities Management and
Administrative Services of Delaware Management
Company, Inc.
Gerald T. Nichols Vice President/Senior Portfolio Manager of
Delaware Management Company, Inc., each of the
tax-exempt funds, the fixed income funds and the
closed-end funds in the Delaware Group; Vice
President of Founders Holdings, Inc.; and
Treasurer, Assistant Secretary and Director of
Founders CBO Corporation
Gary A. Reed Vice President/Senior Portfolio Manager of
Delaware Management Company, Inc., each of the
tax-exempt funds and the fixed income funds in
the Delaware Group and Delaware Capital
Management, Inc.
Paul A. Matlack Vice President/Senior Portfolio Manager of
Delaware Management Company, Inc., each of the
tax-exempt funds, the fixed income funds and the
closed-end funds in the Delaware Group; Vice
President of Founders Holdings, Inc.; and
President and Director of Founders CBO
Corporation.
Patrick P. Coyne Vice President/Senior Portfolio Manager of
Delaware Management Company, Inc., each of the
tax-exempt funds and the fixed income funds in
the Delaware Group and Delaware Capital
Management, Inc.
Roger A. Early Vice President/Senior Portfolio Manager of
Delaware Management Company, Inc., each of the
tax-exempt funds and the fixed income funds in
the Delaware Group
*Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
PART C - Other Information
(Continued)
Name and Principal Positions and Offices with the Manager and its
Business Address* Affiliates and Other Positions and Offices Held
- ------------------------ -----------------------------------------------
Edward N. Antoian Vice President/Senior Portfolio Manager of
Delaware Management Company, Inc., the
Registrant and each of the equity funds in the
Delaware Group and Delaware Capital Management,
Inc.
General Partner of Zeke Investment Partners
since 1991, 569 Canterbury Lane, Berwyn, PA
George H. Burwell Vice President/Senior Portfolio Manager of
Delaware Management Company, Inc., the
Registrant and each of the equity funds in the
Delaware Group
John B. Fields Vice President/Senior Portfolio Manager of
Delaware Management Company, Inc., the
Registrant, each of the equity funds in the
Delaware Group and Delaware Capital Management,
Inc.
David C. Dalrymple Vice President/Senior Portfolio Manager of
Delaware Management Company, Inc., the
Registrant and each of the equity funds in the
Delaware Group
Gerald S. Frey(3) Vice President/Senior Portfolio Manager of
Delaware Management Company, Inc., the
Registrant and each of the equity funds in the
Delaware Group
Faye P. Staples(4) Vice President/Human Resources of Delaware
Management Company, Inc., Delaware Distributors,
L.P. and Delaware Distributors, Inc.; and Vice
President/Director of Human Resources of
Delaware Service Company, Inc.
1 VICE PRESIDENT/GLOBAL INVESTMENT MANAGEMENT OPERATIONS, Bankers Trust and
VICE PRESIDENT, CS First Boston Investment Management prior to June 1995.
2 TAX MANAGER, Price Waterhouse prior to October 1995.
3 SENIOR DIRECTOR, Morgan Grenfell Capital Management prior to June 1996.
4 VICE PRESIDENT/HUMAN RESOURCES, Nova Care prior to September 1995.
*Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
PART C - Other Information
(Continued)
Vantage Global Advisors, Inc. ("Vantage"), 630 Fifth Avenue, New York,
NY 10111, is an indirect, wholly owned subsidiary of Lincoln National
Corporation and an affiliate of Delaware Management Company, Inc. Vantage
provides investment advice to pension plans, endowments, insurance and
commingled products. Vantage serves as sub-investment adviser to the Blue Chip
Fund series and the Quantum Fund series. The directors and officers of Vantage
are listed below. Unless otherwise indicated, the principal business address of
each person is 630 Fifth Avenue, New York, NY 10111.
Positions and Offices with
Name and Principal Vantage Global Advisors, Inc. and its
Business Address Affiliates and Other Positions and Offices Held
- ------------------------ -----------------------------------------------
T. Scott Wittman President, Chief Investment Officer and Director
of Vantage Global Advisors, Inc.
Elliot M. Gartner Senior Vice President of Vantage Global
Advisors, Inc.
John B. Guerard Senior Vice President of Vantage Global
Advisors, Inc.
Marc C. Viani Vice President of Vantage Global Advisors, Inc.
Florence P. Leong Vice President of Vantage Global Advisors, Inc.
Evelyn M. Poy Vice President of Vantage Global Advisors, Inc.
*Dennis A. Blume Director of Vantage Global Advisors, Inc.
Senior Vice President and Director of Lincoln
Investment Management, Inc. since 1982, 200 East
Berry Street, Fort Wayne, IN; Director of Lynch
& Mayer, Inc. since 1996, 520 Madison Avenue,
New York, NY
*H. Thomas McMeekin Director of Vantage Global Advisors, Inc.
President and Director of Lincoln Investment
Management, Inc., Lincoln National Convertible
Securities Fund, Inc., Lincoln National Income
Fund, Inc. since 1994; Executive Vice President
and Chief Investment Officer of Lincoln National
Corporation since 1994; President, Chief
Executive Officer and Director of Lincoln
National Mezzanine Corporation, 200 East Berry
Street, Fort Wayne, IN; Director of Lynch &
Mayer, Inc., 520 Madison Avenue, New York, NY
**Bruce D. Barton(1) Director of Vantage Global Advisors, Inc.
President and Chief Executive Officer of
Delaware Distributors, L.P. since 1996, 1818
Market Street, Philadelphia,PA;
1 SENIOR VICE PRESIDENT AND DIRECTOR, Lincoln National Investment
Companies February 1996 to October 1996; VICE PRESIDENT, Lincoln
National Corporation May 1992 to October 1996.
* Business address is 200 East Berry Street, Fort Wayne, IN 46802.
** Business address is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
PART C - Other Information
(Continued)
Item 29. Principal Underwriters.
(a) Delaware Distributors, L.P. serves as principal
underwriter for all the mutual funds in the
Delaware Group.
(b) Information with respect to each director,
officer or partner of principal underwriter:
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address* with Underwriter with Registrant
- ------------------ --------------------- ---------------------
<S> <C> <C>
Delaware Distributors, Inc. General Partner None
Delaware Management
Company, Inc. Limited Partner Investment Manager
Delaware Capital
Management, Inc. Limited Partner None
Winthrop S. Jessup Vice Chairman Executive Vice President
Bruce Barton President and Chief None
Executive Officer
David K. Downes Senior Vice President and Senior Vice President/Chief
Chief Administrative Officer Administrative Officer/Chief
Financial Officer
George M. Chamberlain, Jr. Senior Vice President/ Senior Vice President/
Secretary Secretary
J. Lee Cook Senior Vice President/ None
Eastern Sales Division
Thomas E. Sawyer Senior Vice President/ None
Western Sales Division
Stephen H. Slack Senior Vice President/ None
Wholesaler
</TABLE>
*Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
PART C - Other Information
(Continued)
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address* with Underwriter with Registrant
- ------------------ --------------------- ---------------------
<S> <C> <C>
William F. Hostler Senior Vice President/ None
Marketing Services
Dana B. Hall Senior Vice President/ None
Key Accounts
J. Chris Meyer Senior Vice President/ None
Product Development
Richard J. Flannery Managing Director/Corporate Vice President
& Tax Affairs
Eric E. Miller Vice President/ Vice President/
Assistant Secretary Assistant Secretary
Richelle S. Maestro Vice President/ Vice President/
Assistant Secretary Assistant Secretary
Michael P. Bishof Vice President/Treasurer Vice President/Treasurer
Steven T. Lampe Vice President/Taxation Vice President/Taxation
Joseph H. Hastings Vice President/ Vice President/
Corporate Controller Corporate Controller
Lisa O. Brinkley Vice President/ Vice President/
Compliance Compliance
Rosemary E. Milner Vice President/Legal Vice President/Legal
Susan J. Black Vice President/ None
Manager Key Accounts
Daniel H. Carlson Vice President/ None
Marketing Manager
</TABLE>
*Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
PART C - Other Information
(Continued)
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address* with Underwriter with Registrant
- ------------------ --------------------- ---------------------
<S> <C> <C>
Diane M. Anderson Vice President/ None
Retirement Services
Denise F. Guerriere Vice President/Client Services None
Julia R. Vander Els Vice President/ None
Client Services
Jerome J. Alrutz Vice President/ None
Client Services
Joanne A. Mettenheimer Vice President/ None
National Accounts
Christopher H. Price Vice President/Annuity None
Marketing & Administration
Steven J. DeAngelis Vice President/ None
Product Development
Susan T. Friestedt Vice President/ None
Customer Service
Dinah J. Huntoon Vice President/ None
Product Management
Soohee Zebedee Vice President/Fixed Income None
Product Management
Ellen M. Krott Vice President/ None
Communications
Holly W. Riemel Vice President/ None
Telemarketing
Frank Albanese Vice President/Wholesaler None
Terrence L. Bussard Vice President/Wholesaler None
</TABLE>
*Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
PART C - Other Information
(Continued)
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address* with Underwriter with Registrant
- ------------------ --------------------- ---------------------
<S> <C> <C>
William S. Carroll Vice President/Wholesaler None
William S. Castetter Vice President/Wholesaler None
Thomas J. Chadie Vice President/Wholesaler None
Thomas C. Gallagher Vice President/Wholesaler None
Douglas R. Glennon Vice President/Wholesaler None
William M. Kimbrough Vice President/Wholesaler None
Mac McAuliffe Vice President/Wholesaler None
Patrick L. Murphy Vice President/Wholesaler None
Henry W. Orvin Vice President/Wholesaler None
Philip G. Rickards Vice President/Wholesaler None
Elizabeth Roman Vice President/Wholesaler None
Michael W. Rose Vice President/Wholesaler None
Edward B. Sheridan Vice President/Wholesaler None
Robert E. Stansbury Vice President/Wholesaler None
Larry D. Stone Vice President/Wholesaler None
Faye P. Staples Vice President/Human Resources None
John Wells Vice President/Marketing None
Technology
</TABLE>
*Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
PART C - Other Information
(Continued)
(c) Not Applicable.
Item 30. Location of Accounts and Records.
All accounts and records are maintained in Philadelphia at 1818
Market Street, Philadelphia, PA 19103 or One Commerce Square,
Philadelphia, PA 19103.
Item 31. Management Services. None.
Item 32. Undertakings.
(a) Not Applicable.
(b) The Registrant hereby undertakes to file a
post-effective amendment, using financial statements
which need not be certified, within four to six months
from the public offering of shares of the Blue Chip
Fund.
The Registrant hereby undertakes to file a
post-effective amendment, using financial statements
which need not be certified, within four to six months
from the public offering of shares of the Quantum
Fund.
(c) The Registrant hereby undertakes to furnish each
person to whom a prospectus is delivered with a copy
of the Registrant's latest annual report to
shareholders, upon request and without charge.
(d) The Registrant hereby undertakes to promptly call a
meeting of shareholders for the purpose of voting upon
the question of removal of any director when requested
in writing to do so by the record holders of not less
than 10% of the outstanding shares.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, this Registrant has duly caused this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in
this City of Philadelphia and Commonwealth of Pennsylvania on this 25th day
of November, 1996.
DELAWARE GROUP DECATUR FUND, INC.
By /s/ Wayne A. Stork
-------------------------------------
Wayne A. Stork
Chairman of the Board, President,
Chief Executive Officer and Director
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
- --------------------------------- ------------------------------------------ ----------------
<S> <C> <C>
/s/ Wayne A. Stork Chairman of the Board, President, November 25, 1996
- --------------------------------- Chief Executive Officer and Director
Wayne A. Stork
Senior Vice President/Chief Administrative November 25, 1996
Officer/Chief Financial Officer (Principal
/s/ David K. Downes Financial Officer and Principal Accounting
- ---------------------------------- Officer)
David K. Downes
/s/ Walter P. Babich Director November 25, 1996
- ---------------------------------
Walter P. Babich
/s/ Anthony D. Knerr Director November 25, 1996
- ---------------------------------
Anthony D. Knerr
/s/ Ann R. Leven Director November 25, 1996
- ---------------------------------
Ann R. Leven
/s/ W. Thacher Longstreth Director November 25, 1996
- ---------------------------------
W. Thacher Longstreth
/s/ Charles E. Peck Director November 25, 1996
- ---------------------------------
Charles E. Peck
</TABLE>
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Exhibits
to
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Exhibit
- ----------- -------
<S> <C>
EX-99.B1C Form of Articles Supplementary (1997)
EX-99.B1D Form of Articles of Amendment (1997)
EX-99.B5C Proposed Investment Management Agreement (1997) on behalf of Blue Chip Fund
EX-99.B5D Proposed Investment Management Agreement (1997) on behalf of Quantum Fund
EX-99.B5E Proposed Sub-Advisory Agreement (1997) on behalf of Blue Chip Fund
EX-99.B5F Proposed Sub-Advisory Agreement (1997) on behalf of Quantum Fund
EX-99.B6AIII Proposed Distribution Agreement (1997) on behalf of Blue Chip Fund
(Module Name and Quantum Fund
PROP_DIS_AGT)
EX-99.B8A Form of Custodian Agreement (1996) on behalf of Decatur Income Fund and
Decatur Total Return Fund
EX-99.B8B Form of Securities Lending Agreement (1996) on behalf of Decatur Income Fund
and Decatur Total Return Fund
EX-99.B8C Proposed Custodian Agreement (1997) on behalf of Blue Chip Fund and
Quantum Fund
EX-99.B8D Proposed Securities Lending Agreement (1997) on behalf of Blue Chip Fund and
Quantum Fund
EX-99.B9A Proposed Amended and Restated Shareholders Services Agreement
(Module Name (1997) of behalf of each Fund
SH_SVC_AGT)
EX-99.B9B Executed Delaware Group of Funds Fund Accounting Agreement (August 19,
1996)
EX-99.B9C Executed Amendment No. 1 (September 30, 1996) to Schedule A to Delaware
Group of Funds Fund Accounting Agreement
EX-99.B9D Proposed Amendment to Schedule A to Delaware Group of Funds Fund
(Module Name Accounting Agreement
ACCT_AGT_SCHD_A)
EX-99.B15D Proposed Plan under Rule 12b-1 for Blue Chip Fund and Quantum Fund
(Module Name Class A
RULE_12B1_PL_A)
</TABLE>
<PAGE>
INDEX TO EXHIBITS
(Continued)
<TABLE>
<CAPTION>
Exhibit No. Exhibit
- ----------- -------
<S> <C>
EX-99.B15E Proposed Plan under Rule 12b-1 for Blue Chip Fund and Quantum
(Module Name Fund Class B
RULE_12B1_PL_B)
EX-99.B15F Proposed Plan under Rule 12b-1 for Blue Chip Fund and Quantum Fund
(Module Name Class C
RULE_12B1_PL_C)
EX-99.B18B Amended Appendix A (September 30, 1996) to Plan under Rule 18f-3
EX-99.B18C Proposed Amended Appendix A to Plan under Rule 18f-3
(Module Name
RULE_18F3_APP_A)
</TABLE>
<PAGE>
DELAWARE GROUP EQUITY FUNDS II, INC.
ARTICLES SUPPLEMENTARY
TO
ARTICLES OF INCORPORATION
Delaware Group Equity Funds II, Inc. (formerly known as
Delaware Group Decatur Fund, Inc.), a Maryland corporation having its principal
office in Baltimore, Maryland (the "Corporation"), hereby certifies, in
accordance with Section 2-208 and Section 2-208.1 of the Maryland General
Corporation Law, to the State Department of Assessments and Taxation of Maryland
that:
FIRST: The Corporation has authority to issue a total of Seven
Hundred Fifty Million (750,000,000) shares of common stock with a par value of
One Dollar ($1.00) per share of the Corporation (the "Common Stock"), having an
aggregate par value of Seven Hundred Fifty Million Dollars ($750,000,000). Of
such Seven Hundred Fifty Million (750,000,000) shares of Common Stock, Five
Hundred Million (500,000,000) shares have been allocated to the Decatur Income
Fund series of the Common Stock and Two Hundred Fifty Million (250,000,000)
shares have been allocated to the Decatur Total Return Fund series of the Common
Stock. The Five Hundred Million (500,000,000) shares of the Decatur Income Fund
series of the Common Stock have been allocated among four classes as follows:
(1) Three Hundred Fifty Million (350,000,000) shares have been allocated to the
Decatur Income Fund A Class, and (2) Fifty Million (50,000,000) shares have been
allocated to each of the Decatur Income Fund Institutional Class, the Decatur
Income Fund B Class and the Decatur Income Fund C Class. The Two Hundred Fifty
Million (250,000,000) shares of the Decatur Total Return Fund series of the
Common Stock have been allocated among four classes as follows: (1) One Hundred
Million (100,000,000) shares have been allocated to the Decatur Total Return
Fund A Class, and (2) Fifty Million (50,000,000) shares have been allocated to
each of the Decatur Total Return Fund Institutional Class, the Decatur Total
Return Fund B Class and the Decatur Total Return Fund C Class.
SECOND: The Board of Directors of the Corporation, at a
meeting held on December __, 1996, adopted resolutions reallocating One Hundred
Fifty Million (150,000,000) shares of the Common Stock that had previously been
allocated to the Decatur Income Fund A Class to the category of shares of Common
Stock of the Corporation that are authorized, unissued, unclassified and
unallocated.
THIRD: The Board of Directors of the Corporation, at a meeting
held on December __, 1996, adopted resolutions
<PAGE>
increasing the aggregate number of shares of Common Stock that the Corporation
has authority to issue from Seven Hundred Fifty Million (750,000,000) shares to
One Billion (1,000,000,000) shares, designating two additional series of the
Corporation's Common Stock as the Blue Chip Fund series and the Quantum Fund
series, and classifying and allocating Two Hundred Million (200,000,000) shares
of authorized, unissued and unclassified Common Stock to each of the Blue Chip
Fund series and the Quantum Fund series. The Two Hundred Million (200,000,000)
shares of the Common Stock which have been allocated to the Blue Chip Fund
series have been further allocated as follows: (1) One Hundred Million
(100,000,000) shares of the Blue Chip Fund series of the Common Stock have been
allocated to the Blue Chip Fund A Class, (2) Fifty Million (50,000,000) shares
of the Blue Chip Fund series of the Common Stock have been allocated to the Blue
Chip Fund Institutional Class, and (3) Twenty-Five Million (25,000,000) shares
of the Blue Chip Fund series of the Common Stock have been allocated to each of
the Blue Chip Fund B Class and the Blue Chip Fund C Class. The Two Hundred
Million (200,000,000) shares of the Common Stock which have been allocated to
the Quantum Fund series have been further allocated as follows: (1) One Hundred
Million (100,000,000) shares of the Quantum Fund series of the Common Stock have
been allocated to the Quantum Fund A Class, (2) Fifty Million (50,000,000)
shares of the Quantum Fund series of the Common Stock have been allocated to the
Quantum Fund Institutional Class, and (3) Twenty-Five Million (25,000,000)
shares of the Quantum Fund series of the Common Stock have been allocated to
each of the Quantum Fund B Class and the Quantum Fund C Class.
FOURTH: As a result of the aforesaid reclassification and
increase in the authorized Common Stock, the Corporation has authority to issue
One Billion (1,000,000,000) shares of Common Stock with a par value of One
Dollar ($1.00) per share, having an aggregate par value of One Billion Dollars
($1,000,000,000). Of such One Billion (1,000,000,000) shares of Common Stock,
One Billion (1,000,000,000) shares of the Common Stock have been allocated as
follows: (1) Three Hundred Fifty Million (350,000,000) shares have been
allocated to the Decatur Income Fund series, (2) Two Hundred Fifty Million
(250,000,000) shares have been allocated to the Decatur Total Return Fund
series, (3) Two Hundred Million (200,000,000) shares have been allocated to the
Blue Chip Fund series, and (4) Two Hundred Million (200,000,000) shares have
been allocated to the Quantum Fund series. The Three Hundred Fifty Million
(350,000,000) shares of the Corporation's Common Stock which have been allocated
to the Decatur Income Fund series have been further classified and allocated as
follows: (1) Two Hundred Million (200,000,000) shares have been allocated to the
Decatur Income Fund A Class, and (2) Fifty Million (50,000,000) shares have been
allocated to each of the Decatur Income Fund Institutional Class, the Decatur
Income Fund B Class and the Decatur Income Fund C Class. The Two
-2-
<PAGE>
Hundred Fifty Million (250,000,000) shares of the Corporation's Common Stock
which have been allocated to the Decatur Total Return Fund series have been
further classified and allocated as follows: (1) One Hundred Million
(100,000,000) shares have been allocated to the Decatur Total Return Fund A
Class, and (2) Fifty Million (50,000,000) shares have been allocated to each of
the Decatur Total Return Fund Institutional Class, the Decatur Total Return Fund
B Class and the Decatur Total Return Fund C Class. The Two Hundred Million
(200,000,000) shares of the Corporation's Common Stock which have been allocated
to the Blue Chip Fund series have been further classified and allocated as
follows: (1) One Hundred Million (100,000,000) shares have been allocated to the
Blue Chip Fund A Class, (2) Fifty Million (50,000,000) shares have been
allocated to the Blue Chip Fund Institutional Class, and (3) Twenty-Five Million
(25,000,000) shares have been allocated to each of the Blue Chip Fund B Class
and the Blue Chip Fund C Class. The Two Hundred Million (200,000,000) shares of
the Corporation's Common Stock which have been allocated to the Quantum Fund
series have been further classified and allocated as follows: (1) One Hundred
Million (100,000,000) shares have been allocated to the Quantum Fund A Class,
(2) Fifty Million (50,000,000) shares have been allocated to the Quantum Fund
Institutional Class, and (3) Twenty-Five Million (25,000,000) shares have been
allocated to each of the Quantum Fund B Class and the Quantum Fund C Class.
FIFTH: The shares of the Blue Chip Fund A Class, the Blue Chip
Fund B Class, the Blue Chip Fund C Class and the Blue Chip Fund Institutional
Class of the Blue Chip Fund series shall represent proportionate interests in
the same portfolio of investments. The shares of the Quantum Fund A Class, the
Quantum Fund B Class, the Quantum Fund C Class and the Quantum Fund
Institutional Class of the Quantum Fund series shall represent proportionate
interests in the same portfolio of investments. The shares of the Blue Chip Fund
A Class, the Blue Chip Fund B Class, the Blue Chip Fund C Class and the Blue
Chip Fund Institutional Class of the Blue Chip Fund series, and the shares of
the Quantum Fund A Class, the Quantum Fund B Class, the Quantum Fund C Class and
the Quantum Fund Institutional Class of the Quantum Fund series, shall have the
same preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications, or terms or conditions of
redemption, all as set forth in the Articles of Incorporation of the
Corporation, except for the differences hereinafter set forth:
1. The dividends and distributions of investment income and
capital gains with respect to shares of the Blue Chip Fund A
Class, the Blue Chip Fund B Class, the Blue Chip Fund C Class
and the Blue Chip Fund Institutional Class of the Blue Chip
Fund series of the Common Stock, and the dividends and
distributions of
-3-
<PAGE>
investment income and capital gains with respect to shares of
the Quantum Fund A Class, the Quantum Fund B Class, the
Quantum Fund C Class and the Quantum Fund Institutional Class
of the Quantum Fund series of the Common Stock, shall be in
such amounts as may be declared from time to time by the Board
of Directors, and such dividends and distributions may vary
with respect to each such class from the dividends and
distributions of investment income and capital gains with
respect to the other classes of the Blue Chip Fund series and
the Quantum Fund series of the Common Stock, respectively, to
reflect differing allocations of the expenses of the
Corporation among the classes and any resultant difference
among the net asset values per share of the classes, to such
extent and for such purposes as the Board of Directors may
deem appropriate. The allocation of investment income and
capital gains and expenses and liabilities of the Blue Chip
Fund series among its four classes of Common Stock, and the
allocation of investment income and capital gains and expenses
and liabilities of the Quantum Fund series among its four
classes of Common Stock, shall be determined by the Board of
Directors in a manner that is consistent with the orders, as
applicable, dated April 10, 1987 and September 6, 1994
(Investment Company Act of 1940 Release Nos. 15675 and 20529)
issued by the Securities and Exchange Commission, and any
amendments to such orders, any existing or future order or any
Multiple Class Plan adopted by the Corporation in accordance
with Rule 18f-3 under the Investment Company Act of 1940, as
amended, that modifies or supersedes such orders.
2. (a) Except as may otherwise be required by law, pursuant to
any applicable order, rule or interpretation issued by the
Securities and Exchange Commission, or otherwise, the holders
of shares of the Blue Chip Fund A Class, the Blue Chip Fund B
Class, the Blue Chip Fund C Class and the Blue Chip Fund
Institutional Class of the Blue Chip Fund series of the Common
Stock shall have (i) exclusive voting rights with respect to
any matter submitted to a vote of stockholders that affects
only holders of shares of the Blue Chip Fund A Class, the Blue
Chip Fund B Class, the Blue Chip Fund C Class and the Blue
Chip Fund Institutional Class of the Blue Chip Fund series,
respectively, including, without limitation, the provisions of
any Distribution Plan adopted pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended (a "Distribution
Plan"), applicable to shares of the Blue Chip Fund A Class,
the Blue Chip Fund B Class and the Blue Chip Fund C Class, and
(ii) no
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<PAGE>
voting rights with respect to the provisions of any
Distribution Plan applicable to any other class of the Blue
Chip Fund series of the Common Stock or with regard to any
other matter submitted to a vote of stockholders which does
not affect holders of shares of the Blue Chip Fund A Class,
the Blue Chip Fund B Class and the Blue Chip Fund C Class.
(b) Except as may otherwise be required by law, pursuant to
any applicable order, rule or interpretation issued by the
Securities and Exchange Commission, or otherwise, the holders
of shares of the Quantum Fund A Class, the Quantum Fund B
Class, the Quantum Fund C Class and the Quantum Fund
Institutional Class of the Quantum Fund series of the Common
Stock shall have (i) exclusive voting rights with respect to
any matter submitted to a vote of stockholders that affects
only holders of shares of the Quantum Fund A Class, the
Quantum Fund B Class, the Quantum Fund C Class and the Quantum
Fund Institutional Class of the Quantum Fund series,
respectively, including, without limitation, the provisions of
any Distribution Plan applicable to shares of the Quantum Fund
A Class, the Quantum Fund B Class and the Quantum Fund C
Class, and (ii) no voting rights with respect to the
provisions of any Distribution Plan applicable to any other
class of the Quantum Fund series of the Common Stock or with
regard to any other matter submitted to a vote of stockholders
which does not affect holders of shares of the Quantum Fund A
Class, the Quantum Fund B Class and the Quantum Fund C Class.
3. (a) Other than shares described in paragraph (3)(b) herein,
each share of the Blue Chip Fund B Class and the Quantum Fund
B Class shall be converted automatically, and without any
action or choice on the part of the holder thereof, into
shares of the Blue Chip Fund A Class and the Quantum Fund A
Class, respectively, on the Conversion Date. The term
"Conversion Date" when used herein shall mean a date set forth
in the prospectuses of the Blue Chip Fund B Class and the
Quantum Fund B Class, as such prospectuses may be amended from
time to time, that is no later than three months after either
(i) the date on which the eighth anniversary of the date of
issuance of the share occurs, or (ii) any such other
anniversary date as may be determined by the Board of
Directors and set forth in the prospectuses of the Blue Chip
Fund B Class and the Quantum Fund B Class, as such
prospectuses may be amended from time to time; provided that
any such other anniversary date determined by the Board of
Directors shall be a date that will occur
-5-
<PAGE>
prior to the anniversary date set forth in clause (i) and any
such other date theretofore determined by the Board of
Directors pursuant to this clause (ii); but further provided
that, subject to the provisions of the next sentence, for any
shares of the Blue Chip Fund B Class or of the Quantum Fund B
Class, respectively, acquired through an exchange, or through
a series of exchanges, as permitted by the Corporation as
provided in the prospectuses of the Blue Chip Fund B Class and
of the Quantum Fund B Class, as such prospectuses may be
amended from time to time, from another investment company or
another series of the Corporation (an "eligible investment
company"), the Conversion Date shall be the conversion date
applicable to the shares of stock of the eligible investment
company originally subscribed for in lieu of the Conversion
Date of any stock acquired through exchange if such eligible
investment company issuing the stock originally subscribed for
had a conversion feature, but not later than the Conversion
Date determined under (i) above. For the purpose of
calculating the holding period required for conversion, the
date of issuance of a share of the Blue Chip Fund B Class or
of a share of the Quantum Fund B Class shall mean (i) in the
case of a share of the Blue Chip Fund B Class or a share of
the Quantum Fund B Class obtained by the holder thereof
through an original subscription to the Corporation, the date
of the issuance of such share of the Blue Chip Fund B Class or
such share of the Quantum Fund B Class, as appropriate, or
(ii) in the case of a share of the Blue Chip Fund B Class or a
share of the Quantum Fund B Class obtained by the holder
thereof through an exchange, or through a series of exchanges,
from an eligible investment company, the date of issuance of
the share of the eligible investment company to which the
holder originally subscribed.
(b) Each share of the Blue Chip Fund B Class and of
the Quantum Fund B Class (i) purchased through the automatic
reinvestment of a dividend or distribution with respect to the
Blue Chip Fund B Class, the Quantum Fund B Class or the
corresponding class of any other investment company or of any
other series of the Corporation issuing such class of shares
or (ii) issued pursuant to an exchange privilege granted by
the Corporation in an exchange or series of exchanges for
shares originally purchased through the automatic reinvestment
of a dividend or distribution with respect to shares of
capital stock of an eligible investment company, shall be
segregated in a separate sub-account on the stock records of
the Corporation for each of the holders of record thereof. On
any Conversion Date, a
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<PAGE>
number of the shares held in the separate sub-account of the
holder of record of the share or shares being converted,
calculated in accordance with the next following sentence,
shall be converted automatically, and without any action or
choice on the part of the holder, into shares of the Blue Chip
Fund A Class or the Quantum Fund A Class, as appropriate. The
number of shares in the holder's separate sub-account so
converted shall (i) bear the same ratio to the total number of
shares maintained in the separate sub-account on the
Conversion Date (immediately prior to conversion) as the
number of shares of the holder converted on the Conversion
Date pursuant to paragraph (3)(a) hereof bears to the total
number of Blue Chip Fund B Class shares or Quantum Fund B
Class of shares, as appropriate, of the holder on the
Conversion Date (immediately prior to conversion) after
subtracting the shares then maintained in the holder's
separate sub-account, or (ii) be such other number as may be
calculated in such other manner as may be determined by the
Board of Directors and set forth in the prospectuses of the
Blue Chip Fund B Class and of the Quantum Fund B Class, as
such prospectuses may be amended from time to time.
(c) The number of shares of the Blue Chip Fund A
Class into which a share of the Blue Chip Fund B Class, and
the number of shares of the Quantum Fund A Class into which a
share of the Quantum Fund B Class, are converted pursuant to
paragraphs 3(a) and 3(b) hereof shall equal the number
(including for this purpose fractions of a share) obtained by
dividing the net asset value per share of the Blue Chip Fund B
Class or of the Quantum Fund B Class, as appropriate, for
purposes of sales and redemption thereof on the Conversion
Date by the net asset value per share of the Blue Chip Fund A
Class or of the Quantum Fund A Class, as appropriate, for
purposes of sales and redemption thereof on the Conversion
Date.
(d) On the Conversion Date, the shares of the Blue
Chip Fund B Class converted into shares of the Blue Chip Fund
A Class, and the shares of the Quantum Fund B Class converted
into shares of the Quantum Fund A Class, will no longer be
deemed outstanding and the rights of the holders thereof
(except the right to receive (i) the number of shares of the
Blue Chip Fund A Class into which the shares of the Blue Chip
Fund B Class have been converted, or the number of shares of
the Quantum Fund A Class into which the shares of the Quantum
Fund B Class have been converted, as appropriate, and (ii)
declared but unpaid dividends to
-7-
<PAGE>
the Conversion Date or such other date set forth in the
prospectuses of the Blue Chip Fund B Class or of the Quantum
Fund B Class, as appropriate, as such prospectuses may be
amended from time to time and (iii) the right to vote
converting shares of the Blue Chip Fund B Class or of the
Quantum Fund B Class, as appropriate, held as of any record
date occurring on or before the Conversion Date and
theretofore set with respect to any meeting held after the
Conversion Date) will cease. Certificates representing shares
of the Blue Chip Fund A Class or the Quantum Fund A Class, as
appropriate, resulting from the conversion need not be issued
until certificates representing shares of the Blue Chip Fund B
Class or the Quantum Fund B Class, as appropriate, converted,
if issued, have been received by the Corporation or its agent
duly endorsed for transfer.
(e) The automatic conversions of the Blue Chip Fund B
Class into the Blue Chip Fund A Class, and of the Quantum Fund
B Class into the Quantum Fund A Class, as set forth in
paragraphs 3(a) and 3(b) of this Article FIFTH shall be
suspended at any time that the Board of Directors determines
(i) that there is not available a reasonably satisfactory
opinion of counsel to the effect that (x) the assessment of
the higher fee under the Distribution Plan with respect to the
Blue Chip Fund B Class or the Quantum Fund B Class, as
appropriate, does not result in the Corporation's dividends or
distributions constituting a "preferential dividend" under the
Internal Revenue Code of 1986, as amended, and (y) the
conversion of the Blue Chip Fund B Class or the Quantum Fund B
Class, as appropriate, does not constitute a taxable event
under federal income tax law, or (ii) any other condition to
conversion set forth in the prospectuses of the Blue Chip Fund
B Class or the Quantum Fund B Class, as appropriate, as such
prospectuses may be amended from time to time, is not
satisfied.
(f) The automatic conversion of the Blue Chip Fund B
Class into Blue Chip Fund A Class, and of the Quantum Fund B
Class into the Quantum Fund A Class, as set forth in
paragraphs 3(a) and 3(b) hereof, may also be suspended by
action of the Board of Directors at any time that the Board of
Directors determines such suspension to be appropriate in
order to comply with, or satisfy the requirements of the
Investment Company Act of 1940, as amended, and in effect from
time to time, or any rule, regulation or order issued
thereunder relating to voting by the holders of the Blue Chip
Fund B Class or the Quantum Fund B Class, as
-8-
<PAGE>
appropriate, on any Distribution Plan with respect to, as
relevant, the Blue Chip Fund A Class or the Quantum Fund A
Class, as appropriate, and in effect from time to time, and in
connection with, or in lieu of, any such suspension, the Board
of Directors may provide holders of the Blue Chip Fund B Class
or of the Quantum Fund B Class, as appropriate, with
alternative conversion or exchange rights into other classes
of stock of the Corporation in a manner consistent with the
law, rule, regulation or order giving rise to the possible
suspension of the conversion right.
4. (a) The shares of the Blue Chip Fund C Class and the Blue
Chip Fund Institutional Class shall not automatically convert
into shares of the Blue Chip Fund A Class of the Blue Chip
Fund series of the Common Stock as do the shares of the Blue
Chip B Class of the Blue Chip Fund series of the Common Stock.
(b) The shares of the Quantum Fund C Class and the Quantum
Fund Institutional Class shall not automatically convert into
shares of the Quantum Fund A Class of the Quantum Fund series
of the Common Stock as do the shares of the Quantum Fund B
Class of the Quantum Fund series of the Common Stock.
SIXTH: The shares of the Blue Chip Fund A Class, the Blue Chip
Fund B Class, the Blue Chip Fund C Class and the Blue Chip Fund Institutional
Class of the Blue Chip Fund series, as well as the shares of the Quantum Fund A
Class, the Quantum Fund B Class, the Quantum Fund C Class and the Quantum Fund
Institutional Class of the Quantum Fund series, have been classified by the
Board of Directors pursuant to authority contained in the Articles of
Incorporation of the Corporation.
SEVENTH: The Corporation is registered as an open-end
management investment company under the Investment Company Act of 1940, as
amended.
EIGHTH: The total number of shares of Common Stock that the
Corporation has authority to issue has been increased by the Board of Directors
in accordance with Section 2-105(c) of the Maryland General Corporation Law.
NINTH: These Articles Supplementary shall become effective at
5:00 p.m. on December __, 1996.
-9-
<PAGE>
IN WITNESS WHEREOF, Delaware Group Equity Funds II, Inc. has
caused these Articles Supplementary to be signed in its name and on its behalf
by its Senior Vice President and attested by its Assistant Secretary on this
____ day of December, 1996.
DELAWARE GROUP EQUITY FUNDS II, INC.
By:_____________________________________
George M. Chamberlain, Jr.
Senior Vice President
ATTEST:
- -------------------------------
David P. O'Connor
Assistant Secretary
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<PAGE>
THE UNDERSIGNED, Senior Vice President of DELAWARE GROUP
EQUITY FUNDS II, INC., who executed on behalf of the said Corporation the
foregoing Articles Supplementary, of which this instrument is made a part,
hereby acknowledges, in the name of and on behalf of said Corporation, said
Articles Supplementary to be the corporate act of said Corporation and further
certifies that, to the best of his knowledge, information and belief, the
matters and facts set forth therein with respect to the authorization and
approval thereof are true in all material respects, under the penalties of
perjury.
-----------------------------------
George M. Chamberlain, Jr.
Senior Vice President
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<PAGE>
DELAWARE GROUP DECATUR FUND, INC.
ARTICLES OF AMENDMENT
TO
ARTICLES OF INCORPORATION
DELAWARE GROUP DECATUR FUND, INC., a Maryland corporation
having its principal office in Baltimore, Maryland (hereinafter called the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
FIRST: The Corporation is registered as an open-end management
investment company under the Investment Company Act of 1940, as amended.
SECOND: The first sentence of ARTICLE SECOND of the Articles
of Incorporation, as amended and supplemented, is hereby amended to read as
follows:
SECOND: The name of the corporation is Delaware
Group Equity Funds II, Inc.
THIRD: The Articles of Incorporation of the Corporation, as
amended and supplemented, are further amended by changing the name of the
Decatur Income Fund Class of shares of the Decatur Income Fund series of the
Common Stock to the Decatur Income Fund A Class of shares; by changing the name
of the Decatur Income Fund (Institutional) Class of shares of the Decatur Income
Fund series of the Common Stock to the Decatur Income Fund Institutional Class
of shares; and by deleting the old names of such classes from the Articles of
Incorporation, as amended and supplemented to date, and inserting in lieu
thereof, the new names of such classes as changed hereby.
The names of the other two classes of the Common Stock of the
Decatur Income Fund series of the Common Stock of the Corporation (the Decatur
Income Fund B Class and the Decatur Income Fund C Class) shall remain unchanged.
FOURTH: The Articles of Incorporation of the Corporation, as
amended and supplemented, are further amended by changing the name of the
Decatur Total Return Fund Class of shares of the Decatur Total Return Fund
series of the Common Stock to the Decatur Total Return Fund A Class of shares;
by changing the name of the Decatur Total Return Fund (Institutional) Class of
shares of the Decatur Total Return Fund series of the Common Stock to the
Decatur Total Return Fund Institutional Class of shares; and by deleting the old
names of such classes from the Articles of Incorporation, as amended and
<PAGE>
supplemented to date, and inserting in lieu thereof, the new names of such
classes as changed hereby.
The names of the other two classes of the Common Stock of the
Decatur Total Return Fund series of the Common Stock of the Corporation (the
Decatur Total Return Fund B Class and the Decatur Total Return Fund C Class)
shall remain unchanged.
FIFTH: The amendments to the Articles of Incorporation of the
Corporation as set forth above have been duly approved by a majority of the
entire Board of Directors of the Corporation as required by law and are limited
to changes permitted by Section 2-605(a)(4) of the Maryland General Corporation
Law to be made without action by the stockholders of the Corporation.
SIXTH: The amendments to the Articles of Incorporation of the
Corporation as set forth above do not change the preferences, conversion or
other rights, voting powers, restrictions, limitations as to dividends,
qualifications, or terms or conditions of redemption of the shares that are the
subject of the name changes.
SEVENTH: The Articles of Amendment shall become effective at
4:00 p.m. on December __, 1996.
IN WITNESS WHEREOF, DELAWARE GROUP DECATUR FUND, INC. has
caused these Articles of Amendment to be signed in its name and on its behalf by
its Senior Vice President and attested by its Assistant Secretary on this ___
day of December, 1996.
DELAWARE GROUP DECATUR FUND, INC.
By:_____________________________________
George M. Chamberlain, Jr.
Senior Vice President
ATTEST:
- ----------------------------
David P. O'Connor
Assistant Secretary
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<PAGE>
THE UNDERSIGNED, Senior Vice President of DELAWARE GROUP
DECATUR FUND, INC., who executed on behalf of said Corporation the foregoing
Articles of Amendment, of which this certificate is made a part, hereby
acknowledges, in the name and on behalf of said Corporation, the foregoing
Articles of Amendment to be the corporate act of said Corporation and further
certifies that, to the best of his knowledge, information and belief, the
matters and facts set forth therein with respect to the approval thereof are
true in all material respects, under the penalties of perjury.
------------------------------
George M. Chamberlain, Jr.
Senior Vice President
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<PAGE>
DELAWARE GROUP EQUITY FUNDS II, INC.
BLUE CHIP FUND
INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT, made by and between DELAWARE GROUP EQUITY FUNDS II, INC.,
Maryland corporation ("Fund") on behalf of the BLUE CHIP FUND (Portfolio"), and
DELAWARE MANAGEMENT COMPANY, INC., a Delaware corporation ("Investment
Manager").
W I T N E S S E T H:
WHEREAS, the Fund has been organized and operates as an investment
company registered under the Investment Company Act of 1940 and is currently
comprised of four portfolios, including the Portfolio, as a separate series of
the Fund, each portfolio engages in the business of investing and reinvesting
its assets in securities; and
WHEREAS, the Investment Manager is a registered investment adviser
under the Investment Advisers Act of 1940 and engages in the business of
providing investment management services.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and each of the parties hereto intending to be legally bound, it is
agreed as follows:
1. The Fund hereby employs the Investment Manager to manage the
investment and reinvestment of the Portfolio's assets and to administer its
affairs, subject to the direction of the Fund's Board of Directors and officers
of the Fund for the period and on the terms hereinafter set forth. The
Investment Manager hereby accepts such employment and agrees during such period
to render the services and assume the obligations herein set forth for the
compensation herein provided. The Investment Manager shall, for all purposes
herein, be deemed to be an independent contractor, and shall, unless otherwise
expressly provided and authorized, have no authority to act for or represent the
Fund in any way, or in any way be deemed an agent of the Fund. The Investment
Manager shall regularly make decisions as to what securities and other
instruments to purchase and sell on behalf of the Portfolio, shall effect the
purchase and sale of such investments in furtherance of the Portfolio's
objectives and policies and shall furnish the Board of Directors of the Fund
with such information and reports regarding the Portfolio's investments as the
Investment Manager deems appropriate or as the Directors of the Fund may
reasonably request.
2. The Fund shall conduct its own business and affairs and shall bear
the expenses and salaries necessary and incidental thereto including, but not in
limitation of the foregoing, the costs incurred in: the maintenance of its
corporate existence; the maintenance of its own books, records
<PAGE>
and procedures; dealing with its own shareholders; the payment of dividends;
transfer of stock, including issuance, redemption and repurchase of shares;
preparation of share certificates; reports and notices to shareholders; calling
and holding of shareholders' meetings; miscellaneous office expenses; brokerage
commissions; custodian fees; legal and accounting fees; taxes; and federal and
stateregistration fees.
Directors, officers and employees of the Investment Manager may be
directors, officers and employees of any of the funds (including the Fund) of
which Delaware Management Company, Inc. is investment manager. Directors,
officers and employees of the Investment Manager who are directors, officers
and/or employees of these funds shall not receive any compensation from the
funds for acting in such dual capacity.
In the conduct of the respective businesses of the parties hereto and
in the performance of this Agreement, the Fund and Investment Manager may share
facilities common to each, with appropriate proration of expenses between them.
3. (a) Subject to the primary objective of obtaining the best
available prices and execution, the Investment Manager will place orders for the
purchase and sale of portfolio securities and other instruments with such
broker/dealers selected who provide statistical, factual and financial
information and services to the Fund, to the Investment Manager, to any
Sub-Adviser, as defined in Paragraph 5 hereof, or to any other fund for which
the Investment Manager or any such Sub-Adviser provides investment advisory
services and/or with broker/dealers who sell shares of the Fund or who sell
shares of any other fund for which the Investment Manager or any such
Sub-Adviser provides investment advisory services. Broker/dealers who sell
shares of the funds of which Delaware Management Company, Inc. is investment
manager, shall only receive orders for the purchase or sale of portfolio
securities to the extent that the placing of such orders is in compliance with
the Rules of the Securities and Exchange Commission and the National Association
of Securities Dealers, Inc.
(b) Notwithstanding the provisions of subparagraph (a) above and
subject to such policies and procedures as may be adopted by the Board of
Directors and officers of the Fund, the Investment Manager may ask the Fund and
the Fund may agree to pay a member of an exchange, broker or dealer an amount of
commission for effecting a securities transaction in excess of the amount of
commission another member of an exchange, broker or dealer would have charged
for effecting that transaction, in such instances where the Fund and the
Investment Manager have determined in good faith that such amount of commission
was reasonable in relation to the value of the brokerage and research services
provided by such member, broker or dealer, viewed in terms of either that
particular transaction or the Investment Manager's overall responsibilities with
respect to the Fund and to other funds and other advisory accounts for which the
Investment Manager or any Sub-Adviser, as defined in Paragraph 5 hereof,
exercises investment discretion.
4. As compensation for the services to be rendered to the Fund by the
Investment Manager under the provisions of this Agreement, the Fund shall pay to
the Investment Manager monthly from the Portfolio's assets, a fee on the average
daily net assets of the Portfolio during the month. Such fee shall be calculated
in accordance with the following schedule:
-2-
<PAGE>
Equivalent
Monthly Rate Annual Rate Average Daily Net Assets
- ------------ ----------- ------------------------
6.50/120 of 1% 0.650% on the first $500,000,000
6.25/120 of 1% 0.625% on the next $500,000,000
6.00/120 of 1% 0.600% on assets over $1,000,000,000
If this Agreement is terminated prior to the end of any calendar
month, the management fee shall be prorated for the portion of any month in
which this Agreement is in effect according to the proportion which the number
of calendar days, during which the Agreement is in effect, bears to the number
of calendar days in the month, and shall be payable within 10 days after the
date of termination.
5. The Investment Manager may, at its expense, select and contract
with one or more investment advisers registered under the Investment Advisers
Act of 1940 (the "Sub-Adviser") to perform some or all of the services for the
Portfolio for which it is responsible under this Agreement. The Investment
Manager will compensate any Sub-Adviser for its services to the Portfolio. The
Investment Manager may terminate the services of any Sub-Adviser at any time in
its sole discretion, and shall at such time assume the responsibilities of such
Sub-Adviser unless and until a successor Sub-Adviser is selected and the
requisite approval of the Portfolio's shareholders is obtained. The Investment
Manager will continue to have responsibility for all advisory services furnished
by any Sub-Adviser.
6. The services to be rendered by the Investment Manager to the Fund
under the provisions of this Agreement are not to be deemed to be exclusive, and
the Investment Manager shall be free to render similar or different services to
others so long as its ability to render the services provided for in this
Agreement shall not be impaired thereby.
7. The Investment Manager, its directors, officers, employees, agents
and shareholders may engage in other businesses, may render investment advisory
services to other investment companies, or to any other corporation,
association, firm or individual, and may render underwriting services to the
Fund or to any other investment company, corporation, association, firm or
individual.
8. In the absence of willful misfeasance, bad faith, gross
negligence, or a reckless disregard of the performance of its duties as the
Investment Manager to the Fund, the Investment Manager shall not be subject to
liability to the Fund or to any shareholder of the Fund for any action or
omission in the course of, or connected with, rendering services hereunder or
for any losses that may be sustained in the purchase, holding or sale of any
security, or otherwise.
9. This Agreement shall be executed and become effective as of the
date written below if approved by the vote of a majority of the outstanding
voting securities of the Portfolio. It shall continue
in effect for a period of two years and may be renewed thereafter only so long
as such renewal and continuance is specifically approved at least annually by
the Board of Directors or by the vote of a
-3-
<PAGE>
majority of the outstanding voting securities of the Portfolio and only if the
terms and the renewal hereof have been approved by the vote of a majority of the
Directors of the Fund who are not parties hereto or interested persons of any
such party, cast in person at a meeting called for the purpose of voting on such
approval. Notwithstanding the foregoing, this Agreement may be
terminated by the Fund at any time, without the payment of a penalty, on sixty
days' written notice to the Investment Manager of the Fund's intention to do so,
pursuant to action by the Board of Directors of the Fund or pursuant to the vote
of a majority of the outstanding voting securities of the Portfolio. The
Investment Manager may terminate this Agreement at any time, without the payment
of a penalty, on sixty days' written notice to the Fund of its intention to do
so. Upon termination of this Agreement, the obligations of all the parties
hereunder shall cease and terminate as of the date of such termination, except
for any obligation to respond for a breach of this Agreement committed prior to
such termination, and except for the obligation of the Fund to pay to the
Investment Manager the fee provided in Paragraph 4 hereof, prorated to the date
of termination. This Agreement shall automatically terminate in the event of its
assignment.
10. This Agreement shall extend to and bind the heirs, executors,
administrators and successors of the parties hereto.
11. For the purposes of this Agreement, the terms "vote of a majority
of the outstanding voting securities"; "interested persons"; and "assignment"
shall have the meaning defined in the Investment Company Act of 1940.
-4-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused their corporate
seals to be affixed and duly attested and their presents to be signed by their
duly authorized officers as of the ___th day of February, 1997.
Attest: DELAWARE EQUITY FUNDS II, INC. for the
BLUE CHIP FUND series
___________________________ By:______________________________________
Attest: DELAWARE MANAGEMENT COMPANY, INC.
___________________________ By:______________________________________
-5-
<PAGE>
DELAWARE GROUP EQUITY FUNDS II, INC.
QUANTUM FUND
INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT, made by and between DELAWARE GROUP EQUITY FUNDS II, INC.,
Maryland corporation ("Fund") on behalf of the QUANTUM FUND (Portfolio"), and
DELAWARE MANAGEMENT COMPANY, INC., a Delaware corporation ("Investment
Manager").
W I T N E S S E T H:
WHEREAS, the Fund has been organized and operates as an investment
company registered under the Investment Company Act of 1940 and is currently
comprised of four portfolios, including the Portfolio, as a separate series of
the Fund, each portfolio engages in the business of investing and reinvesting
its assets in securities; and
WHEREAS, the Investment Manager is a registered investment adviser
under the Investment Advisers Act of 1940 and engages in the business of
providing investment management services.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and each of the parties hereto intending to be legally bound, it is
agreed as follows:
1. The Fund hereby employs the Investment Manager to manage the
investment and reinvestment of the Portfolio's assets and to administer its
affairs, subject to the direction of the Fund's Board of Directors and officers
of the Fund for the period and on the terms hereinafter set forth. The
Investment Manager hereby accepts such employment and agrees during such period
to render the services and assume the obligations herein set forth for the
compensation herein provided. The Investment Manager shall, for all purposes
herein, be deemed to be an independent contractor, and shall, unless otherwise
expressly provided and authorized, have no authority to act for or represent the
Fund in any way, or in any way be deemed an agent of the Fund. The Investment
Manager shall regularly make decisions as to what securities and other
instruments to purchase and sell on behalf of the Portfolio, shall effect the
purchase and sale of such investments in furtherance of the Portfolio's
objectives and policies and shall furnish the Board of Directors of the Fund
with such information and reports regarding the Portfolio's investments as the
Investment Manager deems appropriate or as the Directors of the Fund may
reasonably request.
2. The Fund shall conduct its own business and affairs and shall bear
the expenses and salaries necessary and incidental thereto including, but not in
limitation of the foregoing, the costs incurred in: the maintenance of its
corporate existence; the maintenance of its own books, records and procedures;
dealing with its own shareholders; the payment of dividends; transfer of stock,
including issuance, redemption and repurchase of shares; preparation of share
<PAGE>
certificates; reports nd notices to shareholders; calling and holding of
shareholders' meetings; miscellaneous office expenses; brokerage commissions;
custodian fees; legal and accounting fees; taxes; and federal and state
registration fees.
Directors, officers and employees of the Investment Manager may be
directors, officers and employees of any of the funds (including the Fund) of
which Delaware Management Company, Inc. is investment manager. Directors,
officers and employees of the Investment Manager who are directors, officers
and/or employees of these funds shall not receive any compensation from the
funds for acting in such dual capacity.
In the conduct of the respective businesses of the parties hereto and
in the performance of this Agreement, the Fund and Investment Manager may share
facilities common to each, with appropriate proration of expenses between them.
3. (a) Subject to the primary objective of obtaining the best
available prices and execution, the Investment Manager will place orders for the
purchase and sale of portfolio securities and other instruments with such
broker/dealers selected who provide statistical, factual and financial
information and services to the Fund, to the Investment Manager, to any
Sub-Adviser, as defined in Paragraph 5 hereof, or to any other fund for which
the Investment Manager or any such Sub-Adviser provides investment advisory
services and/or with broker/dealers who sell shares of the Fund or who sell
shares of any other fund for which the Investment Manager or any such
Sub-Adviser provides investment advisory services. Broker/dealers who sell
shares of the funds of which Delaware Management Company, Inc. is investment
manager, shall only receive orders for the purchase or sale of portfolio
securities to the extent that the placing of such orders is in compliance with
the Rules of the Securities and Exchange Commission and the National Association
of Securities Dealers, Inc.
(b) Notwithstanding the provisions of subparagraph (a) above and
subject to such policies and procedures as may be adopted by the Board of
Directors and officers of the Fund, the Investment Manager may ask the Fund and
the Fund may agree to pay a member of an exchange, broker or dealer an amount of
commission for effecting a securities transaction in excess of the amount of
commission another member of an exchange, broker or dealer would have charged
for effecting that transaction, in such instances where the Fund and the
Investment Manager have determined in good faith that such amount of commission
was reasonable in relation to the value of the brokerage and research services
provided by such member, broker or dealer, viewed in terms of either that
particular transaction or the Investment Manager's overall responsibilities with
respect to the Fund and to other funds and other advisory accounts for which the
Investment Manager or any Sub-Adviser, as defined in Paragraph 5 hereof,
exercises investment discretion.
4. As compensation for the services to be rendered to the Fund by the
Investment Manager under the provisions of this Agreement, the Fund shall pay to
the Investment Manager monthly from the Portfolio's assets, a fee on the average
daily net assets of the Portfolio during the month. Such fee shall be calculated
in accordance with the following schedule:
-2
<PAGE>
Equivalent
Monthly Rate Annual Rate Average Daily Net Assets
- ------------ ----------- ------------------------
7.50/120 of 1% 0.750% on the first $500,000,000
7.25/120 of 1% 0.725% on the next $500,000,000
7.00/120 of 1% 0.700% on assets over $1,000,000,000
If this Agreement is terminated prior to the end of any calendar
month, the management fee shall be prorated for the portion of any month in
which this Agreement is in effect according to the proportion which the number
of calendar days, during which the Agreement is in effect, bears to the number
of calendar days in the month, and shall be payable within 10 days after the
date of termination.
5. The Investment Manager may, at its expense, select and contract
with one or more investment advisers registered under the Investment Advisers
Act of 1940 (the "Sub-Adviser") to perform some or all of the services for the
Portfolio for which it is responsible under this Agreement. The Investment
Manager will compensate any Sub-Adviser for its services to the Portfolio. The
Investment Manager may terminate the services of any Sub-Adviser at any time in
its sole discretion, and shall at such time assume the responsibilities of such
Sub-Adviser unless and until a successor Sub-Adviser is selected and the
requisite approval of the Portfolio's shareholders is obtained. The Investment
Manager will continue to have responsibility for all advisory services furnished
by any Sub-Adviser.
6. The services to be rendered by the Investment Manager to the Fund
under the provisions of this Agreement are not to be deemed to be exclusive, and
the Investment Manager shall be free to render similar or different services to
others so long as its ability to render the services provided for in this
Agreement shall not be impaired thereby.
7. The Investment Manager, its directors, officers, employees, agents
and shareholders may engage in other businesses, may render investment advisory
services to other investment companies, or to any other corporation,
association, firm or individual, and may render underwriting services to the
Fund or to any other investment company, corporation, association, firm or
individual.
8. In the absence of willful misfeasance, bad faith, gross
negligence, or a reckless disregard of the performance of its duties as the
Investment Manager to the Fund, the Investment Manager shall not be subject to
liability to the Fund or to any shareholder of the Fund for any action or
omission in the course of, or connected with, rendering services hereunder or
for any losses that may be sustained in the purchase, holding or sale of any
security, or otherwise.
9. This Agreement shall be executed and become effective as of the
date written below if approved by the vote of a majority of the outstanding
voting securities of the Portfolio. It shall continue
in effect for a period of two years and may be renewed thereafter only so long
as such renewal and continuance is specifically approved at least annually by
the Board of Directors or by the vote of a
-3-
<PAGE>
majority of the outstanding voting securities of the Portfolio and only if the
terms and the renewal hereof have been approved by the vote of a majority of the
Directors of the Fund who are not parties hereto or interested persons of any
such party, cast in person at a meeting called for the purpose of voting on such
approval. Notwithstanding the foregoing, this Agreement may be terminated by the
Fund at any time, without the payment of a penalty, on sixty days' written
notice to the Investment Manager of the Fund's intention to do so, pursuant to
action by the Board of Directors of the Fund or pursuant to the vote of a
majority of the outstanding voting securities of the Portfolio. The Investment
Manager may terminate this Agreement at any time, without the payment of a
penalty, on sixty days' written notice to the Fund of its intention to do so.
Upon termination of this Agreement, the obligations of all the parties hereunder
shall cease and terminate as of the date of such termination, except for any
obligation to respond for a breach of this Agreement committed prior to such
termination, and except for the obligation of the Fund to pay to the Investment
Manager the fee provided in Paragraph 4 hereof, prorated to the date of
termination. This Agreement shall automatically terminate in the event of its
assignment.
10. This Agreement shall extend to and bind the heirs, executors,
administrators and successors of the parties hereto.
11. For the purposes of this Agreement, the terms "vote of a majority
of the outstanding voting securities"; "interested persons"; and "assignment"
shall have the meaning defined in the Investment Company Act of 1940.
-4-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused their corporate
seals to be affixed and duly attested and their presents to be signed by their
duly authorized officers as of the ___th day of February, 1997.
Attest: DELAWARE EQUITY FUNDS II, INC. for the
QUANTUM FUND series
___________________________ By:______________________________________
Attest: DELAWARE MANAGEMENT COMPANY, INC.
___________________________ By:______________________________________
-5-
<PAGE>
DELAWARE GROUP EQUITY FUNDS II, INC.
SUB-ADVISORY AGREEMENT
AGREEMENT, made by and between DELAWARE MANAGEMENT COMPANY, INC., a
Delaware corporation ("Investment Manager"), and VANTAGE GLOBAL ADVISORS, INC.,
an [________] corporation ("Sub-Adviser").
W I T N E S S E T H:
WHEREAS, DELAWARE GROUP EQUITY FUNDS II, INC., a Maryland corporation
("Fund"), on behalf of the Blue Chip Fund series ("Portfolio"), has been
organized and operates as an investment company registered under the Investment
Company Act of 1940 ("1940 Act") and engages in the business of investing and
reinvesting its assets in securities, and
WHEREAS, the Investment Manager and the Fund have entered into an
agreement of even date herewith ("Investment Management Agreement") whereby the
Investment Manager will provide investment advisory services to the Fund on
behalf of the Portfolio; and
WHEREAS, the Investment Management Agreement permits the Investment
Manager to hire one or more sub-advisers to assist the Investment Manager in
providing investment advisory services to the Fund on behalf of the Portfolio;
and
WHEREAS, the Investment Manager and the Sub-Adviser are registered
investment advisers under the Investment Advisers Act of 1940 and engage in the
business of providing investment management services.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and each of the parties hereto intending to be legally bound, it is
agreed as follows:
1. The Investment Manager hereby employs the Sub-Adviser to manage the
investment and reinvestment of the Portfolio's assets, subject to the direction
of the Fund's Board of Directors and officers of the Fund for the period and on
the terms hereinafter set forth. The Sub-Adviser hereby accepts such employment
and agrees during such period to render the services and assume the obligations
herein set forth for the compensation herein provided. The Sub-Adviser shall for
all purposes herein be deemed to be an independent contractor, and shall, unless
otherwise expressly provided and authorized, have no authority to act for or
represent the Fund in any way, or in any way be deemed an agent of the Fund.
<PAGE>
The Sub-Adviser shall regularly make decisions as to what securities and other
instruments to purchase and sell on behalf of the Portfolio, shall effect the
purchase and sale of such investments, as agent of the Fund on behalf of the
Portfolio, in furtherance of the Portfolio's objectives and policies and shall
furnish the Board of Directors of the Fund with such information and reports
regarding its activities as the Investment Manager deems appropriate or as the
Directors of the Fund may reasonably request consistent with the provisions of
Section 15(c) of the 1940 Act.
In the performance of its duties and obligations under this Agreement,
the Sub-Adviser shall act in conformity with the Articles of Incorporation,
By-Laws and Prospectus of the Fund and with the instructions and directions of
the Investment Manager and of the Board of Directors of the Fund and will
conform to and comply with the requirements of the 1940 Act, the Internal
Revenue Code of 1986 and all other applicable federal and state laws and
regulations.
2. Under the terms of the Investment Management Agreement, the Fund
shall conduct its own business and affairs and shall bear the expenses and
salaries necessary and incidental thereto including, but not in limitation of
the foregoing, the costs incurred in: the maintenance of its corporate
existence; the maintenance of its own books, records and procedures; dealing
with its own shareholders; the payment of dividends; transfer of stock,
including issuance and repurchase of shares; preparation of share certificates;
reports and notices to shareholders; calling and holding of shareholders'
meetings; miscellaneous office expenses; brokerage commissions; custodian fees;
legal and accounting fees; taxes; and federal and state registration fees.
Directors, officers and employees of the Sub-Adviser may be directors,
officers and employees of other funds which have employed the Sub-Adviser as
sub-adviser or investment manager.
In the conduct of the respective business of the parties hereto and in
the performance of this Agreement, the Fund, the Investment Manager and the
Sub-Adviser may share facilities common to each, with appropriate proration of
expenses between and among them.
3. (a) Subject to the primary objective of obtaining the best available
prices and execution, the Sub-Adviser will place orders for the purchase and
sale of portfolio securities and other instruments with such broker/dealers who
provide statistical, factual and financial information and services to the Fund,
to the Investment Manager, to the Sub-Adviser or to any other fund for which
the Investment Manager or Sub-Adviser provides investment advisory services
and/or with broker/dealers who sell shares of the Fund or who sell shares of any
other fund for which the Investment Manager or Sub-Adviser provides investment
advisory services. Broker/dealers who sell shares of the funds for which the
Investment Manager or Sub-Adviser provides advisory services shall only receive
orders for
-2-
<PAGE>
the purchase or sale of portfolio securities to the extent that the placing of
such orders is in compliance with the Rules of the Securities and Exchange
Commission and the National Association of Securities Dealers, Inc.
(b) Notwithstanding the provisions of subparagraph (a) above
and subject to the policies and procedures as may be adopted by the Board of
Directors and officers of the Fund, the Sub-Adviser may ask the Fund and the
Fund may agree to pay a member of an exchange, broker or dealer an amount of
commission for effecting a securities transaction in excess of the amount of
commission another member of an exchange, broker or dealer would have charged
for effecting that transaction, in such instances where it and the Sub-Adviser
have determined in good faith that such amount of commission was reasonable in
relation to the value of the brokerage and research services provided by such
member, broker or dealer, viewed in terms of either that particular transaction
or the Sub-Adviser's overall responsibilities with respect to the Fund and to
other funds and other advisory accounts for which the Investment Manager or the
Sub-Adviser exercises investment discretion.
4. The Sub-Adviser shall maintain all books and records with respect to
the Portfolio's portfolio transactions required by subparagraphs (b) (5), (6),
(7), (9), (10) and (11) and paragraph (f) of Rule 31a-1 under the 1940 Act and
shall render to the Fund's Board of Directors such periodic and special reports
as the Board may reasonably request.
The Sub-Adviser shall keep the Portfolio's books and records
required to be maintained by the Sub-Adviser pursuant to this Paragraph 4 and
shall timely furnish to the Investment Manager all information relating to the
Sub-Adviser's services hereunder needed by the Investment Manager to keep the
other books and records of the Portfolio required by Rule 31a-1 under the 1940
Act. The Sub-Adviser agrees that all records which it maintains for the
Portfolio are the property of the Fund and the Sub-Adviser will surrender
promptly to the Fund any of such records upon the Fund's request, provided
however that the Sub-Adviser may retain a copy of such records. The Sub-Adviser
further agrees to preserve for the periods prescribed by Rule 31a-2 of the
Securities and Exchange Commission under the 1940 Act any such records as are
required to be maintained by it pursuant to this Paragraph 4.
5. As compensation for the services to be rendered to the Fund for the
benefit of the Portfolio by the Sub-Adviser under the provisions of this
Agreement, the Investment Manager shall pay to the Sub-Adviser the following
fee: For the services provided to the Investment Manager, the Investment Manager
pays the Sub-Adviser the following fee with respect to the Portfolio: (i) 0.10%
of the fee paid to the Investment Manager under the Portfolio's Investment
Management Agreement for the period _________, 1997 through December 31, 1997;
(ii) 0.20% of the fee paid to the Investment Manager under the Portfolio's
Investment Management Agreement for the period January 1, 1998 through December
31, 1998; and (iii)
-3-
<PAGE>
0.35% of the fee paid to the Investment Manager under the Portfolio's Investment
Management Agreement thereafter.
The fee shall be computed quarterly and will be paid to the
Sub-Adviser, quarterly, in arrears.
6. The services to be rendered by the Sub-Adviser to the Fund for the
benefit of the Portfolio under the provisions of this Agreement are not to be
deemed to be exclusive, and the Sub-Adviser shall be free to render similar or
different services to others so long as its ability to render the services
provided for in this Agreement shall not be impaired thereby; provided, however,
except for advisory arrangements implemented prior to the date of this
Agreement, during the term of this Agreement, the Sub-Adviser, will not, without
the written consent of the Investment Manager, which consent will not be
unreasonably withheld, render investment management (or similar services) to
another registered investment company (or portfolio thereof) which the
Investment Manager reasonably determines would be in competition with and which
has investment policies similar to those of the Portfolio.
7. The Investment Manager agrees that it shall not use the
Sub-Adviser's name or otherwise refer to the Sub-Adviser in any materials
distributed to third parties, including the Portfolio's shareholders, without
the prior written consent of the Sub-Adviser.
8. In the absence of willful misfeasance, bad faith, gross negligence,
or a reckless disregard of the performance of its duties as Sub-Adviser to the
Fund, the Sub-Adviser shall not be subject to liability to the Fund, to the
Investment Manager or to any shareholder of the Fund for any action or omission
in the course of, or connected with, rendering services hereunder or for any
losses that may be sustained in the purchase, holding or sale of any security,
or otherwise.
9. This Agreement shall be executed and become effective as of the date
written below if approved by the vote of a majority of the outstanding voting
securities of the Portfolio. It shall continue in effect for a period of two
years and may be renewed thereafter only so long as such renewal and continuance
is specifically approved at least annually by the Board of Directors or by the
vote of a majority of the outstanding voting securities of the Portfolio and
only if the terms and the renewal hereof have been approved by the vote of a
majority of the Directors of the Fund who are not parties hereto or interested
persons of any such party, cast in person at a meeting called for the purpose of
voting on such approval. Notwithstanding the foregoing, this Agreement may be
terminated by the Investment Manager or the Fund at any time, without the
payment of a penalty, on sixty days' written notice to the Sub-Adviser, of the
Investment Manager's or the Fund's intention to do so, in the case of the Fund,
pursuant to action by the Board of Directors of the Fund or pursuant to the vote
of a majority of the outstanding voting securities of the Portfolio. The Sub-
Adviser may terminate this Agreement at any time, without the payment of a
penalty on sixty days' written notice to the Investment Manager and the Fund of
its intention to do so. Upon termination of this Agreement, the obligations of
all the parties hereunder shall cease and terminate as of the date of such
termination, except for any obligation to respond for a breach of this Agreement
committed prior to such termination, and except for the obligation of the
Investment Manager to pay to the Sub-Adviser the fee provided in Paragraph 5
hereof, prorated to the date of termination. This Agreement shall automatically
terminate in the event of its assignment. This Agreement shall automatically
terminate upon the termination of the Investment Management Agreement.
-4-
<PAGE>
10. This Agreement shall extend to and bind the successors of the
parties hereto. This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original. This Agreement shall become effective
when one or more counterparts have been signed and delivered by each of the
parties hereto.
11. For the purposes of this Agreement, the terms "vote of a majority
of the outstanding voting securities", "interested person", and "assignment"
shall have the meaning defined in the 1940 Act.
IN WITNESS WHEREOF, the parties hereto have caused their corporate
seals to be affixed and duly attested and their presents to be signed by their
duly authorized officers as of the ___th day of February, 1997.
DELAWARE MANAGEMENT COMPANY, INC.
By:_________________________________
Attest:_____________________________
VANTAGE GLOBAL ADVISORS, INC.
By:_________________________________
Attest:_____________________________
-5-
<PAGE>
Agreed to and accepted as of the
day and year first above written:
DELAWARE GROUP EQUITY FUNDS II, INC.
on behalf of the Blue Chip Fund series
By:_________________________________________
Attest:______________________________________
-6-
<PAGE>
DELAWARE GROUP EQUITY FUNDS II, INC.
SUB-ADVISORY AGREEMENT
AGREEMENT, made by and between DELAWARE MANAGEMENT COMPANY, INC., a
Delaware corporation ("Investment Manager"), and VANTAGE GLOBAL ADVISORS, INC.,
an [________] corporation ("Sub-Adviser").
W I T N E S S E T H:
WHEREAS, DELAWARE GROUP EQUITY FUNDS II, INC., a Maryland
corporation ("Fund"), on behalf of the Quantum Fund series ("Portfolio"), has
been organized and operates as an investment company registered under the
Investment Company Act of 1940 ("1940 Act") and engages in the business of
investing and reinvesting its assets in securities, and
WHEREAS, the Investment Manager and the Fund have entered into an
agreement of even date herewith ("Investment Management Agreement") whereby the
Investment Manager will provide investment advisory services to the Fund on
behalf of the Portfolio; and
WHEREAS, the Investment Management Agreement permits the Investment
Manager to hire one or more sub-advisers to assist the Investment Manager in
providing investment advisory services to the Fund on behalf of the Portfolio;
and
WHEREAS, the Investment Manager and the Sub-Adviser are registered
investment advisers under the Investment Advisers Act of 1940 and engage in the
business of providing investment management services.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and each of the parties hereto intending to be legally bound, it is
agreed as follows:
1. The Investment Manager hereby employs the Sub-Adviser to manage the
investment and reinvestment of the Portfolio's assets, subject to the direction
of the Fund's Board of Directors and officers of the Fund for the period and on
the terms hereinafter set forth. The Sub-Adviser hereby accepts such employment
and agrees during such period to render the services and assume the obligations
herein set forth for the compensation herein provided. The Sub-Adviser shall for
all purposes herein be deemed to be an independent contractor, and shall, unless
otherwise expressly provided and authorized, have no authority to act for or
represent the Fund in any way, or in any way be deemed an agent of the Fund.
<PAGE>
The Sub-Adviser shall regularly make decisions as to what securities and other
instruments to purchase and sell on behalf of the Portfolio, shall effect the
purchase and sale of such investments, as agent of the Fund on behalf of the
Portfolio, in furtherance of the Portfolio's objectives and policies and shall
furnish the Board of Directors of the Fund with such information and reports
regarding its activities as the Investment Manager deems appropriate or as the
Directors of the Fund may reasonably request consistent with the provisions of
Section 15(c) of the 1940 Act.
In the performance of its duties and obligations under this Agreement,
the Sub-Adviser shall act in conformity with the Articles of Incorporation,
By-Laws and Prospectus of the Fund and with the instructions and directions of
the Investment Manager and of the Board of Directors of the Fund and will
conform to and comply with the requirements of the 1940 Act, the Internal
Revenue Code of 1986 and all other applicable federal and state laws and
regulations.
2. Under the terms of the Investment Management Agreement, the Fund
shall conduct its own business and affairs and shall bear the expenses and
salaries necessary and incidental thereto including, but not in limitation of
the foregoing, the costs incurred in: the maintenance of its corporate
existence; the maintenance of its own books, records and procedures; dealing
with its own shareholders; the payment of dividends; transfer of stock,
including issuance and repurchase of shares; preparation of share certificates;
reports and notices to shareholders; calling and holding of shareholders'
meetings; miscellaneous office expenses; brokerage commissions; custodian fees;
legal and accounting fees; taxes; and federal and state registration fees.
Directors, officers and employees of the Sub-Adviser may be directors,
officers and employees of other funds which have employed the Sub-Adviser as
sub-adviser or investment manager.
In the conduct of the respective business of the parties hereto and in
the performance of this Agreement, the Fund, the Investment Manager and the
Sub-Adviser may share facilities common to each, with appropriate proration of
expenses between and among them.
3. (a) Subject to the primary objective of obtaining the best available
prices and execution, the Sub-Adviser will place orders for the purchase and
sale of portfolio securities and other instruments with such broker/dealers who
provide statistical, factual and financial information and services to the Fund,
to the Investment Manager, to the Sub-Adviser or to any other fund for which
the Investment Manager or Sub-Adviser provides investment advisory services
and/or with broker/dealers who sell shares of the Fund or who sell shares of any
other fund for which the Investment Manager or Sub-Adviser provides investment
advisory services. Broker/dealers who sell shares of the funds for which the
Investment Manager or Sub-Adviser provides advisory services shall only receive
orders for
-2-
<PAGE>
the purchase or sale of portfolio securities to the extent that the placing of
such orders is in compliance with the Rules of the Securities and Exchange
Commission and the National Association of Securities Dealers, Inc.
(b) Notwithstanding the provisions of subparagraph (a) above
and subject to the policies and procedures as may be adopted by the Board of
Directors and officers of the Fund, the Sub-Adviser may ask the Fund and the
Fund may agree to pay a member of an exchange, broker or dealer an amount of
commission for effecting a securities transaction in excess of the amount of
commission another member of an exchange, broker or dealer would have charged
for effecting that transaction, in such instances where it and the Sub-Adviser
have determined in good faith that such amount of commission was reasonable in
relation to the value of the brokerage and research services provided by such
member, broker or dealer, viewed in terms of either that particular transaction
or the Sub-Adviser's overall responsibilities with respect to the Fund and to
other funds and other advisory accounts for which the Investment Manager or the
Sub-Adviser exercises investment discretion.
4. The Sub-Adviser shall maintain all books and records with respect to
the Portfolio's portfolio transactions required by subparagraphs (b) (5), (6),
(7), (9), (10) and (11) and paragraph (f) of Rule 31a-1 under the 1940 Act and
shall render to the Fund's Board of Directors such periodic and special reports
as the Board may reasonably request.
The Sub-Adviser shall keep the Portfolio's books and records
required to be maintained by the Sub-Adviser pursuant to this Paragraph 4 and
shall timely furnish to the Investment Manager all information relating to the
Sub-Adviser's services hereunder needed by the Investment Manager to keep the
other books and records of the Portfolio required by Rule 31a-1 under the 1940
Act. The Sub-Adviser agrees that all records which it maintains for the
Portfolio are the property of the Fund and the Sub-Adviser will surrender
promptly to the Fund any of such records upon the Fund's request, provided
however that the Sub-Adviser may retain a copy of such records. The Sub-Adviser
further agrees to preserve for the periods prescribed by Rule 31a-2 of the
Securities and Exchange Commission under the 1940 Act any such records as are
required to be maintained by it pursuant to this Paragraph 4.
5. As compensation for the services to be rendered to the Fund for the
benefit of the Portfolio by the Sub-Adviser under the provisions of this
Agreement, the Investment Manager shall pay to the Sub-Adviser the following
fee: For the services provided to the Investment Manager, the Investment Manager
pays the Sub-Adviser the following fee with respect to the Portfolio: (i) 0.10%
of the fee paid to the Investment Manager under the Portfolio's Investment
Management Agreement for the period _________, 1997 through December 31, 1997;
(ii) 0.25% of the fee paid to the Investment Manager under the Portfolio's
Investment Management Agreement for the period January 1, 1998 through December
31, 1998; and (iii)
-3-
<PAGE>
0.40% of the fee paid to the Investment Manager under the Portfolio's Investment
Management Agreement thereafter.
The fee shall be computed quarterly and will be paid to the
Sub-Adviser, quarterly, in arrears.
6. The services to be rendered by the Sub-Adviser to the Fund for the
benefit of the Portfolio under the provisions of this Agreement are not to be
deemed to be exclusive, and the Sub-Adviser shall be free to render similar or
different services to others so long as its ability to render the services
provided for in this Agreement shall not be impaired thereby; provided, however,
except for advisory arrangements implemented prior to the date of this
Agreement, during the term of this Agreement, the Sub-Adviser, will not, without
the written consent of the Investment Manager, which consent will not be
unreasonably withheld, render investment management (or similar services) to
another registered investment company (or portfolio thereof) which the
Investment Manager reasonably determines would be in competition with and which
has investment policies similar to those of the Portfolio.
7. The Investment Manager agrees that it shall not use the
Sub-Adviser's name or otherwise refer to the Sub-Adviser in any materials
distributed to third parties, including the Portfolio's shareholders, without
the prior written consent of the Sub-Adviser.
8. In the absence of willful misfeasance, bad faith, gross negligence,
or a reckless disregard of the performance of its duties as Sub-Adviser to the
Fund, the Sub-Adviser shall not be subject to liability to the Fund, to the
Investment Manager or to any shareholder of the Fund for any action or omission
in the course of, or connected with, rendering services hereunder or for any
losses that may be sustained in the purchase, holding or sale of any security,
or otherwise.
9. This Agreement shall be executed and become effective as of the date
written below if approved by the vote of a majority of the outstanding voting
securities of the Portfolio. It shall continue in effect for a period of two
years and may be renewed thereafter only so long as such renewal and continuance
is specifically approved at least annually by the Board of Directors or by the
vote of a majority of the outstanding voting securities of the Portfolio and
only if the terms and the renewal hereof have been approved by the vote of a
majority of the Directors of the Fund who are not parties hereto or interested
persons of any such party, cast in person at a meeting called for the purpose of
voting on such approval. Notwithstanding the foregoing, this Agreement may be
terminated by the Investment Manager or the Fund at any time, without the
payment of a penalty, on sixty days' written notice to the Sub-Adviser, of the
Investment Manager's or the Fund's intention to do so, in the case of the Fund,
pursuant to action by the Board of Directors of the Fund or pursuant to the vote
of a majority of the outstanding voting securities of the Portfolio. The Sub-
Adviser may terminate this Agreement at any time, without the payment of a
penalty on sixty days' written notice to the Investment Manager and the Fund of
its intention to do so. Upon termination of this Agreement, the obligations of
all the parties hereunder shall cease and terminate as of the date of such
termination, except for any obligation to respond for a breach of this Agreement
committed prior to such termination, and except for the obligation of the
Investment Manager to pay to the Sub-Adviser the fee provided in Paragraph 5
hereof, prorated to the date of termination. This Agreement shall automatically
terminate in the event of its assignment. This Agreement shall automatically
terminate upon the termination of the Investment Management Agreement.
10. This Agreement shall extend to and bind the successors of the
parties hereto. This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original. This Agreement shall become effective
when one or more counterparts have been signed and delivered by each of the
parties hereto.
11. For the purposes of this Agreement, the terms "vote of a majority
of the outstanding voting securities", "interested person", and "assignment"
shall have the meaning defined in the 1940 Act.
-4-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused their corporate
seals to be affixed and duly attested and their presents to be signed by their
duly authorized officers as of the ___th day of February, 1997.
DELAWARE MANAGEMENT COMPANY, INC.
By:__________________________
Attest:______________________
VANTAGE GLOBAL ADVISORS, INC.
By:__________________________
Attest:______________________
-5-
<PAGE>
Agreed to and accepted as of the
day and year first above written:
DELAWARE GROUP EQUITY FUNDS II, INC.
on behalf of the Quantum Fund series
By:___________________________________
Attest:________________________________
-6-
<PAGE>
PROPOSED AGREEMENT
SUBJECT TO BOARD APPROVAL
[Name of Investment Company]
[Name of Portfolio]
DISTRIBUTION AGREEMENT
Distribution Agreement (the "Agreement") made as of this ____ day of
_________, 199_ by and between [Name of Investment Company], a Maryland
corporation (the "Fund"), for the [Name of Portfolio] series (the "Series"),
and DELAWARE DISTRIBUTORS, L.P. (the "Distributor"), a Delaware limited
partnership.
WITNESSETH
WHEREAS, the Fund is an investment company regulated by
Federal and State regulatory bodies, and
WHEREAS, the Distributor is engaged in the business of
promoting the distribution of the securities of investment companies and, in
connection therewith and acting solely as agent for such investment companies
and not as principal, advertising, promoting, offering and selling their
securities to the public, and
WHEREAS, the Fund desires to enter into an agreement with the
Distributor on behalf of the Series, pursuant to which the Distributor shall
serves as the national distributor of the Series' [Name of Portfolio] A Class
("Class A Shares"), [Name of Portfolio] B Class (the "Class B Shares"),
[Name of Portfolio] C Class (the "Class C Shares"), and [Name of Portfolio]
Institutional Class (the "Institutional Class Shares"), which Series and classes
may do business under these or such other names as the Board of Directors may
designate from time to time, on the terms and conditions set forth below,
NOW, THEREFORE, the parties hereto, intending to be legally
bound hereby, agree as follows:
1. The Fund hereby engages the Distributor to promote the distribution of the
Series' shares and, in connection therewith and as agent for the Fund and not
as principal, to advertise, promote, offer and sell the Series' shares
to the public.
<PAGE>
2. (a) The Distributor agrees to serve as distributor of the Series' shares
and, as agent for the Fund and not as principal, to advertise, promote
and use its best efforts to sell the Series' shares wherever their sale
is legal, either through dealers or otherwise, in such places and in such
manner, not inconsistent with the law and the provisions of this
Agreement and the Fund's Registration Statement under the Securities Act
of 1933, including the Prospectuses contained therein, and the Statement
of Additional Information contained therein as may be mutually determined
by the Fund and the Distributor from time to time.
(b) For the Institutional Class Shares, the Distributor will bear all costs
of financing any activity which is primarily intended to result in the
sale of that class of shares, including, but not necessarily limited to,
advertising, compensation of underwriters, dealers and sales personnel,
the printing and mailing of sales literature and distribution of that
class of shares.
(c) For its services as agent for the Class A Shares, Class B Shares, and
Class C Shares, the Distributor shall be entitled to compensation on each
sale or redemption, as appropriate, of shares of such classes equal to
any front-end or deferred sales charge described in the Prospectus from
time to time and may allow concessions to dealers in such amounts and on
such terms as are therein set forth.
(d) For the Class A Shares, Class B Shares, and Class C Shares, the Fund
shall, in addition, compensate the Distributor for its services as
provided in the Distribution Plan as adopted on behalf of the Class A
Shares, Class B Shares, and Class C Shares, respectively, pursuant to
Rule 12b-1 under the Investment Company Act of 1940 (the "Plans"), copies
of which as presently in force are attached hereto as, respectively,
Exhibit "A," "B," and "C."
<PAGE>
3. (a) The Fund agrees to make available for sale by the Fund through the
Distributor all or such part of the authorized but unissued shares of the
Series as the Distributor shall require from time to time, and except as
provided in Paragraph 3(b) hereof, the Fund will not sell Series' shares
other than through the efforts of the Distributor.
(b) The Fund reserves the right from time to time (1) to sell and issue
shares other than for cash; (2) to issue shares in exchange for
substantially all of the assets of any corporation or trust, or in
exchange of shares of any corporation or trust; (3) to pay stock
dividends to its shareholders, or to pay dividends in cash or stock at
the option of its stockholders, or to sell stock to existing stockholders
to the extent of dividends payable from time to time in cash, or to split
up or combine its outstanding shares of common stock; (4) to offer shares
for cash to its stockholders as a whole, by the use of transferable
rights or otherwise, and to sell and issue shares pursuant to such
offers; and (5) to act as its own distributor in any jurisdiction in
which the Distributor is not registered as a broker-dealer.
4. The Fund warrants the following:
(a) The Fund is, or will be, a properly registered investment company, and
any and all Series' shares which it will sell through the Distributor
are, or will be, properly registered with the Securities and Exchange
Commission ("SEC").
(b) The provisions of this Agreement do not violate the terms of any
instrument by which the Fund is bound, nor do they violate any law or
regulation of any body having jurisdiction over the Fund or its property.
5. (a) The Fund will supply to the Distributor a conformed copy of the
Registration Statement, all amendments thereto, all exhibits, and each
Prospectus and Statement of Additional Information.
(b) The Fund will register or qualify the Series' shares for sale in such
states as is deemed desirable.
<PAGE>
(c) The Fund, without expense to the Distributor,
(1) will give and continue to give such financial statements and other
information as may be required by the SEC or the proper public bodies
of the states in which the Series' shares may be qualified;
(2) from time to time, will furnish to the Distributor as soon as
reasonably practicable true copies of its periodic reports to
stockholders;
(3) will promptly advise the Distributor in person or by telephone or
telegraph, and promptly confirm such advice in writing, (a) when any
amendment or supplement to the Registration Statement becomes
effective, (b) of any request by the SEC for amendments or
supplements to the Registration Statement or the Prospectuses or for
additional information, and (c) of the issuance by the SEC of any
Stop Order suspending the effectiveness of the Registration
Statement, or the initiation of any proceedings for that purpose;
(4) if at any time the SEC shall issue any Stop Order suspending the
effectiveness of the Registration Statement, will make every
reasonable effort to obtain the lifting of such order at the earliest
possible moment;
(5) will from time to time, use its best effort to keep a sufficient
supply of Series' shares authorized, any increases being subject to
the approval of shareholders as may be required;
(6) before filing any further amendment to the Registration Statement or
to any Prospectus, will furnish to the Distributor copies of the
proposed amendment and will not, at any time, whether before or after
the effective date of the Registration Statement, file any amendment
to the Registration Statement or supplement to any Prospectus of
which the Distributor shall not previously have been advised or to
which the Distributor shall reasonably object (based upon the
accuracy or completeness thereof) in writing;
(7) will continue to make available to its stockholders (and forward
copies to the Distributor) of such periodic, interim and any other
reports as are now, or as hereafter may be, required by the
provisions of the Investment Company Act of 1940; and
(8) will, for the purpose of computing the offering price of Series'
shares, advise the Distributor within one hour after the close of the
New York Stock Exchange (or as soon as practicable thereafter) on
each business day upon which the New York Stock Exchange may be open
of the net asset value per share of the Series' shares of common
stock outstanding, determined in accordance with any applicable
provisions of law and the provisions of the Articles of
Incorporation, as amended, of the Fund as of the close of business on
such business day. In the event that prices are to be calculated more
than once daily, the Fund will promptly advise the Distributor of the
time of each calculation and the price computed at each such time.
<PAGE>
6. The Distributor agrees to submit to the Fund, prior to its use, the form of
all sales literature proposed to be generally disseminated by or for the
Distributor, all advertisements proposed to be used by the Distributor, all
sales literature or advertisements prepared by or for the Distributor for
such dissemination or for use by others in connection with the sale of the
Series' shares, and the form of dealers' sales contract the Distributor
intends to use in connection with sales of the Series' shares. The
Distributor also agrees that the Distributor will submit such sales
literature and advertisements to the NASD, SEC or other regulatory agency as
from time to time may be appropriate, considering practices then current in
the industry. The Distributor agrees not to use such form of dealers' sales
contract or to use or to permit others to use such sales literature or
advertisements without the written consent of the Fund if any regulatory
agency expresses objection thereto or if the Fund delivers to the Distributor
a written objection thereto.
7. The purchase price of each share sold hereunder shall be the offering price
per share mutually agreed upon by the parties hereto, and as described in the
Fund's Prospectuses, as amended from time to time, determined in accordance
with any applicable provision of law, the provisions of its Articles of
Incorporation and the Rules of Fair Practice of the National Association of
Securities Dealers, Inc.
8. The responsibility of the Distributor hereunder shall be limited to the
promotion of sales of Series' shares. The Distributor shall undertake to
promote such sales solely as agent of the Fund, and shall not purchase or
sell such shares as principal. Orders for Series' shares and payment for such
orders shall be directed to the Fund's agent, Delaware Service Company, Inc.
for acceptance on behalf of the Fund. The Distributor is not empowered to
approve orders for sales of Series' shares or accept payment for such orders.
Sales of Series' shares shall be deemed to be made when and where accepted by
Delaware Service Company, Inc. on behalf of the Fund.
<PAGE>
9. With respect to the apportionment of costs between the Fund and the
Distributor of activities with which both are concerned, the following will
apply:
(a) The Fund and the Distributor will cooperate in preparing the Registration
Statements, the Prospectuses, the Statement of Additional Information,
and all amendments, supplements and replacements thereto. The Fund will
pay all costs incurred in the preparation of the Fund's Registration
Statement, including typesetting, the costs incurred in printing and
mailing Prospectuses and Annual, Semi-Annual and other financial reports
to its own shareholders and fees and expenses of counsel and accountants.
(b) The Distributor will pay the costs incurred in printing and mailing
copies of Prospectuses to prospective investors.
(c) The Distributor will pay advertising and promotional expenses, including
the costs of literature sent to prospective investors.
(d) The Fund will pay the costs and fees incurred in registering or
qualifying the Series' shares with the various states and with the SEC.
(e) The Distributor will pay the costs of any additional copies of Fund
financial and other reports and other Fund literature supplied to the
Distributor by the Fund for sales promotion purposes.
10. The Distributor may engage in other business, provided such other business
does not interfere with the performance by the Distributor of its
obligations under this Agreement.
11. The Fund agrees to indemnify, defend and hold harmless from the assets of
the Series the Distributor and each person, if any, who controls the
Distributor within the meaning of Section 15 of the Securities Act of
<PAGE>
1933, from and against any and all losses, damages, or liabilities to which,
jointly or severally, the Distributor or such controlling person may become
subject, insofar as the losses, damages or liabilities arise out of the
performance of its duties hereunder except that the Fund shall not be liable
for indemnification of the Distributor or any controlling person thereof for
any liability to the Fund or its security holders to which they would
otherwise be subject by reason of willful misfeasance, bad faith, or gross
negligence in the performance of their duties under this Agreement.
12. Copies of financial reports, Registration Statements and Prospectuses, as
well as demands, notices, requests, consents, waivers, and other
communications in writing which it may be necessary or desirable for either
party to deliver or furnish to the other will be duly delivered or
furnished, if delivered to such party at its address shown below during
regular business hours, or if sent to that party by registered mail or by
prepaid telegram filed with an office or with an agent of Western Union or
another nationally recognized telegraph service, in all cases within the
time or times herein prescribed, addressed to the recipient at 1818 Market
Street, Philadelphia, Pennsylvania 19103, or at such other address as the
Fund or the Distributor may designate in writing and furnish to the other.
13. This Agreement shall not be assigned, as that term is defined in the
Investment Company Act of 1940, by the Distributor and shall terminate
automatically in the event of its attempted assignment by the Distributor.
This Agreement shall not be assigned by the Fund without the written consent
of the Distributor signed by its duly authorized officers and delivered to
the Fund. Except as specifically provided in the indemnification provision
contained in Paragraph 11 herein, this Agreement and all conditions and
provisions hereof are for the sole and exclusive benefit of the parties
hereto and their legal successors and no express or implied provision of
this Agreement is intended or shall be construed to give any person other
than the parties hereto and their legal successors any legal or equitable
right, remedy or claim under or in respect of this Agreement or any
provisions herein contained.
<PAGE>
14. (a) This Agreement shall remain in force for a period of two years from
the date hereof and from year to year thereafter, but only so long as
such continuance is specifically approved at least annually by the Board
of Directors or by vote of a majority of the outstanding voting
securities of the Series and only if the terms and the renewal thereof
have been approved by the vote of a majority of the Directors of the
Fund who are not parties hereto or interested persons of any such party,
cast in person at a meeting called for the purpose of voting on such
approval.
(b) The Distributor may terminate this Agreement on written notice to the
Fund at any time in case the effectiveness of the Registration Statement
shall be suspended, or in case Stop Order proceedings are initiated by
the SEC in respect of the Registration Statement and such proceedings
are not withdrawn or terminated within thirty days. The Distributor may
also terminate this Agreement at any time by giving the Fund written
notice of its intention to terminate the Agreement at the expiration of
three months from the date of delivery of such written notice of
intention to the Fund.
(c) The Fund may terminate this Agreement at any time on at least thirty
days prior written notice to the Distributor (1) if proceedings are
commenced by the Distributor or any of its partners for the
Distributor's liquidation or dissolution or the winding up of the
Distributor's affairs; (2) if a receiver or trustee of the Distributor
or any of its property is appointed and such appointment is not vacated
within thirty days thereafter; (3) if, due to any action by or before
any court or any federal or state commission, regulatory body, or
administrative agency or other governmental body, the Distributor shall
be prevented from selling securities in the United States or because of
any action or conduct on the Distributor's part, sales of the shares are
not qualified for sale. The Fund may also terminate this Agreement at
any time upon prior written notice to the Distributor of its intention
to so terminate at the expiration of three months from the date of the
delivery of such written notice to the Distributor.
<PAGE>
15. The validity, interpretation and construction of this Agreement, and of each
part hereof, will be governed by the laws of the Commonwealth of
Pennsylvania.
16. In the event any provision of this Agreement is determined to be void or
unenforceable, such determination shall not affect the remainder of the
Agreement, which shall continue to be in force.
DELAWARE DISTRIBUTORS, L.P.
By: DELAWARE DISTRIBUTORS, INC.,
----------------------------
General Partner
Attest:
By:
- ------------------------------ ------------------------------
Name: Name:
Title: Title:
[Name of Investment Company] for the
[Name of Portfolio]
Attest:
By:
- ------------------------------ ------------------------------
Name: Name:
Title: Title:
<PAGE>
EXHIBIT A
DISTRIBUTION PLAN
[Name of Investment Company]
[Name of Portfolio]
[Name of Portfolio] A CLASS
The following Distribution Plan (the "Plan") has been adopted
pursuant to Rule l2b-l under the Investment Company Act of l940 (the "Act") by
[Name of Investment Company] (the "Fund"), for the [Name of Portfolio] series
(the "Series") on behalf of the [Name of Portfolio] A Class ("Class"), which
Fund, Series and Class may do business under these or such other names as the
Board of Directors of the Fund may designate from time to time. The Plan has
been approved by a majority of the Board of Directors, including a majority of
the Directors who are not interested persons of the Fund and who have no direct
or indirect financial interest in the operation of the Plan or in any agreements
related thereto ("non-interested Directors"), cast in person at a meeting called
for the purpose of voting on such Plan. Such approval by the Directors included
a determination that in the exercise of reasonable business judgment and in
light of their fiduciary duties, there is a reasonable likelihood that the Plan
will benefit the Series and shareholders of the Class. The Plan has been
approved by a majority of the outstanding voting securities of the Class, as
defined in the Act.
<PAGE>
The Fund is a corporation organized under the laws of the
State of Maryland, is authorized to issue different series and classes of
securities and is an open-end management investment company registered under the
Act. Delaware Management Company, Inc. serves as the Series' investment adviser
and manager pursuant to an Investment Management Agreement. Delaware Service
Company, Inc. serves as the Series' shareholder servicing, dividend disbursing
and transfer agent. Delaware Distributors, L.P. (the "Distributor") is the
principal underwriter and national distributor for the Series' shares, including
shares of the Class, pursuant to the Distribution Agreement between the
Distributor and the Fund on behalf of the Series ("Distribution Agreement").
The Plan provides that:
l. (a) The Fund shall pay to the Distributor a monthly fee not
to exceed 0.75% (3/4 of l%) per annum of the Series' average daily net assets
represented by shares of the Class as may be determined by the Fund's Board of
Directors from time to time.
(b) In addition to the amounts described in (a) above,
the Fund shall pay (i) to the Distributor for payment to dealers or others, or
(ii) directly to others, an amount not to exceed 0.25% (1/4 of 1%) per annum
of the Series' average daily net assets represented by shares of the Class, as
a service fee pursuant to dealer or servicing agreements.
2. (a) The Distributor shall use the monies paid to it
pursuant to paragraph l(a) above to assist in the distribution and promotion
of shares of the Class. Payments made to the Distributor under the Plan may be
used for, among other things, preparation and distribution of advertisements,
sales literature and prospectuses and reports used for sales purposes, as well
as compensation related to sales and marketing personnel, and holding special
promotions. In addition, such fees may be used to pay for advancing the
commission costs to dealers with respect to the sales of Class shares.
<PAGE>
(b) The monies to be paid pursuant to paragraph 1(b) above shall be
used to pay dealers or others for, among other things, furnishing personal
services and maintaining shareholder accounts, which services include confirming
that customers have received the Prospectus and Statement of Additional
Information, if applicable; assisting such customers in maintaining proper
records with the Fund; answering questions relating to their respective
accounts; and aiding in maintaining the investment of their respective customers
in the Class.
3. The Distributor shall report to the Fund at least monthly on the
amount and the use of the monies paid to it under paragraph 1(a) above. In
addition, the Distributor and others shall inform the Fund monthly and in
writing of the amounts paid under paragraph 1(b) above; both the Distributor and
any others receiving fees under the Plan shall furnish the Board of Directors of
the Fund with such other information as the Board may reasonably request in
connection with the payments made under the Plan and the use thereof by the
Distributor and others in order to enable the Board to make an informed
determination of the amount of the Fund's payments and whether the Plan should
be continued.
4. The officers of the Fund shall furnish to the Board of Directors of
the Fund, for their review, on a quarterly basis, a written report of the
amounts expended under the Plan and the purposes for which such expenditures
were made.
<PAGE>
5. This Plan shall take effect at such time as the Distributor
shall notify the Fund in writing of the commencement of the Plan (the
"Commencement Date"); thereafter, the Plan shall continue in effect for a period
of more than one year from the Commencement Date only so long as such
continuance is specifically approved at least annually by a vote of the Board of
Directors of the Fund, and of the non-interested Directors, cast in person at a
meeting called for the purpose of voting on such Plan.
6. (a) The Plan may be terminated at any time by vote of a
majority of the non-interested Directors or by vote of a majority of the
outstanding voting securities of the Class.
(b) The Plan may not be amended to increase materially the
amount to be spent for distribution pursuant to paragraph l thereof without
approval by the shareholders of the Class.
7. All material amendments to this Plan shall be approved by
the non-interested Directors in the manner described in paragraph 5 above.
8. So long as the Plan is in effect, the selection and
nomination of the Fund's non-interested Directors shall be committed to the
discretion of such non-interested Directors.
9. The definitions contained in Sections 2(a)(19) and 2(a)(42)
of the Act shall govern the meaning of "interested person(s)" and "vote of a
majority of the outstanding voting securities," respectively, for the purposes
of this Plan.
This Plan shall take effect on the Commencement Date, as
previously defined.
_________ __, 199_
<PAGE>
EXHIBIT B
DISTRIBUTION PLAN
[Name of Investment Company]
[Name of Portfolio]
[Name of Portfolio] B CLASS
The following Distribution Plan (the "Plan") has been adopted pursuant
to Rule 12b-1 under the Investment Company Act of 1940 (the "Act") by [Name of
Investment Company] (the "Fund"), for the [Name of Portfolio] series (the
"Series") on behalf of the [Name of Portfolio] B Class (the "Class"), which
Fund, Series and Class may do business under these or such other names as the
Board of Directors of the Fund may designate from time to time. The Plan has
been approved by a majority of the Board of Directors, including a majority of
the Directors who are not interested persons of the Fund and who have no direct
or indirect financial interest in the operation of the Plan or in any agreements
related thereto ("non-interested Directors"), cast in person at a meeting called
for the purpose of voting on such Plan. Such approval by the Directors included
a determination that in the exercise of reasonable business judgment and in
light of their fiduciary duties, there is a reasonable likelihood that the Plan
will benefit the Series and shareholders of the Class. The Plan has been
approved by a vote of the holders of a majority of the outstanding voting
securities of the Class, as defined in the Act.
<PAGE>
The Fund is a corporation organized under the laws of the
State of Maryland, is authorized to issue different series and classes of
securities and is an open-end management investment company registered under the
Act. Delaware Management Company, Inc. serves as the Series' investment adviser
and manager pursuant to an Investment Management Agreement. Delaware Service
Company, Inc. serves as the Series' shareholder servicing, dividend disbursing
and transfer agent. Delaware Distributors, L.P. (the "Distributor") is the
principal underwriter and national distributor for the Series' shares, including
shares of the Class, pursuant to the Distribution Agreement between the
Distributor and the Fund on behalf of the Series ("Distribution Agreement").
The Plan provides that:
l. The Fund shall pay to the Distributor a monthly fee not to
exceed 0.3% (3/10 of l%) per annum of the Series' average daily net assets
represented by shares of the Class (the "Maximum Amount") as may be determined
by the Fund's Board of Directors from time to time. Such monthly fee shall be
reduced by the aggregate sums paid by the Fund on behalf of the Series to
persons other than broker-dealers (the "Service Providers") who may, pursuant to
servicing agreements, provide to the Series services in the Series' marketing of
shares of the Class.
2. (a) The Distributor shall use the monies paid to it
pursuant to paragraph l above to furnish, or cause or encourage others to
furnish, services and incentives in connection with the promotion, offering and
sale of Class shares and, where suitable and appropriate, the retention of Class
shares by shareholders.
<PAGE>
(b) The Service Providers shall use the monies paid
respectively to them to reimburse themselves for the actual costs they have
incurred in confirming that their customers have received the Prospectus and
Statement of Additional Information, if applicable, and as a fee for (l)
assisting such customers in maintaining proper records with the Fund, (2)
answering questions relating to their respective accounts, and (3) aiding in
maintaining the investment of their respective customers in the Class.
3. The Distributor shall report to the Fund at least monthly
on the amount and the use of the monies paid to it under the Plan. The Service
Providers shall inform the Fund monthly and in writing of the amounts each
claims under the Plan; both the Distributor and the Service Providers shall
furnish the Board of Directors of the Fund with such other information as the
Board may reasonably request in connection with the payments made under the Plan
and the use thereof by the Distributor and the Service Providers, respectively,
in order to enable the Board to make an informed determination of the amount of
the Fund's payments and whether the Plan should be continued.
4. The officers of the Fund shall furnish to the Board of
Directors of the Fund, for their review, on a quarterly basis, a written report
of the amounts expended under the Plan and the purposes for which such
expenditures were made.
<PAGE>
5. This Plan shall take effect at such time as the Distributor shall
notify the Fund of the commencement of the Plan (the "Commencement Date");
thereafter, the Plan shall continue in effect for a period of more than one year
from the Commencement Date only so long as such continuance is specifically
approved at least annually by a vote of the Board of Directors of the Fund, and
of the non-interested Directors, cast in person at a meeting called for the
purpose of voting on such Plan.
6. (a) The Plan may be terminated at any time by vote of a majority
of the non-interested Directors or by vote of a majority of the outstanding
voting securities of the Class.
(b) The Plan may not be amended to increase materially the
amount to be spent for distribution pursuant to paragraph 1 thereof without
approval by the shareholders of the Class.
7. All material amendments to this Plan shall be approved by the
non-interested Directors in the manner described in paragraph 5 above.
8. So long as the Plan is in effect, the selection and nomination of
the Fund's non-interested Directors shall be committed to the discretion of such
non-interested Directors.
9. The definitions contained in Sections 2(a)(19) and 2(a)(42) of the
Act shall govern the meaning of "interested person(s)" and "vote of a majority
of the outstanding voting securities," respectively, for the purposes of this
Plan.
This Plan shall take effect on the Commencement Date, as previously
defined.
_________ __, 199_
<PAGE>
EXHIBIT C
DISTRIBUTION PLAN
[Name of Investment Company]
[Name of Portfolio]
[Name of Portfolio] C CLASS
The following Distribution Plan (the "Plan") has been adopted pursuant
to Rule 12b-1 under the Investment Company Act of 1940 (the "Act") by [Name of
Investment Company] (the "Fund"), for the [Name of Portfolio] series (the
"Series") on behalf of the [Name of Portfolio] C Class (the "Class"), which
Fund, Series and Class may do business under these or such other names as the
Board of Directors of the Fund may designate from time to time. The Plan has
been approved by a majority of the Board of Directors, including a majority of
the Directors who are not interested persons of the Fund and who have no direct
or indirect financial interest in the operation of the Plan or in any agreements
related thereto ("non-interested Directors"), cast in person at a meeting called
for the purpose of voting on such Plan. Such approval by the Directors included
a determination that in the exercise of reasonable business judgment and in
light of their fiduciary duties, there is a reasonable likelihood that the Plan
will benefit the Series and shareholders of the Class. The Plan has been
approved by a vote of the holders of a majority of the outstanding voting
securities of the Class, as defined in the Act.
<PAGE>
The Fund is a corporation organized under the laws of the State of
Maryland, is authorized to issue different series and classes of securities and
is an open-end management investment company registered under the Act. Delaware
Management Company, Inc. serves as the Series' investment adviser and manager
pursuant to an Investment Management Agreement. Delaware Service Company, Inc.
serves as the Series' shareholder servicing, dividend disbursing and transfer
agent. Delaware Distributors, L.P. (the "Distributor") is the principal
underwriter and national distributor for the Series' shares, including shares of
the Class, pursuant to the Distribution Agreement between the Distributor and
the Fund on behalf of the Series ("Distribution Agreement").
The Plan provides that:
1.(a) The Fund shall pay to the Distributor a monthly fee not to exceed
0.75% (3/4 of 1%) per annum of the Series' average daily net assets represented
by shares of the Class as may be determined by the Fund's Board of Directors
from time to time.
(b) In addition to the amounts described in paragraph 1(a) above, the
Fund shall pay: (i) to the Distributor for payment to dealers or others or (ii)
directly to others, an amount not to exceed 0.25% (1/4 of 1%) per annum of the
Series' average daily net assets represented by shares of the Class, as a
service fee pursuant to dealer or servicing agreements.
2.(a) The Distributor shall use the monies paid to it pursuant to
paragraph 1(a) above to assist in the distribution and promotion of shares of
the Class. Payments made to the Distributor under the Plan may be used for,
<PAGE>
among other things, preparation and distribution of advertisements, sales
literature and prospectuses and reports used for sales purposes, as well as
compensation related to sales and marketing personnel, and holding special
promotions. In addition, such fees may be used to pay for advancing the
commission costs to dealers with respect to the sale of Class shares.
(b) The monies to be paid pursuant to paragraph 1(b) above shall be
used to pay dealers or others for, among other things, furnishing personal
services and maintaining shareholder accounts, which services include confirming
that customers have received the Prospectus and Statement of Additional
Information, if applicable; assisting such customers in maintaining proper
records with the Fund; answering questions relating to their respective
accounts; and aiding in maintaining the investment of their respective customers
in the Class.
3. The Distributor shall report to the Fund at least monthly on the
amount and the use of the monies paid to it under paragraph 1(a) above. In
addition, the Distributor and others shall inform the Fund monthly and in
writing of the amounts paid under paragraph 1(b) above; both the Distributor and
any others receiving fees under the Plan shall furnish the Board of Directors of
the Fund with such other information as the Board may reasonably request in
connection with the payments made under the Plan and the use thereof by the
Distributor and others in order to enable the Board to make an informed
determination of the amount of the Fund's payments and whether the Plan should
be continued.
<PAGE>
4. The officers of the Fund shall furnish to the Board of Directors of
the Fund, for their review, on a quarterly basis, a written report of the
amounts expended under the Plan and the purposes for which such expenditures
were made.
5. This Plan shall take effect at such time as the Distributor shall
notify the Fund of the commencement of the Plan (the "Commencement Date");
thereafter, the Plan shall continue in effect for a period of more than one year
from the Commencement Date only so long as such continuance is specifically
approved at least annually by a vote of the Board of Directors of the Fund, and
of the non-interested Directors, cast in person at a meeting called for the
purpose of voting on such Plan.
6.(a) The Plan may be terminated at any time by vote of a majority of
the non-interested Directors or by vote of a majority of the outstanding voting
securities of the Class.
(b) The Plan may not be amended to increase materially the amount to
be spent for distribution pursuant to paragraph 1 thereof without approval by
the shareholders of the Class.
7. All material amendments to this Plan shall be approved by the
non-interested Directors in the manner described in paragraph 5 above.
8. So long as the Plan is in effect, the selection and nomination of
the Fund's non-interested Directors shall be committed to the discretion of such
non-interested Directors.
9. The definitions contained in Sections 2(a)(19) and 2(a)(42) of the
Act shall govern the meaning of "interested person(s)" and "vote of a majority
of the outstanding voting securities," respectively, for the purposes of this
Plan.
This Plan shall take effect on the Commencement Date, as previously
defined.
_________ __, 199_
<PAGE>
Mutual Fund/Business Trust/Series
CUSTODIAN AGREEMENT
AGREEMENT dated as of _____________, 199_ between BANKERS TRUST COMPANY
(the "Custodian") and [name of customer] (the "Customer").
WHEREAS, the Customer may be organized with one or more series of
shares, each of which shall represent an interest in a separate portfolio of
Securities and Cash (each as hereinafter defined) (all such existing and
additional series now or hereafter listed on Exhibit A being hereafter referred
to individually as a "Portfolio" and collectively, as the "Portfolios"); and
WHEREAS, the Customer desires to appoint the Custodian as custodian on
behalf of the Portfolios under the terms and conditions set forth in this
Agreement, and the Custodian has agreed to so act as custodian.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto agree as follows:
1. Employment of Custodian. The Customer hereby employs the Custodian
as custodian of all assets of each Portfolio which are delivered to and accepted
by the Custodian or any Subcustodian (as that term is defined in Section 4) (the
"Property") pursuant to the terms and conditions set forth herein. Without
limitation, such Property shall include stocks and other equity interests of
every type, evidences of indebtedness, other instruments representing same or
rights or obligations to receive, purchase, deliver or sell same and other
non-cash investment property of a Portfolio which is acceptable for deposit
("Securities") and cash from any source and in any currency ("Cash"). The
Custodian shall not be responsible for any property of a Portfolio held or
received by the Customer or others and not delivered to the Custodian or any
Subcustodian.
2. Maintenance of Securities and Cash at Custodian and Subcustodian
Locations. Pursuant to Instructions, the Customer shall direct the Custodian to
(a) settle Securities transactions and maintain cash in the country or other
jurisdiction in which the principal trading market for such Securities is
located, where such Securities are to be presented for payment or where such
Securities are acquired and (b) maintain cash and cash equivalents in such
countries in amounts reasonably necessary to effect the Customer's transactions
in such Securities. Instructions to settle Securities transactions in any
country shall be deemed to authorize the holding of such Securities and Cash in
that country.
3. Custody Account. The Custodian agrees to establish and maintain one
or more custody accounts on its books each in the name
- 1 -
<PAGE>
of a Portfolio (each, an "Account") for any and all Property from time to time
received and accepted by the Custodian or any Subcustodian for the account of
such Portfolio. Upon delivery by the Customer to the Custodian of any Property
belonging to a Portfolio, the Customer shall, by Instructions (as hereinafter
defined in Section 14), specifically indicate which Portfolio such Property
belongs or if such Property belongs to more than one Portfolio shall allocate
such Property to the appropriate Portfolio. The Custodian shall allocate such
Property to the Accounts in accordance with the Instructions; provided that the
Custodian shall have the right, in its sole discretion, to refuse to accept any
Property that is not in proper form for deposit for any reason. The Customer on
behalf of each Portfolio, acknowledges its responsibility as a principal for all
of its obligations to the Custodian arising under or in connection with this
Agreement, warrants its authority to deposit in the appropriate Account any
Property received therefor by the Custodian or a Subcustodian and to give, and
authorize others to give, instructions relative thereto. The Custodian may
deliver securities of the same class in place of those deposited in the Account.
The Custodian shall hold, keep safe and protect as custodian for each
Account, on behalf of the Customer, all Property in such Account. All
transactions, including, but not limited to, foreign exchange transactions,
involving the Property shall be executed or settled solely in accordance with
Instructions (which shall specifically reference the Account for which such
transaction is being settled), except that until the Custodian receives
Instructions to the contrary, the Custodian will:
(a) collect all interest and dividends and all other income and
payments, whether paid in cash or in kind, on the Property, as the same become
payable and credit the same to the appropriate Account;
(b) present for payment all Securities held in an Account which are
called, redeemed or retired or otherwise become payable and all coupons and
other income items which call for payment upon presentation to the extent that
the Custodian or Subcustodian is actually aware of such opportunities and hold
the cash received in such Account pursuant to this Agreement;
(c) (i) exchange Securities where the exchange is purely ministerial
(including, without limitation, the exchange of temporary securities for those
in definitive form and the exchange of warrants, or other documents of
entitlement to securities, for the Securities themselves) and (ii) when
notification of a tender or exchange offer (other than ministerial exchanges
described in (i) above) is received for an Account, endeavor to receive
Instructions, provided that if such Instructions are not received in time for
the Custodian to take timely action, no action shall be taken with respect
thereto;
-2-
<PAGE>
(d) whenever notification of a rights entitlement or a fractional
interest resulting from a rights issue, stock dividend or stock split is
received for an Account and such rights entitlement or fractional interest bears
an expiration date, if after endeavoring to obtain Instructions such
Instructions are not received in time for the Custodian to take timely action or
if actual notice of such actions was received too late to seek Instructions,
sell in the discretion of the Custodian (which sale the Customer hereby
authorizes the Custodian to make) such rights entitlement or fractional interest
and credit the Account with the net proceeds of such sale;
(e) execute in the Customer's name for an Account, whenever the
Custodian deems it appropriate, such ownership and other certificates as may be
required to obtain the payment of income from the Property in such Account;
(f) pay for each Account, any and all taxes and levies in the nature of
taxes imposed on interest, dividends or other similar income on the Property in
such Account by any governmental authority. In the event there is insufficient
Cash available in such Account to pay such taxes and levies, the Custodian shall
notify the Customer of the amount of the shortfall and the Customer, at its
option, may deposit additional Cash in such Account or take steps to have
sufficient Cash available. The Customer agrees, when and if requested by the
Custodian and required in connection with the payment of any such taxes to
cooperate with the Custodian in furnishing information, executing documents or
otherwise; and
(g) appoint brokers and agents for any of the ministerial transactions
involving the Securities described in (a) - (f), including, without limitation,
affiliates of the Custodian or any Subcustodian.
4. Subcustodians and Securities Systems. The Customer authorizes and
instructs the Custodian to hold the Property in each Account in custody accounts
which have been established by the Custodian with (a) one of its U.S. branches
or another U.S. bank or trust company or branch thereof located in the U.S.
which is itself qualified under the Investment Company Act of 1940, as amended
("1940 Act"), to act as custodian (individually, a "U.S. Subcustodian"), or a
U.S. securities depository or clearing agency or system in which the Custodian
or a U.S. Subcustodian participates (individually, a "U.S. Securities System")
or (b) one of its non-U.S. branches or majority-owned non-U.S. subsidiaries, a
non-U.S. branch or majority-owned subsidiary of a U.S. bank or a non-U.S. bank
or trust company, acting as custodian (individually, a "non-U.S. Subcustodian";
U.S. Subcustodians and non-U.S. Subcustodians, collectively, "Subcustodians"),
-3-
<PAGE>
or a non-U.S. depository or clearing agency or system in which the Custodian or
any Subcustodian participates (individually, a "non-U.S. Securities System";
U.S. Securities System and non-U.S. Securities System, collectively, Securities
System"), provided that in each case in which a U.S. Subcustodian or U.S.
Securities System is employed, each such Subcustodian or Securities System shall
have been approved by Instructions; provided further that in each case in which
a non-U.S. Subcustodian or non-U.S. Securities System is employed, (a) such
Subcustodian or Securities System either is (i) a "qualified U.S. bank" as
defined by Rule 17f-5 under the 1940 Act ("Rule 17f-5") or (ii) an "eligible
foreign custodian" within the meaning of Rule 17f-5 or such Subcustodian or
Securities System is the subject of an order granted by the U.S. Securities and
Exchange Commission ("SEC") exempting such agent or the subcustody arrangements
thereto from all or part of the provisions of Rule 17f-5 and (b) the agreement
between the Custodian and such non-U.S. Subcustodian has been approved by
Instructions; it being understood that the Custodian shall have no liability or
responsibility for determining whether the approval of any Subcustodian or
Securities System has been proper under the 1940 Act or any rule or regulation
thereunder.
Upon receipt of Instructions, the Custodian agrees to cease the
employment of any Subcustodian or Securities System with respect to the
Customer, and if desirable and practicable, appoint a replacement subcustodian
or securities system in accordance with the provisions of this Section. In
addition, the Custodian may, at any time in its discretion, upon written
notification to the Customer, terminate the employment of any Subcustodian or
Securities System.
Upon request of the Customer, the Custodian shall deliver to the
Customer annually a certificate stating: (a) the identity of each non-U.S.
Subcustodian and non-U.S. Securities System then acting on behalf of the
Custodian and the name and address of the governmental agency or other
regulatory authority that supervises or regulates such non-U.S Subcustodian and
non-U.S. Securities System; (b) the countries in which each non-U.S.
Subcustodian or non-U.S. Securities System is located; and (c) so long as Rule
17f-5 requires the Customer's Board of Trustees to directly approve its foreign
custody arrangements, such other information relating to such non-U.S.
Subcustodians and non-U.S. Securities Systems as may reasonably be requested by
the Customer to ensure compliance with Rule 17f-5. So long as Rule 17f-5
requires the Customer's Board of Trustees to directly approve its foreign
custody arrangements, the Custodian also shall furnish annually to the Customer
information concerning such non-U.S. Subcustodians and non-U.S. Securities
Systems similar in kind and scope as that furnished to the Customer in
connection with the initial approval of this Agreement. Custodian agrees to
promptly notify the Customer if, in the normal course of its custodial
-4-
<PAGE>
activities, the Custodian has reason to believe that any non-U.S. Subcustodian
or non-U.S. Securities System has ceased to be a qualified U.S. bank or an
eligible foreign custodian each within the meaning of Rule 17f-5 or has ceased
to be subject to an exemptive order from the SEC.
5. Use of Subcustodian. With respect to Property in an
Account which is maintained by the Custodian in the custody of a
Subcustodian employed pursuant to Section 4:
(a) The Custodian will identify on its books as belonging to the
Customer on behalf of a Portfolio, any Property held by such Subcustodian.
(b) Any Property in the Account held by a Subcustodian will
be subject only to the instructions of the Custodian or its agents.
(c) Property deposited with a Subcustodian will be maintained
in an account holding only assets for customers of the Custodian.
(d) Any agreement the Custodian shall enter into with a nonU.S.
Subcustodian with respect to the holding of Property shall require that (i) the
Account will be adequately indemnified or its losses adequately insured; (ii)
the Securities are not subject to any right, charge, security interest, lien or
claim of any kind in favor of such Subcustodian or its creditors except a claim
for payment in accordance with such agreement for their safe custody or
administration and expenses related thereto, (iii) beneficial ownership of such
Securities be freely transferable without the payment of money or value other
than for safe custody or administration and expenses related thereto, (iv)
adequate records will be maintained identifying the Property held pursuant to
such Agreement as belonging to the Custodian, on behalf of its customers and (v)
to the extent permitted by applicable law, officers of or auditors employed by,
or other representatives of or designated by, the Custodian, including the
independent public accountants of or designated by, the Customer be given access
to the books and records of such Subcustodian relating to its actions under its
agreement pertaining to any Property held by it thereunder or confirmation of or
pertinent information contained in such books and records be furnished to such
persons designated by the Custodian.
6. Use of Securities System. With respect to Property in
the Account(s) which are maintained by the Custodian or any
Subcustodian in the custody of a Securities System employed
pursuant to Section 4:
(a) The Custodian shall, and the Subcustodian will be required by its
agreement with the Custodian to, identify on its books such Property as being
held for the account of the Custodian or Subcustodian for its customers.
-5-
<PAGE>
(b) Any Property held in a Securities System for the account of the
Custodian or a Subcustodian will be subject only to the instructions of the
Custodian or such Subcustodian, as the case may be.
(c) Property deposited with a Securities System will be maintained in
an account holding only assets for customers of the Custodian or Subcustodian,
as the case may be, unless precluded by applicable law, rule, or regulation.
(d) The Custodian shall provide the Customer with any report obtained
by the Custodian on the Securities System's accounting system, internal
accounting control and procedures for safeguarding securities deposited in the
Securities System.
7. Agents. The Custodian may at any time or times in its sole
discretion appoint (or remove) any other U.S. bank or trust company which is
itself qualified under the 1940 Act to act as custodian, as its agent to carry
out such of the provisions of this Agreement as the Custodian may from time to
time direct; provided, however, that the appointment of any agent shall not
relieve the Custodian of its responsibilities or liabilities hereunder.
8. Records, Ownership of Property, Statements, Opinions of
Independent Certified Public Accountants.
(a) The ownership of the Property whether Securities, Cash and/or other
property, and whether held by the Custodian or a Subcustodian or in a Securities
System as authorized herein, shall be clearly recorded on the Custodian's books
as belonging to the appropriate Account and not for the Custodian's own
interest. The Custodian shall keep accurate and detailed accounts of all
investments, receipts, disbursements and other transactions for each Account.
All accounts, books and records of the Custodian relating thereto shall be open
to inspection and audit at all reasonable times during normal business hours by
any person designated by the Customer. All such accounts shall be maintained and
preserved in the form reasonably requested by the Customer. The Custodian will
supply to the Customer from time to time, as mutually agreed upon, a statement
in respect to any Property in an Account held by the Custodian or by a
Subcustodian. In the absence of the filing in writing with the Custodian by the
Customer of exceptions or objections to any such statement within sixty (60)
days of the mailing thereof, the Customer shall be deemed to have approved such
statement and in such case or upon written approval of the Customer of any such
statement, such statement shall be presumed to be for all purposes correct with
respect to all information set forth therein.
-6-
<PAGE>
(b) The Custodian shall take all reasonable action as the Customer may
request to obtain from year to year favorable opinions from the Customer's
independent certified public accountants with respect to the Custodian's
activities hereunder in connection with the preparation of the Customer's Form
N-1A and the Customer's Form N-SAR or other periodic reports to the SEC and with
respect to any other requirements of the SEC.
(c) At the request of the Customer, the Custodian shall deliver to the
Customer a written report prepared by the Custodian's independent certified
public accountants with respect to the services provided by the Custodian under
this Agreement, including, without limitation, the Custodian's accounting
system, internal accounting control and procedures for safeguarding Cash and
Securities, including Cash and Securities deposited and/or maintained in a
securities system or with a Subcustodian. Such report shall be of sufficient
scope and in sufficient detail as may reasonably be required by the Customer and
as may reasonably be obtained by the Custodian.
(d) The Customer may elect to participate in any of the electronic
on-line service and communications systems offered by the Custodian which can
provide the Customer, on a daily basis, with the ability to view on-line or to
print on hard copy various reports of Account activity and of Securities and/or
Cash being held in any Account. To the extent that such service shall include
market values of Securities in an Account, the Customer hereby acknowledges that
the Custodian now obtains and may in the future obtain information on such
values from outside sources that the Custodian considers to be reliable and the
Customer agrees that the Custodian (i) does not verify or represent or warrant
either the reliability of such service nor the accuracy or completeness of any
such information furnished or obtained by or through such service and (ii) shall
be without liability in selecting and utilizing such service or furnishing any
information derived therefrom.
9. Holding of Securities, Nominees, etc. Securities in an Account which
are held by the Custodian or any Subcustodian may be held by such entity in the
name of the Customer, on behalf of a Portfolio, in the Custodian's or
Subcustodian's name, in the name of the Custodian's or Subcustodian's nominee,
or in bearer form. Securities that are held by a Subcustodian or which are
eligible for deposit in a Securities System as provided above may be maintained
with the Subcustodian or the Securities System in an account for the Custodian's
or Subcustodian's customers, unless prohibited by law, rule, or regulation. The
Custodian or Subcustodian, as the case may be, may combine certificates
representing Securities held in an Account with certificates of the same issue
held by it as fiduciary or as a custodian. In the event that any Securities in
the name of the Custodian or its nominee or held by a Subcustodian and
registered in the name of such Subcustodian or its nominee are called for
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partial redemption by the issuer of such Security, the Custodian may, subject to
the rules or regulations pertaining to allocation of any Securities System in
which such Securities have been deposited, allot, or cause to be allotted, the
called portion of the respective beneficial holders of such class of security in
any manner the Custodian deems to be fair and equitable.
10. Proxies, etc. With respect to any proxies, notices, reports or
other communications relative to any of the Securities in any Account, the
Custodian shall perform such services and only such services relative thereto as
are (i) set forth in Section 3 of this Agreement, (ii) described in Exhibit B
attached hereto (as such service therein described may be in effect from time to
time) (the "Proxy Service") and (iii) as may otherwise be agreed upon between
the Custodian and the Customer. The liability and responsibility of the
Custodian in connection with the Proxy Service referred to in (ii) of the
immediately preceding sentence and in connection with any additional services
which the Custodian and the Customer may agree upon as provided in (iii) of the
immediately preceding sentence shall be as set forth in the description of the
Proxy Service and as may be agreed upon by the Custodian and the Customer in
connection with the furnishing of any such additional service and shall not be
affected by any other term of this Agreement. Neither the Custodian nor its
nominees or agents shall vote upon or in respect of any of the Securities in an
Account, execute any form of proxy to vote thereon, or give any consent or take
any action (except as provided in Section 3) with respect thereto except upon
the receipt of Instructions relative thereto.
11. Segregated Account. To assist the Customer in complying
with the requirements of the 1940 Act and the rules and regulations
thereunder, the Custodian shall, upon receipt of Instructions,
establish and maintain a segregated account or accounts on its
books for and on behalf of a Portfolio.
12. Settlement Procedures. Securities will be transferred, exchanged or
delivered by the Custodian or a Subcustodian upon receipt by the Custodian of
Instructions which include all information required by the Custodian. Settlement
and payment for Securities received for an Account and delivery of Securities
out of such Account may be effected in accordance with the customary or
established securities trading or securities processing practices and procedures
in the jurisdiction or market in which the transaction occurs, including,
without limitation, delivering Securities to the purchaser thereof or to a
dealer therefor (or an agent for such purchaser or dealer) against a receipt
with the expectation of receiving later payment for such Securities from such
purchaser or dealer, as such practices and procedures may be modified or
supplemented in accordance with the standard operating procedures of the
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Custodian in effect from time to time for that jurisdiction or market. The
Custodian shall not be liable for any loss which results from effecting
transactions in accordance with the customary or established securities trading
or securities processing practices and procedures in the applicable jurisdiction
or market.
Notwithstanding that the Custodian may settle purchases and sales
against, or credit income to, an Account, on a contractual basis, as outlined in
the Investment Manager User Guide provided to the Customer by the Custodian, the
Custodian may, at its sole option, reverse such credits or debits to the
appropriate Account in the event that the transaction does not settle, or the
income is not received in a timely manner, and the Customer agrees to hold the
Custodian harmless from any losses which may result therefrom.
Except as otherwise may be agreed upon by the parties hereto, the
Custodian shall not be required to comply with Instructions to settle the
purchase of any Securities for an Account unless there is sufficient Cash in
such Account at the time or to settle the sale of any Securities in such Account
unless such Securities are in deliverable form. Notwithstanding the foregoing,
if the purchase price of such securities exceeds the amount of Cash in an
Account at the time of settlement of such purchase, the Custodian may, in its
sole discretion, but in no way shall have any obligation to, permit an overdraft
in such Account in the amount of the difference solely for the purpose of
facilitating the settlement of such purchase of securities for prompt delivery
for such Account. The Customer agrees to immediately repay the amount of any
such overdraft in the ordinary course of business and further agrees to
indemnify and hold the Custodian harmless from and against any and all losses,
costs, including, without limitation the cost of funds, and expenses incurred in
connection with such overdraft. The Customer agrees that it will not use the
Account to facilitate the purchase of securities without sufficient funds in the
Account (which funds shall not include the proceeds of the sale of the purchased
securities).
13. Permitted Transactions. The Customer agrees that it will
cause transactions to be made pursuant to this Agreement only upon
Instructions in accordance Section 14 and only for the purposes
listed below.
(a) In connection with the purchase or sale of Securities at
prices as confirmed by Instructions.
(b) When Securities are called, redeemed or retired, or
otherwise become payable.
(c) In exchange for or upon conversion into other securities
alone or other securities and cash pursuant to any plan or merger,
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consolidation, reorganization, recapitalization or readjustment.
(d) Upon conversion of Securities pursuant to their terms
into other securities.
(e) Upon exercise of subscription, purchase or other similar
rights represented by Securities.
(f) For the payment of interest, taxes, management or
supervisory fees, distributions or operating expenses.
(g) In connection with any borrowings by the Customer
requiring a pledge of Securities, but only against receipt of
amounts borrowed.
(h) In connection with any loans, but only against receipt of
collateral as specified in Instructions which shall reflect any restrictions
applicable to the Customer.
(i) For the purpose of redeeming shares of the capital stock of the
Customer against delivery of the shares to be redeemed to the Custodian, a
Subcustodian or the Customer's transfer agent.
(j) For the purpose of redeeming in kind shares of the Customer against
delivery of the shares to be redeemed to the Custodian, a Subcustodian or the
Customer's transfer agent.
(k) For delivery in accordance with the provisions of any agreement
among the Customer, on behalf of a Portfolio, the Custodian and a broker-dealer
registered under the Securities Exchange Act of 1934 and a member of the
National Association of Securities Dealers, Inc., relating to compliance with
the rules of The Options Clearing Corporation, the Commodities Futures Trading
Commission and of any registered national securities exchange, or of any similar
organization or organizations, regarding escrow or other arrangements in
connection with transactions by the Customer.
(l) For release of Securities to designated brokers under covered call
options, provided, however, that such Securities shall be released only upon
payment to the Custodian of monies for the premium due and a receipt for the
Securities which are to be held in escrow. Upon exercise of the option, or at
expiration, the Custodian will receive the Securities previously deposited from
broker. The Custodian will act strictly in accordance with Instructions in the
delivery of Securities to be held in escrow and will have no responsibility or
liability for any such Securities which are not returned promptly when due other
than to make proper request for such return.
(m) For spot or forward foreign exchange transactions to facilitate
security trading or receipt of income from Securities related transactions.
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(n) Upon the termination of this Agreement as set forth in Section 20.
(o) For other proper purposes.
The Customer agrees that the Custodian shall have no obligation to
verify the purpose for which a transaction is being effected.
14. Instructions. The term "Instructions" means instructions from the
Customer in respect of any of the Custodian's duties hereunder which have been
received by the Custodian at its address set forth in Section 21 below (i) in
writing (including, without limitation, facsimile transmission) or by tested
telex signed or given by such one or more person or persons as the Customer
shall have from time to time authorized in writing to give the particular class
of Instructions in question and whose name and (if applicable) signature and
office address have been filed with the Custodian, or (ii) which have been
transmitted electronically through an electronic on-line service and
communications system offered by the Custodian or other electronic instruction
system acceptable to the Custodian, or (iii) a telephonic or oral communication
by one or more persons as the Customer shall have from time to time authorized
to give the particular class of Instructions in question and whose name has been
filed with the Custodian; or (iv) upon receipt of such other form of
instructions as the Customer may from time to time authorize in writing and
which the Custodian has agreed in writing to accept. Instructions in the form of
oral communications shall be confirmed by the Customer by tested telex or
writing in the manner set forth in clause (i) above, but the lack of such
confirmation shall in no way affect any action taken by the Custodian in
reliance upon such oral instructions prior to the Custodian's receipt of such
confirmation. Instructions may relate to specific transactions or to types or
classes of transactions, and may be in the form of standing instructions.
The Custodian shall have the right to assume in the absence of notice
to the contrary from the Customer that any person whose name is on file with the
Custodian pursuant to this Section has been authorized by the Customer to give
the Instructions in question and that such authorization has not been revoked.
The Custodian may act upon and conclusively rely on, without any liability to
the Customer or any other person or entity for any losses resulting therefrom,
any Instructions reasonably believed by it to be furnished by the proper person
or persons as provided above.
15. Standard of Care. The Custodian shall be responsible for the
performance of only such duties as are set forth herein or contained in
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Instructions given to the Custodian which are not contrary to the provisions of
this Agreement. The Custodian will use reasonable care with respect to the
safekeeping of Property in each Account and, except as otherwise expressly
provided herein, in carrying out its obligations under this Agreement. So long
as and to the extent that it has exercised reasonable care, the Custodian shall
not be responsible for the title, validity or genuineness of any Property or
other property or evidence of title thereto received by it or delivered by it
pursuant to this Agreement and shall be held harmless in acting upon, and may
conclusively rely on, without liability for any loss resulting therefrom, any
notice, request, consent, certificate or other instrument reasonably believed by
it to be genuine and to be signed or furnished by the proper party or parties,
including, without limitation, Instructions, and shall be indemnified by the
Customer for any losses, damages, costs and expenses (including, without
limitation, the fees and expenses of counsel) incurred by the Custodian and
arising out of action taken or omitted with reasonable care by the Custodian
hereunder or under any Instructions. The Custodian shall be liable to the
Customer for any act or omission to act of any Subcustodian to the same extent
as if the Custodian committed such act itself. With respect to a Securities
System, the Custodian shall only be responsible or liable for losses arising
from employment of such Securities System caused by the Custodian's own failure
to exercise reasonable care. In the event of any loss to the Customer by reason
of the failure of the Custodian or a Subcustodian to utilize reasonable care,
the Custodian shall be liable to the Customer to the extent of the Customer's
actual damages at the time such loss was discovered without reference to any
special conditions or circumstances. In no event shall the Custodian be liable
for any consequential or special damages. The Custodian shall be entitled to
rely, and may act, on advice of counsel (who may be counsel for the Customer) on
all matters and shall be without liability for any action reasonably taken or
omitted pursuant to such advice.
In the event the Customer subscribes to an electronic on-line service
and communications system offered by the Custodian, the Customer shall be fully
responsible for the security of the Customer's connecting terminal, access
thereto and the proper and authorized use thereof and the initiation and
application of continuing effective safeguards with respect thereto and agree to
defend and indemnify the Custodian and hold the Custodian harmless from and
against any and all losses, damages, costs and expenses (including the fees and
expenses of counsel) incurred by the Custodian as a result of any improper or
unauthorized use of such terminal by the Customer or by any others.
All collections of funds or other property paid or distributed in
respect of Securities in an Account, including funds involved in third-party
foreign exchange transactions, shall be made at the risk of the Customer.
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Subject to the exercise of reasonable care, the Custodian shall have no
liability for any loss occasioned by delay in the actual receipt of notice by
the Custodian or by a Subcustodian of any payment, redemption or other
transaction regarding Securities in each Account in respect of which the
Custodian has agreed to take action as provided in Section 3 hereof. The
Custodian shall not be liable for any loss resulting from, or caused by, or
resulting from acts of governmental authorities (whether de jure or de facto),
including, without limitation, nationalization, expropriation, and the
imposition of currency restrictions; devaluations of or fluctuations in the
value of currencies; changes in laws and regulations applicable to the banking
or securities industry; market conditions that prevent the orderly execution of
securities transactions or affect the value of Property; acts of war, terrorism,
insurrection or revolution; strikes or work stoppages; the inability of a local
clearing and settlement system to settle transactions for reasons beyond the
control of the Custodian; hurricane, cyclone, earthquake, volcanic eruption,
nuclear fusion, fission or radioactivity, or other acts of God.
The Custodian shall have no liability in respect of any loss, damage or
expense suffered by the Customer, insofar as such loss, damage or expense arises
from the performance of the Custodian's duties hereunder by reason of the
Custodian's reliance upon records that were maintained for the Customer by
entities other than the Custodian prior to the Custodian's employment under this
Agreement.
The provisions of this Section shall survive termination of this
Agreement.
16. Investment Limitations and Legal or Contractual Restrictions or
Regulations. The Custodian shall not be liable to the Customer and the Customer
agrees to indemnify the Custodian and its nominees, for any loss, damage or
expense suffered or incurred by the Custodian or its nominees arising out of any
violation of any investment restriction or other restriction or limitation
applicable to the Customer or any Portfolio pursuant to any contract or any law
or regulation. The provisions of this Section shall survive termination of this
Agreement.
17. Fees and Expenses. The Customer agrees to pay to the Custodian such
compensation for its services pursuant to this Agreement as may be mutually
agreed upon in writing from time to time and the Custodian's reasonable
out-of-pocket or incidental expenses in connection with the performance of this
Agreement, including (but without limitation) legal fees as described herein
and/or deemed necessary in the judgment of the Custodian to keep safe or protect
the Property in the Account. The initial fee schedule is attached hereto as
Exhibit C. The Customer hereby agrees to hold the Custodian harmless from any
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liability or loss resulting from any taxes or other governmental charges, and
any expense related thereto, which may be imposed, or assessed with respect to
any Property in an Account and also agrees to hold the Custodian, its
Subcustodians, and their respective nominees harmless from any liability as a
record holder of Property in such Account. The Custodian is authorized to charge
the applicable Account for such items and the Custodian shall have a lien on the
Property in the applicable Account for any amount payable to the Custodian under
this Agreement, including but not limited to amounts payable pursuant to the
last paragraph of Section 12 and pursuant to indemnities granted by the Customer
under this Agreement. The provisions of this Section shall survive the
termination of this Agreement.
18. Tax Reclaims. With respect to withholding taxes deducted and which
may be deducted from any income received from any Property in an Account, the
Custodian shall perform such services with respect thereto as are described in
Exhibit D attached hereto and shall in connection therewith be subject to the
standard of care set forth in such Exhibit D. Such standard of care shall not be
affected by any other term of this Agreement.
19. Amendment, Modifications, etc. No provision of this Agreement may
be amended, modified or waived except in a writing signed by the parties hereto.
No waiver of any provision hereto shall be deemed a continuing waiver unless it
is so designated. No failure or delay on the part of either party in exercising
any power or right under this Agreement operates as a waiver, nor does any
single or partial exercise of any power or right preclude any other or further
exercise thereof or the exercise of any other power or right.
20. Termination. (a) Termination of Entire Agreement. This Agreement
may be terminated by the Customer or the Custodian by ninety (90) days' written
notice to the other; provided that notice by the Customer shall specify the
names of the persons to whom the Custodian shall deliver the Securities in each
Account and to whom the Cash in such Account shall be paid. If notice of
termination is given by the Custodian, the Customer shall, within ninety (90)
days following the giving of such notice, deliver to the Custodian a written
notice specifying the names of the persons to whom the Custodian shall deliver
the Securities in each Account and to whom the Cash in such Account shall be
paid. In either case, the Custodian will deliver such Securities and Cash to the
persons so specified, after deducting therefrom any amounts which the Custodian
determines to be owed to it under Sections 12, 17, and 23. In addition, the
Custodian may in its discretion withhold from such delivery such Cash and
Securities as may be necessary to settle transactions pending at the time of
such delivery. The Customer grants to the Custodian a lien and right of setoff
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against the Account and all Property held therein from time to time in the full
amount of the foregoing obligations. If within ninety (90) days following the
giving of a notice of termination by the Custodian, the Custodian does not
receive from the Customer a written notice specifying the names of the persons
to whom the Custodian shall deliver the Securities in each Account and to whom
the Cash in such Account shall be paid, the Custodian, at its election, may
deliver such Securities and pay such Cash to a bank or trust company doing
business in the State of New York to be held and disposed of pursuant to the
provisions of this Agreement, or may continue to hold such Securities and Cash
until a written notice as aforesaid is delivered to the Custodian, provided that
the Custodian's obligations shall be limited to safekeeping.
(b) Termination as to One or More Portfolios. This Agreement may be
terminated by the Customer or the Custodian as to one or more Portfolios (but
less than all of the Portfolios) by delivery of an amended Exhibit A deleting
such Portfolios, in which case termination as to such deleted Portfolios shall
take effect ninety (90) days after the date of such delivery, or such earlier
time as mutually agreed. The execution and delivery of an amended Exhibit A
which deletes one or more Portfolios shall constitute a termination of this
Agreement only with respect to such deleted Portfolio(s), shall be governed by
the preceding provisions of Section 20 as to the identification of a successor
custodian and the delivery of Cash and Securities of the Portfolio(s) so deleted
to such successor custodian, and shall not affect the obligations of the
Custodian and the Customer hereunder with respect to the other Portfolios set
forth in Exhibit A, as amended from time to time.
21. Notices. Except as otherwise provided in this Agreement, all
requests, demands or other communications between the parties or notices in
connection herewith (a) shall be in writing, hand delivered or sent by telex,
telegram, cable, facsimile or other means of electronic communication agreed
upon by the parties hereto addressed, if to the Customer, to:
if to the Custodian, to:
or in either case to such other address as shall have been furnished to the
receiving party pursuant to the provisions hereof and (b) shall be deemed
effective when received, or, in the case of a telex, when sent to the proper
number and acknowledged by a proper answerback.
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22. Several Obligations of the Portfolios. With respect to any
obligations of the Customer on behalf of each Portfolio and each of its related
Accounts arising out of this Agreement, the Custodian shall look for payment or
satisfaction of any obligation solely to the assets and property of the
Portfolio and such Accounts to which such obligation relates as though the
Customer had separately contracted with the Custodian by separate written
instrument with respect to each Portfolio and its related Accounts.
23. Security for Payment. To secure payment of all obligations due
hereunder, the Customer hereby grants to Custodian a continuing security
interest in and right of setoff against each Account and all Property held
therein from time to time in the full amount of such obligations; provided that,
if there is more than one Account and the obligations secured pursuant to this
Section can be allocated to a specific Account or the Portfolio related to such
Account, such security interest and right of setoff will be limited to Property
held for that Account only and its related Portfolio. Should the Customer fail
to pay promptly any amounts owed hereunder, Custodian shall be entitled to use
available Cash in the Account or applicable Account, as the case may be, and to
dispose of Securities in the Account or such applicable Account as is necessary.
In any such case and without limiting the foregoing, Custodian shall be entitled
to take such other action(s) or exercise such other options, powers and rights
as Custodian now or hereafter has as a secured creditor under the New York
Uniform Commercial Code or any other applicable law.
24. Representations and Warranties.
(a) The Customer hereby represents and warrants to the Custodian that:
(i) the employment of the Custodian and the allocation of
fees, expenses and other charges to any Account as herein provided, is not
prohibited by law or any governing documents or contracts to which the Customer
is subject;
(ii) the terms of this Agreement do not violate any obligation
by which the Customer is bound, whether arising by contract, operation of law or
otherwise;
(iii) this Agreement has been duly authorized by appropriate
action and when executed and delivered will be binding upon the Customer and
each Portfolio in accordance with its terms; and
(iv) the Customer will deliver to the Custodian such
evidence of such authorization as the Custodian may reasonably require, whether
by way of a certified resolution or otherwise.
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(b) The Custodian hereby represents and warrants to the Customer that:
(i) the terms of this Agreement do not violate any obligation
by which the Custodian is bound, whether arising by contract, operation of law
or otherwise;
(ii) this Agreement has been duly authorized by appropriate
action and when executed and delivered will be binding upon the Custodian in
accordance with its terms;
(iii) the Custodian will deliver to the Customer such evidence
of such authorization as the Customer may reasonably require, whether by way of
a certified resolution or otherwise; and
(iv) Custodian is qualified as a custodian under Section 26(a)
of the 1940 Act and warrants that it will remain so qualified or upon ceasing to
be so qualified shall promptly notify the Customer in writing.
25. Governing Law and Successors and Assigns. This Agreement shall be
governed by the law of the State of New York and shall not be assignable by
either party, but shall bind the successors in interest of the Customer and the
Custodian.
26. Publicity. Customer shall furnish to Custodian at its office
referred to in Section 21 above, prior to any distribution thereof, copies of
any material prepared for distribution to any persons who are not parties hereto
that refer in any way to the Custodian. Customer shall not distribute or permit
the distribution of such materials if Custodian reasonably objects in writing
within ten (10) business days of receipt thereof (or such other time as may be
mutually agreed) after receipt thereof. The provisions of this Section shall
survive the termination of this Agreement.
27. Representative Capacity and Binding Obligation. A copy of the
[Declaration of Trust/Trust Instrument] of the Customer is on file with The
Secretary of the [Commonwealth of Massachusetts/State of Delaware], and notice
is hereby given that this Agreement is not executed on behalf of the Trustees of
the Customer as individuals, and the obligations of this Agreement are not
binding upon any of the Trustees, officers or shareholders of the Customer
individually but are binding only upon the assets and property of the
Portfolios.
The Custodian agrees that no shareholder, trustee or officer of the
Customer may be held personally liable or responsible for any obligations of the
Customer arising out of this Agreement.
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28. Submission to Jurisdiction. Any suit, action or proceeding arising
out of this Agreement may be instituted in any State or Federal court sitting in
the City of New York, State of New York, United States of America, and the
Customer irrevocably submits to the non-exclusive jurisdiction of any such court
in any such suit, action or proceeding and waives, to the fullest extent
permitted by law, any objection which it may now or hereafter have to the laying
of venue of any such suit, action or proceeding brought in such a court and any
claim that such suit, action or proceeding was brought in an inconvenient forum.
29. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original. This Agreement shall
become effective when one or more counterparts have been signed and delivered by
each of the parties hereto.
30. Confidentiality. The parties hereto agree that each shall treat
confidentially the terms and conditions of this Agreement and all information
provided by each party to the other regarding its business and operations. All
confidential information provided by a party hereto shall be used by any other
party hereto solely for the purpose of rendering services pursuant to this
Agreement and, except as may be required in carrying out this Agreement, shall
not be disclosed to any third party without the prior consent of such providing
party. The foregoing shall not be applicable to any information that is publicly
available when provided or thereafter becomes publicly available other than
through a breach of this Agreement, or that is required or requested to be
disclosed by any bank or other regulatory examiner of the Custodian, Customer,
or any Subcustodian, any auditor of the parties hereto, by judicial or
administrative process or otherwise by applicable law or regulation.
31. Severability. If any provision of this Agreement is determined to
be invalid or unenforceable, such determination shall not affect the validity or
enforceability of any other provision of this Agreement.
32. Headings. The headings of the paragraphs hereof are included for
convenience of reference only and do not form a part of this Agreement.
[NAME OF CUSTOMER]
By: __________________________
Name: ________________________
Title: _______________________
BANKERS TRUST COMPANY
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By: __________________________
Name: ________________________
Title: _______________________
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EXHIBIT A
To Custodian Agreement dated as of ______________, 199_ between Bankers
Trust Company and ____________________.
LIST OF PORTFOLIOS
The following is a list of Portfolios referred to in the first WHEREAS
clause of the above-referred to Custodian Agreement. Terms used herein as
defined terms unless otherwise defined shall have the meanings ascribed to them
in the above-referred to Custodian Agreement.
Dated as of: [NAME OF CUSTOMER]
By: __________________________
Name: ________________________
Title: _______________________
BANKERS TRUST COMPANY
By: __________________________
Name: ________________________
Title: _______________________
<PAGE>
EXHIBIT B
To Custodian Agreement dated as of _____________, 199_ between Bankers
Trust Company and ___________________.
PROXY SERVICE
The following is a description of the Proxy Service referred to in
Section 10 of the above referred to Custodian Agreement. Terms used herein as
defined terms shall have the meanings ascribed to them therein unless otherwise
defined below.
The Custodian provides a service, described below, for the transmission
of corporate communications in connection with shareholder meetings relating to
Securities held in Argentina, Australia, Austria, Canada, Denmark, Finland,
France, Germany, Greece, Hong Kong, Indonesia, Ireland, Italy, Japan, Korea,
Malaysia, Mexico, Netherlands, New Zealand, Pakistan, Poland, Singapore, South
Africa, Spain, Sri Lanka, Sweden, United Kingdom, United States, and Venezuela.
For the United States and Canada, the term "corporate communications" means the
proxy statements or meeting agenda, proxy cards, annual reports and any other
meeting materials received by the Custodian. For countries other than the United
States and Canada, the term "corporate communications" means the meeting agenda
only and does not include any meeting circulars, proxy statements or any other
corporate communications furnished by the issuer in connection with such
meeting. Non-meeting related corporate communications are not included in the
transmission service to be provided by the Custodian except upon request as
provided below.
The Custodian's process for transmitting and translating meeting
agendas will be as follows:
1) If the meeting agenda is not provided by the issuer in the English
language, and if the language of such agenda is in the official language of the
country in which the related security is held, the Custodian will as soon as
practicable after receipt of the original meeting agenda by a Subcustodian
provide an English translation prepared by that Subcustodian.
2) If an English translation of the meeting agenda is furnished, the
local language agenda will not be furnished unless requested.
Translations will be free translations and neither the Custodian nor
any Subcustodian will be liable or held responsible for the accuracy thereof or
any direct or indirect consequences
arising therefrom, including without limitation arising out of any action taken
or omitted to be taken based thereon.
If requested, the Custodian will, on a reasonable efforts basis,
<PAGE>
-2-
endeavor to obtain any additional corporate communication such as annual or
interim reports, proxy statements, meeting circulars, or local language agendas,
and provide them in the form obtained.
Timing in the voting process is important and, in that regard, upon
receipt by the Custodian of notice from a Subcustodian, the Custodian will
provide a notice to the Customer indicating the deadline for receipt of its
instructions to enable the voting process to take place effectively and
efficiently. As voting procedures will vary from market to market, attention to
any required procedures will be very important. Upon timely receipt of voting
instructions, the Custodian will promptly forward such instructions to the
applicable Subcustodian. If voting instructions are not timely received, the
Custodian shall have no liability or obligation to take any action.
For Securities held in markets other than those set forth in the first
paragraph, the Custodian will not furnish the material described above or seek
voting instructions. However, if requested to exercise voting rights at a
specific meeting, the Custodian will endeavor to do so on a reasonable efforts
basis without any assurance that such rights will be so exercised at such
meeting.
If the Custodian or any Subcustodian incurs extraordinary expenses in
exercising voting rights related to any Securities pursuant to appropriate
instructions or direction (e.g., by way of illustration only and not by way of
limitation, physical presence is required at a meeting and/or travel expenses
are incurred), such expenses will be reimbursed out of the Account containing
such Securities unless other arrangements have been made for such reimbursement.
It is the intent of the Custodian to expand the Proxy Service to
include jurisdictions which are not currently included as set forth in the
second paragraph hereof. The Custodian will notify the Customer as to the
inclusion of additional countries or deletion of existing countries after their
inclusion or deletion and this Exhibit B will be deemed to be automatically
amended to include or delete such countries as the case may be.
Dated as of: [NAME OF CUSTOMER]
By: __________________________
Name: ________________________
Title: _______________________
<PAGE>
-3-
BANKERS TRUST COMPANY
By: __________________________
Name: ________________________
Title: _______________________
<PAGE>
EXHIBIT C
To Custodian Agreement dated as of ______________, 199_ between Bankers
Trust Company and ____________________.
CUSTODY FEE SCHEDULE
This Exhibit C shall be amended upon delivery by the Custodian of a new Exhibit
C to the Customer and acceptance thereof by the Customer and shall be effective
as of the date of acceptance by the Customer or a date agreed upon between the
Custodian and the Customer.
<PAGE>
EXHIBIT D
To Custodian Agreement dated as of ______________, 199_ between Bankers
Trust Company and ____________________.
TAX RECLAIMS
Pursuant to Section 18 of the above referred to Custodian Agreement,
the Custodian shall perform the following services with respect to withholding
taxes imposed or which may be imposed on income from Property in any Account.
Terms used herein as defined terms shall unless otherwise defined have the
meanings ascribed to them in the above referred to Custodian Agreement.
When withholding tax has been deducted with respect to income from any
Property in an Account, the Custodian will actively pursue on a reasonable
efforts basis the reclaim process, provided that the Custodian shall not be
required to institute any legal or administrative proceeding against any
Subcustodian or other person. The Custodian will provide fully detailed
advices/vouchers to support reclaims submitted to the local authorities by the
Custodian or its designee. In all cases of withholding, the Custodian will
provide full details to the Customer. If exemption from withholding at the
source can be obtained in the future, the Custodian will notify the Customer and
advise what documentation, if any, is required to obtain the exemption. Upon
receipt of such documentation from the Customer, the Custodian will file for
exemption on the Customer's behalf and notify the Customer when it has been
obtained.
In connection with providing the foregoing service, the Custodian shall
be entitled to apply categorical treatment of the Customer according to the
Customer's nationality, the particulars of its organization and other relevant
details that shall be supplied by the Customer. It shall be the duty of the
Customer to inform the Custodian of any change in the organization, domicile or
other relevant fact concerning tax treatment of the Customer and further to
inform the Custodian if the Customer is or becomes the beneficiary of any
special ruling or treatment not applicable to the general nationality and
category or entity of which the Customer is a part under general laws and treaty
provisions. The Custodian may rely on any such information provided by the
Customer.
<PAGE>
In connection with providing the foregoing service, the Custodian may
also rely on professional tax services published by a major international
accounting firm and/or advice received from a Subcustodian in the jurisdictions
in question. In addition, the Custodian may seek the advice of counsel or other
professional tax advisers in such jurisdictions. The Custodian is entitled to
rely, and may act, on information set forth in such services and on advice
received from a Subcustodian, counsel or other professional tax advisers and
shall be without liability to the Customer for any action reasonably taken or
omitted pursuant to information contained in such services or such advice.
<PAGE>
Dated as of: [NAME OF CUSTOMER]
By: __________________________
Name: ________________________
Title: _______________________
BANKERS TRUST COMPANY
By: __________________________
Name: ________________________
Title: _______________________
<PAGE>
Form of Agreement
Subject to Board Approval
___________, 1996
Bankers Trust Company
One Bankers Trust Plaza
New York, NY 10006
USA
RE: Securities Lending Agreement
Dear Sirs:
This letter will confirm our agreement, as set forth below, pursuant to
which Bankers Trust Company ("BTC") will be authorized to lend on our behalf
certain securities held by BTC as trustee and/or custodian:
1. Appointment of Agent
(a) Until this Agreement is terminated pursuant to Section 11, BTC is
authorized as our agent to lend on a disclosed basis our securities held in
custody by BTC to such borrowers as appear on your approved list of borrowers, a
copy of which you may obtain at any time upon request, at the time of any loan
and on such terms as BTC shall in its sole discretion decide. Such borrowers may
include Bankers Trust International PLC, an affiliate of BTC, if we provide BTC
with our authorization in the form attached as Exhibit A hereto, and certain
United Kingdom entities, if we provide BTC with our authorization in the form
attached hereto as Exhibit B. BTC shall further be authorized as our agent to
sign agreements with borrowers, ownership or other certificates as may be
required by the Internal Revenue Service or any other tax authorities, and to
take any other actions necessary to effect such loans.
(b) We acknowledge that BTC acts as agent for other securities lending
clients who may hold some of the same securities as we may hold and,
accordingly, that any given loan to a borrower may be allocated among several of
BTC's clients. We agree that BTC shall have full discretion to allocate such
loans among BTC's clients as it deems appropriate and shall have no obligation
to include us in any such allocation.
(c) We represent that:(i) [COMPANY] is a ________________
established pursuant to _____________________; (ii) we have and
<PAGE>
will have the right to lend the securities subject to loans hereunder; (iii) the
assets subject to this Agreement [do / do not] consist of assets which are
deemed to be plan assets under the Employee Retirement Income Security Act of
1974, or the Internal Revenue Code of 1986, each as amended; (iv) the execution,
delivery and performance of this Agreement are within our powers, have been and
remain duly authorized by all necessary action and will not violate or
constitute a default under any applicable law or regulation or of any decree,
order, judgment, agreement or instrument binding on us; (v) no consent
(including, but not limited to, exchange control consents) of any applicable
governmental authority or body is necessary, except for such consents as have
been obtained and are in full force and effect, and all conditions of which have
been duly complied with; and (vi) this Agreement constitutes a legal, valid and
binding obligation enforceable against us in accordance with its terms.
2. Remuneration
Unless otherwise agreed, BTC shall pay us a fee for each loan equal to
an agreed percentage of (a) in the case of loans not collateralized by cash, the
fee paid by the borrower to BTC with respect to each loan, and (b) in the case
of loans collateralized by cash, the difference between (i) the net realized
income derived from approved investments of the cash collateral, minus (ii) the
borrower's rebate. BTC shall receive any fee paid by the borrower and, provided
that BTC shall have actually received payment of such fees from the borrower,
credit our portion of such fees to our account monthly.
3. Statements of Loan Activity and Fees
BTC shall promptly advise us by written or electronic means of any loan
entered into by BTC on our behalf. In addition, BTC shall send us a monthly
statement summarizing securities lending activity (including revenues therefrom)
for the previous month effected by BTC on our behalf.
4. Distributions on Loaned Securities and Collateral
All borrowers shall be required to pay or otherwise deliver to BTC all
substitute payments in respect of interest payments, dividends, or other
distributions made on the loaned securities. Such payments shall be credited by
BTC to our account upon receipt by BTC of such payments from the borrower,
unless otherwise agreed upon by the parties. We authorizize BTC to pay, provided
that the borrower is not in default under its agreement with BTC, to the
borrower all interest payments received by BTC on Government Securities (as
defined in Section 6(a)) held by BTC as collateral for our loans.
<PAGE>
5. Recalls of Securities
(a) Unless otherwise agreed by us, we may instruct BTC to terminate any
loan in whole or in part by giving BTC written notice thereof (a "Recall
Notice"). BTC shall thereupon promptly recall the securities from the borrower,
within the recall period specified by BTC's agreement with the borrower, which
shall not be later than the fifth business day (but, in the case of U.S. equity
securities, the third business day, and, in the case of Government Securities,
the first business day) following the business day on which BTC gives a notice
recalling the securities to the borrower (the "Recall Period"). If, on the day
BTC receives the Recall Notice, (i) the borrower is closed for business or (ii)
the principal market for the loaned securities is closed for trading, the Recall
Period will commence on the next business day on which both the borrower and the
principal trading market are open.
(b) If any loaned security is not returned by a borrower by the
expiration of the applicable recall period, BTC shall notify us of such fact.
BTC shall take all steps which BTC deems appropriate to secure the prompt return
of the securities pursuant to BTC's agreement with the borrower (which may
include the liquidation of collateral and the purchase of replacement
securities).
6. Collateral
(a) Unless otherwise indicated to us by BTC, prior to or simultaneously
with the delivery of our securities to a borrower, BTC shall obtain and hold on
our behalf collateral having a value not less than the value (the "Margin
Requirement") specified in Exhibit C hereto. The collateral shall consist of (i)
cash, (ii) securities issued or guaranteed by the United States Government or
its agencies ("Government Securities"), or (iii) letters of credit issued by
banks as may be acceptable to BTC.
(b) BTC will mark to market loaned securities and collateral (if the
collateral is represented by Government Securities) on a daily basis, and if on
any day, the aggregate market value of the collateral held by BTC for loans made
to any one borrower is less than the Margin Requirement, BTC shall obtain from
such borrower pursuant to BTC's agreement with the borrower such additional
collateral so that the aggregate market value of the collateral is not less than
the Margin Requirement. We understand that BTC may be obligated to release
collateral in
<PAGE>
excess of the Margin Requirement to the borrower when so required by BTC's
agreement with the borrower.
(c) We authorize BTC to invest, on our behalf and for our account, any
cash collateral received from a borrower in any of the instruments described in
Exhibit C hereto, including any such instrument issued by, purchased through or
entered into with BTC or its affiliates. We acknowledge that such cash
collateral is invested at our risk, and if, upon termination of any loan, the
cash collateral held by BTC for our account is less than the amount required to
be returned to the borrower under BTC's agreement with the borrower, we will
provide BTC with cash in the amount of any such deficiency.
7. Indemnification
(a) In the event that any loan is terminated and the loaned Securities
or any portion thereof shall not have been returned to BTC by or on behalf of
Borrower within the time specified by BTC's agreement with the borrower, BTC
shall at its expense (i) within one (1) business day after the expiration of the
Recall Period, replace the loaned Securities (or any portion thereof not so
returned) with a like amount of the loaned securities of the same issuer, class
and denomination, and hold us harmless from any brokerage commission, fees, and
New York State or City transfer taxes incurred by BTC in the purchase of such
replacement securities or (ii) if BTC is unable to purchase such securities on
the open market, credit our account with an amount of cash in U.S. dollars equal
to the Market Value (as defined below) of such unreturned loaned Securities
determined at the close of business as of the date on which the loaned
Securities should have been returned plus, until such time as the events in (i)
or (ii) are consummated, all financial benefits derived from the beneficial
ownership of the loaned Securities which have accrued on the loaned Securities
whether or not received from Borrower. The Market Value of any securities listed
on a national securities exchange will be the last sales price on the principal
exchange on which trading occurred on the date the Market Value is determined
or, if there was no sale on any such exchange on such date, the last bid price
quoted. The Market Value of securities traded in the over-the-counter market
will be the last quoted bid price in the over-the-counter market as reported by
the National Quotation Bureau Incorporated or any successor organization. The
Market Value of Government Securities shall be the price as quoted by a
generally recognized pricing service for the business day preceding the date of
determination (or, if not so quoted on such day, the next preceding day on which
they were so quoted). The Market Value of
<PAGE>
securities the principal trading market for which is outside the United States
will be the last sale price on the principal exchange on which they are traded,
or if there was no sale on that date, the last sale price on the next preceding
day on which there was such a sale on such exchange, all as quoted in the
DataSheet Service of the Interactive Data Corporation, or, if not therein
quoted, then as quoted by any such exchange; the foreign exchange rate used to
calculate the Market Value of foreign securities not denominated in U.S. dollars
shall be the foreign exchange rate quoted by Bankers Trust Company at the close
of business in New York on the preceding day. The Market Value of securities for
which market quotations are not readily available over a reasonable period of
time, will be the average of values quoted by three major investment banking
firms which are mutually agreeable to BTC and us.
(b) In the event that BTC shall be required to make any payment to us
or shall incur any loss or expense pursuant to (a) above, it shall, to the
extent of such payment or loss or expense, be subrogated to, and succeed to, all
of our rights against the borrower and to the collateral involved; to the extent
the collateral consists of cash or Government Securities, we shall
contemporaneously with any such payment to us by BTC surrender same to BTC for
its sole disposition.
(c) Except as provided in this Section 7, BTC shall have no liability
to us for any failure of a borrower to return loaned securities.
8. BTC's Relationship with a Borrower.
We acknowledge that BTC and/or its affiliates may be a creditor of, for
its own account or in a fiduciary capacity, or generally engage in any kind of
commercial or investment banking business with, a borrower to whom BTC has lent
our securities. Without limiting the generality of the foregoing, BTC shall not
be required to disclose to us any financial information about a borrower
obtained in the course of its relationship with such borrower.
9. Notices
All notices under this Agreement, including Recall Notices, shall be in
writing and sent by mail or facsimile, addressed as follows:
If to BTC:
<PAGE>
Bankers Trust Company
c/o BTNY Services, Inc.
34 Exchange Place
Jersey City, NJ 07302
U.S.A.
Attention: Securities Lending Unit
Facsimile No.: (201) 860-2587
If to us:
[CLIENT NAME]
[ADDRESS]
ATTENTION:
FACSIMILE NO.:
Notices shall be effective upon receipt. The address indicated above
for either party may be changed by prior written notice to the other party.
10. Indemnification and Reimbursement of Agent, etc.
(a) We agree to indemnify BTC and to hold BTC harmless from any
liabilities, losses, costs or expenses (including reasonable attorneys' fees)
which BTC may incur in connection with this Agreement or the transactions
contemplated hereby; provided that such indemnification shall not extend to
liabilities, losses, costs or expenses to the extent that such liabilities,
losses, costs or expenses (i) are found by a final judgment of a court of
competent jurisdiction to have resulted from BTC's own willful misconduct or
gross negligence or (ii) result from BTC's indemnity provided in Section 7.
(b) We agree that BTC's duties and responsibilities shall only be those
expressly set forth herein and that BTC may consult with counsel and be fully
protected with respect to any action taken or omitted to be taken in good faith
upon advice of such counsel.
(c) We agree that BTC may rely on any certificate, statement, request,
consent, agreement or other instrument which it believes to be genuine and to
have been signed or presented by a proper person or persons.
11. Termination
<PAGE>
Either party may terminate this Agreement by giving not less than five
business days written notice to the other party. Such termination shall be
effective on the date specified therein, provided that such termination notice
shall not constitute a notice pursuant to Section 5 unless so specified by us,
and further provided that this Agreement shall continue to govern all
outstanding loans until the termination thereof.
12. Governing Law and Legal Proceedings
(a) This Agreement shall be governed by and construed in accordance
with the laws of the State of New York (without giving effect to conflicts of
laws principles thereof).
(b) We hereby agree that any legal action or proceeding arising out of
or relating to this Agreement may be brought in the courts of the State of New
York, the courts of the United States of America located in the City of New York
or in any other court having jurisdiction with respect thereto, and we hereby
irrevocably consent to service of process in any said action or proceeding in
any of such courts by the mailing of copies thereof, postage prepaid, to us at
[ADDRESS OF DESIGNATED AGENT FOR SERVICE OF PROCESS IN NEW YORK], such service
to be effective 10 days after such mailing. We hereby waive, in relation to any
such action or proceeding, [any sovereign immunity or other immunity to suit or
to the execution or attachment (whether before or after judgment) to which we or
any of our property may be or become entitled, or]1 any defense to any action or
proceeding based on venue or that the action has been brought in an inconvenient
forum.
13. Force Majeure
Notwithstanding any other provision contained herein, BTC shall not be
liable for any action taken, or any failure to take any action required to be
taken hereunder or otherwise to fulfill BTC's obligations hereunder in the event
and to the extent that the taking of such action or such failure arises out of
or is caused by acts of governmental authorities (whether de jure or de facto),
including nationalization, expropriation, the imposition of currency
restrictions, war, insurrection, riot, revolution, terrorism or civil commotion;
acts of God, accident, fire, water damage, explosion, hurricane, cyclone,
earthquake, volcanic
- --------
1 Can delete for U.S. Clients
<PAGE>
eruption, nuclear fusion, fission, or radioactivity; mechanical breakdown,
computer or system failure or computer virus, failure or malfunctioning of any
communications media for whatever reason; interruption (whether partial or
total) of power supplies or other utility or service; strike or other stoppage
(whether partial or total) of labor; any law, decree, regulation or order of any
government or governmental body (including any court or tribunal); or any other
cause (whether similar or dissimilar to any of the foregoing) whatsoever beyond
BTC's control.
14. Miscellaneous
This Agreement constitutes the entire agreement of the parties with
respect to BTC's acting as our agent in connection with the loan of our
securities which we have placed in custody with BTC, and supersedes all prior
understandings, written or oral, or any previous agreement with respect thereto.
Neither party shall be bound by any modifications of this Agreement unless it
has so agreed in writing.
If the terms hereof accurately reflect our agreement, please so
indicate by signing below.
[CLIENT NAME]
By:
--------------------------
Name:
Title:
AGREED TO AND ACCEPTED BY
AS OF THE DATE HEREOF:
BANKERS TRUST COMPANY
By:
----------------------------------
Name:
Title:
<PAGE>
Exhibit A
Authorization to Lend to Bankers Trust International PLC
The following procedures will be employed to ensure that each loan to
Bankers Trust International ("BTI"), wholly owned subsidiary established under
English law of Bankers Trust Company ("Bankers Trust"), is made in conformity
with the requirements of the Department of Labor.
1. Loans of securities to BTI will be competitively negotiated. Each
prospective transaction with BTI will be evaluated by comparing rates and terms
offered by BTI to those offered by other unrelated borrowers on our approved
list of borrowers. Any loan of securities to BTI will be at market rates and in
no event less favorable than a loan of such securities, if such loan could be
made at the same time under the same circumstances to an unaffiliated borrower.
2. Bankers Trust will maintain transactional and market records which
contain information to assure that all loans made to BTI are effectively at
arms-length terms. These records will contain data pertaining to loans made to
BTI and other bids, if any, made for such loans or other rates on similar loans
by unaffiliated borrowers. You may obtain a copy of such records upon written
request.
3. As is the case with loans to unrelated approved borrowers, if
prevailing market interest or rebate rates change, the rates on outstanding
loans to BTI will be adjusted accordingly.
4. All loans to BTI will be made on terms which are substantively
identical to those contained in the standard Bankers Trust UK Securities Lending
Agreement ("the Securities Lending Agreement"), which is our contract for loans
to unrelated approved UK borrowers. Among other things, the Securities Lending
Agreement with BTI will provide the lending client with all right, title and
interest in the collateral delivered by the borrower.
A copy of the BTI Securities Lending Agreement is available to
you at any time upon request. We will provide you at least thirty (30) days
advance written notice of any substantive amendments or changes to the
Securities Lending Agreement with BTI.
5. As is Bankers Trust's present policy for all loans to
unrelated borrowers, any and all loans to BTI will be:
<PAGE>
(a) Collateralized for each loan transaction in an amount
equal to the agreed upon percentage, which shall be at least 102% of the market
value of securities, plus accrued interest (in the case of debt securities). We
will mark loans to market on a daily basis to ensure that the loan collateral is
maintained at the agreed upon percentage.
As is the case with loans to unrelated approved borrowers,
permissible collateral will include any combination of the following:
- Cash collateral which will be invested for you if you so
request by Bankers Trust, in the investment vehicle that you have chosen for the
investment of your cash collateral, a current description of which is available
upon request.
- Securities issued or guaranteed by the United
States Government or any agency thereof.
- Letters of credit issued by banks as may be acceptable to
Bankers Trust (a current list of such institutions is available upon request, at
any time.) In no event will Bankers Trust, or any affiliate of Bankers Trust, be
the issuer of a letter of credit in connection with the securities lending
program.
(b) Cancelable by you or by Bankers Trust at any time. Upon
termination of a loan, the securities are required to be returned to us as your
agent on the day that would be the standard settlement day in the principal
market in which securities are traded, for transactions effected on the business
day on which Bankers Trust as your agent gives notice of termination to BTI, in
no event to exceed 5 business days in the market in which the security is
traded.
6. You may receive a copy of BTI's most recent available audited and
unaudited financial statements upon request. Should we believe there to be any
material adverse change in the financial condition of BTI, we will promptly
advise you of such change and ask you for your approval to continue lending to
BTI.
7. In case of a default by BTI in any securities loan transaction,
Bankers Trust will promptly notify you of such fact and use all appropriate
means as your agent to enforce your rights under the BTI Securities Lending
Agreement against BTI. In such event, you may, if you so choose, at your
expense, assume the rights of Bankers Trust to enforce the terms of the BTI
Securities Lending Agreement against BTI.
<PAGE>
8. The current monthly report furnished to you, covering all securities
loans outstanding in the previous month, enables you to review all lending
activity for your account, including BTI loans and all other loan transactions.
The format includes a list of outstanding loans and loans that terminated during
the prior month, showing the number of securities involved, value of securities
and collateral, daily and monthly rate of interest or rebate rates and number of
days securities have been out on loan. A weekly report of specific outstanding
loans is also available, upon request.
By:
----------------------------------
Name:
Title:
<PAGE>
Exhibit B
LOANS TO UK COUNTERPARTIES
Certain of the borrowers to which Bankers Trust Company ("BTC") may
loan our securities held in trust and/or custody are entities which are
organized and existing under the laws of the United Kingdom ("UK
Counterparties"). Loans to UK Counterparties will be made by BTC as our agent
pursuant to a form of securities lending agreement governed by the laws of the
United Kingdom (the "UK Agreement") which is available to us upon request.
[In order to ensure that securities loans to such UK Counterparties
which do not at the present time meet the requirements of Prohibited Transaction
Exemption 81-6 or another available exemption do not result in a prohibited
transaction under ERISA, BTC will require such borrowers to represent to BTC
that they are not a "party in interest" within the meaning of ERISA with respect
to any pension or retirement plan the assets of which are being lent.]2
By signing this authorization, we grant our consent to BTC making, on
our behalf, the following representations and warranties to such UK
Counterparties:
(1) We are duly authorized and empowered to perform our
respective duties and obligations under the UK Agreement;
(2) We are not restricted under the terms of our constitution or
in any other manner from lending securities in accordance with
the UK Agreement or from otherwise performing our obligations
thereunder; and
(3) We are absolutely entitled to pass full beneficial ownership
of all securities loaned under the UK Agreement to the
applicable UK Counterparty free from all liens, charges and
encumbrances.
We authorize BTC as our agent to(a) disclose our name to the UK Inland
Revenue for approval of us as an approved lender to a UK Counterparty and (b)
undertake to the Inland Revenue on our behalf to lend securities on certain
specified terms, with which BTC as our agent will comply. We agree to provide
BTC with all documents, certificates or other information necessary to enable
BTC to make the appropriate filings on our behalf with the Inland Revenue to
become an approved lender to UK Counterparties. [We understand
- --------
2 For ERISA clients.
<PAGE>
such approval is necessary to enable the UK Counterparty to make manufactured
payments in respect of interest, dividends or other distributions on the loaned
securities without deduction of [UK] withholding tax.]3 [We understand such
approval is necessary in order to prevent certain UK tax costs arising for the
UK Counterparty.]4
In order to make loans to UK Counterparties, we understand that we will be
required to submit to the non-exclusive jurisdiction of the courts of England in
connection with any disputes which may arise out of or in connection with the UK
Agreement, and waive any objection to proceedings in such courts whether on the
grounds of sovereignty, venue or that the proceedings have been brought in an
inconvenient forum. By signing this authorization, we also consent to BTC's
entering into such agreements on our behalf.
Except as specifically described above, all provisions of the
Securities Lending Agreement between us and BTC shall be applicable to loans to
UK Counterparties.
THE LENDING OF SECURITIES TO UK COUNTERPARTIES IS AUTHORIZED UNDER
THE PROCEDURES DESCRIBED ABOVE SUBJECT TO ANY LIMITATIONS SET FORTH
BELOW.
By:
----------------------------------
Name:
Title:
- --------
3 For use with clients resident and subject to tax in a jurisdiction having
a double tax treaty with the UK containing an "other income" article exempting
such income from UK tax.
4 For use with other clients.
<PAGE>
EXHIBIT C
I. Margin Requirements Referred to in Section 6(a)
For loans of securities the principal trading market for which is in
the United States, 102%, and for loans of securities the principal trading
market for which is outside the United States, 105%, of the aggregate market
value of the loaned securities plus any accrued but unpaid distributions
thereon.
II. Investment Vehicles Referred to in Section 6 (c)
[List]
<PAGE>
___________, 1996
Bankers Trust Company
One Bankers Trust Plaza
New York, NY 10004
U.S.A.
Re: Securities Lending Agreement
Dear Sirs:
In accordance with Section 2 of the securities lending agreement
between you and us dated ___________ 1996, we hereby confirm our agreement that
the fee paid by the borrower with respect to each loan of securities thereunder
shall be apportioned between us as __% for us and __% for BTC.
Very truly yours,
[CUSTOMER]
By:
--------------------------
Name:
Title:
AGREED TO AND ACCEPTED:
BANKERS TRUST COMPANY
By:
----------------------------------
Name:
Title:
<PAGE>
CHASE PROPOSED AGREEMENT
GLOBAL CUSTODY AGREEMENT
AGREEMENT, effective May 1, 1996, between THE CHASE MANHATTAN BANK,
N.A. (the "Bank") and those registered investment companies listed on Schedule A
hereto (each a "Customer") on behalf of certain of their respective series, as
listed on Schedule A (individually and collectively the "Series").
1. Customer Accounts.
The Bank agrees to establish and maintain the following accounts
("Accounts"):
(a) A custody account in the name of the Customer on behalf of each
Series ("Custody Account") for any and all stocks, shares, bonds, debentures,
notes, mortgages or other obligations for the payment of money, bullion, coin
and any certificates, receipts, warrants or other instruments representing
rights to receive, purchase or subscribe for the same or evidencing or
representing any other rights or interests therein and other similar property
whether certificated or uncertificated as may be received by the Bank or its
Subcustodian (as defined in Section 3) for the account of the Customer
("Securities"); and
(b) A deposit account in the name of the Customer on behalf of each
Series ("Deposit Account") for any and all cash in any currency received by the
Bank or its Subcustodian for the account of the Customer, which cash shall not
be subject to withdrawal by draft or check.
The Customer warrants its authority to: 1) deposit the cash and
Securities ("Assets") received in the Accounts and 2) give Instructions (as
defined in Section 11) concerning the Accounts. Such Instructions shall
specifically indicate to which Series such Assets belong or, if such Assets
belong to more than one Series, shall allocate such Assets to the appropriate
Series. The Bank may deliver securities of the same class in place of those
deposited in the Custody Account.
Upon written agreement between the Bank and the Customer, additional
Accounts may be established and separately accounted for as additional Accounts
under the terms of this Agreement.
2. Maintenance of Securities and Cash at Bank and Subcustodian Locations.
Unless Instructions specifically require another location acceptable to
the Bank:
(a) Securities will be held in the country or other
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jurisdiction in which the principal trading market for such Securities is
located, where such Securities are to be presented for payment or where such
Securities are acquired; and
(b) Cash will be credited to an account in a country or other
jurisdiction in which such cash may be legally deposited or is the legal
currency for the payment of public or private debts.
To the extent available and permissible under applicable law and
regulation, Cash held pursuant to Instructions shall be held in interest bearing
accounts. If interest bearing accounts are not available, such cash may be held
in non-interest bearing accounts. The Bank is authorized to maintain cash
balances on deposit for the Customer with itself or one of its affiliates.
Interest bearing accounts shall bear interest at such reasonable rates of
interest as may from time to time be paid on such accounts by the Bank or its
affiliates.
(iii) For each Series that is exclusively a domestic Series, the following
additional provisions shall apply:
(x) In the event that during a given calendar month a Series has maintained an
average daily cash balance greater than zero, the Bank shall provide an earnings
credit against custody fees otherwise owing hereunder by such Series during such
calendar month in an amount equal to the product of (A) 75% of the 90 day U.S.
government Treasury bill rate as quoted in the Wall Street Journal for the last
"Business Day" (being a day on which the Bank is open for the transaction of all
its ordinary business) of such calendar month, (B) the average daily cash
balance for such month, and (C) the number of days in such calendar month
divided by 365.
(y) In the event that during a given calendar month a Series has maintained an
average daily cash balance less than or equal to zero, the Bank shall be paid
interest on such amount by such Series in an amount equal to the product of (A)
the "Overnight Fed Funds Rate" (as defined below) plus 25 basis points for the
last Business Day of such calendar month, (B) the average daily cash balance for
such month, and (C) the number of days in such calendar month divided by 365.
(z) For purposes of (y) above, the term "Overnight Fed Funds Rate" shall mean
the weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers, as
published by the Federal Reserve Bank of New York (with the rate for the last
Business Day of a given calendar month being the rate so published on the
Business Day immediately following such Day), or, if such rate is note so
published, the average quotations, for the last Business Day of a given calendar
month, of such transactions received by the Bank from three Federal funds
brokers of recognized standing selected by the Bank.
If the Customer wishes to have any of its Assets held in the
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custody of an institution other than the established Subcustodians as defined in
Section 3 (or their securities depositories), such arrangement must be
authorized by a written agreement, signed by the Bank and the Customer.
3. Subcustodians and Securities Depositories.
The Bank may act under this Agreement through the subcustodians listed
in Schedule B of this Agreement with which the Bank has entered into
subcustodial agreements ("Subcustodians"). The Customer authorizes the Bank to
hold Assets in the Accounts in accounts which the Bank has established with one
or more of its branches or Subcustodians. The Bank and Subcustodians are
authorized to hold any of the Securities in their account with any securities
depository in which they participate.
The Bank reserves the right to add new, replace or remove
Subcustodians. The Customer will be given reasonable notice by the Bank of any
amendment to Schedule B. Upon request by the Customer, the Bank will identify
the name, address and principal place of business of any Subcustodian of the
Customer's Assets and the name and address of the governmental agency or other
regulatory authority that supervises or regulates such Subcustodian.
Upon receipt of Instructions, the Bank shall cease using any
Subcustodian with respect to the customer, and arrange for delivery of
Securities held with such Subcustodian to another entity as designated by the
Customer; provided that, the Bank shall have no responsibility for the
performance of such other entity.
4. Use of Subcustodian.
(a) The Bank will identify the Assets on its books as belonging to the
Customer.
(b) A Subcustodian will hold such Assets together with assets belonging
to other customers of the Bank in accounts identified on such Subcustodian's
books as special custody accounts for the exclusive benefit of customers of the
Bank.
(c) Any Assets in the Accounts held by a Subcustodian will be subject
only to the instructions of the Bank or its agent. Any Securities held in a
securities depository for the account of a Subcustodian will be subject only to
the instructions of such Subcustodian.
(d) Any agreement the Bank enters into with a Subcustodian for holding
its customer's assets shall provide that: (i) such assets will not be subject to
any right, charge, security interest, lien or claim of any kind in favor of such
Subcustodian except for safe custody or administration, (ii) the beneficial
ownership of such assets will be freely transferable without the payment of
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money or value other than for safe custody or administration; (iii) adequate
records will be maintained identifying the assets held pursuant to such
agreement as belonging to the customers of the Bank; (iv) subject to applicable
law, Subcustodian shall permit independent public accountants for Bank and
customers of the Bank reasonable access to Subcustodian's books and records as
they pertain to the subcustody account in connection with such accountants'
examination of the books and records of such account; and (v) the Bank will
receive periodic reports with respect to the safekeeping of assets in the
subcustody account, including advices and/or notifications of any transfers to
or from such subcustody account. The foregoing shall not apply to the extent of
any special agreement or arrangement made by the Customer with any particular
Subcustodian.
(e) Upon request of the Customer, the Bank shall deliver to the
Customer annually a report stating: (i) the identity of each Subcustodian then
acting on behalf of the Bank and the name and address of the governmental agency
or other regulatory authority that supervises or regulates such Subcustodian;
(ii) the countries in which each Subcustodian is located; and (iii) as long as
Securities and Exchange Commission ("SEC") Rule 17f-5 under the Investment
Company Act of 1940, as amended ("1940 Act"), requires the Customer's Board of
Directors/Trustees directly to approve its foreign custody arrangements, such
other information relating to such Subcustodians as may reasonably be requested
by the Customer to ensure compliance with Rule 17f-5. As long as Rule 17f-5
requires the Customer's Board of Directors/Trustees directly to approve its
foreign custody arrangements, the Bank shall also furnish annually to the
Customer information concerning such Subcustodians similar in kind and scope as
that furnished to the Customer in connection with the initial approval hereof.
The Bank shall timely advise the Customer of any material adverse change in the
facts or circumstances upon which such information is based where such changes
would affect the eligibility of the Subcustodian under Rule 17f-5 as soon as
practicable after it becomes aware of any such material adverse change in the
normal course of its custodial activities.
5. Deposit Account Transactions
(a) The Bank or its Subcustodians will make payments from the Deposit
Account upon receipt of Instructions which include all information required by
the Bank.
(b) In the event that any payment to be made under this Section 5
exceeds the funds available in the Deposit Account, the Bank, in its discretion,
may advance the Customer such excess amount which shall be deemed a loan payable
on demand, bearing interest at the rate customarily charged by the Bank on
similar loans.
(c) If the Bank credits the Deposit Account on a payable date, or at
any time prior to actual collection and reconciliation
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to the Deposit Account, with interest, dividends, redemptions or any other
amount due, the Customer will promptly return any such amount upon oral or
written notification: (i) that such amount has not been received in the ordinary
course of business or (ii) that such amount was incorrectly credited. If the
Customer does not promptly return any amount upon such notification, the Bank
shall be entitled, upon oral or written notification to the Customer, to reverse
such credit by debiting the Deposit Account for the amount previously credited.
The Bank or its Subcustodian shall have no duty or obligation to institute legal
proceedings, file a claim or a proof of claim in any insolvency proceeding or
take any other action with respect to the collection of such amount, but may act
for the Customer upon Instructions after consultation with the Customer.
6. Custody Account Transactions.
(a) Securities will be transferred, exchanged or delivered by the Bank
or its Subcustodian upon receipt by the Bank of Instructions which include all
information required by the Bank. Settlement and payment for Securities received
for, and delivery of Securities out of, the Custody Account may be made in
accordance with the customary or established securities trading or securities
processing practices and procedures in the jurisdiction or market in which the
transaction occurs, including, without limitation, delivery of Securities to a
purchaser, dealer or their agents against a receipt with the expectation of
receiving later payment and free delivery. Delivery of Securities out of the
Custody Account may also be made in any manner specifically required by
Instructions acceptable to the Bank.
(b) The Bank shall credit or debit the Accounts on a contractual
settlement date with cash or Securities with respect to any sale, exchange or
purchase of Securities in those countries set forth in Appendix A hereto;
provided that, the Bank may amend Appendix A from time to time in its sole
discretion and shall advise the Customer of such amendments. Otherwise,
transactions will be credited or debited to the Accounts on the date cash or
Securities are actually received by the Bank and reconciled to the Account.
(i) The Bank may reverse credits or debits made to the Accounts in its
discretion if the related transaction fails to settle within a reasonable
period, determined by the Bank in its discretion, after the contractual
settlement date for the related transaction; provided that, the Bank shall give
Customer prior notification of any such reversal. Where the foregoing
notification is oral, the Bank shall promptly provide written confirmation of
the same (which confirmation may be electronic).
(ii) If any Securities delivered pursuant to this Section 6 are
returned by the recipient thereof, the Bank may reverse the credits and debits
of the particular transaction at any time.
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7. Actions of the Bank.
The Bank shall follow Instructions received regarding assets held in
the Accounts. However, until it receives Instructions to the contrary, the Bank
will:
(a) Present for payment any Securities which are called, redeemed or
retired or otherwise become payable and all coupons and other income items which
call for payment upon presentation, to the extent that the Bank or Subcustodian
is actually aware of such opportunities.
(b) Execute in the name of the Customer such ownership and other
certificates as may be required to obtain payments in respect of Securities.
(c) Exchange interim receipts or temporary Securities for definitive
Securities.
(d) Appoint brokers and agents for any transaction involving the
Securities, including, without limitation, affiliates of the Bank or any
Subcustodian, subject to applicable SEC rules and regulations under the Act.
(e) Issue statements to the Customer, at times mutually agreed upon,
identifying the Assets in the Accounts.
The Bank will send the Customer an advice or notification of any
transfers of Assets to or from the Accounts. Such statements, advices or
notifications shall indicate the identity of the entity having custody of the
Assets. Unless the Customer advises the Bank orally and then promptly sends the
Bank a written exception or objection to any Bank statement within 180 days of
receipt, the Customer shall be deemed to have approved such statement.
All collections of funds or other property paid or distributed in
respect of Securities in the Custody Account shall be made at the risk of the
Customer. Subject to the standard of care in Section 12 hereof, the Bank shall
have no liability for any loss occasioned by delay in the actual receipt of
notice by the Bank or by its Subcustodians of any payment, redemption or other
transaction regarding Securities in the Custody Account in respect of which the
Bank has agreed to take any action under this Agreement.
8. Corporate Actions; Proxies; Tax Reclaims.
a. Corporate Actions. Whenever the Bank receives information concerning
the Securities which requires discretionary action by the beneficial owner of
the Securities (other than a proxy), such as subscription rights, bonus issues,
stock repurchase plans and rights offerings, or legal notices or other material
intended to be
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transmitted to securities holders ("Corporate Actions"), the Bank will give the
Customer written notice (which may be electronic) of such Corporate Actions to
the extent that the Bank's central corporate actions department has actual
knowledge of a Corporate Action in time to notify its customers.
When a rights entitlement or a fractional interest resulting from a
rights issue, stock dividend, stock split or similar Corporate Action is
received which bears an expiration date, the Bank will endeavor to obtain
Instructions from the Customer or its Authorized Person (as defined in ss.10
hereof), but if Instructions are not received in time for the Bank to take
timely action, or actual notice of such Corporate Action was received too late
to seek Instructions, the Bank is authorized to sell such rights entitlement or
fractional interest and to credit the Deposit Account with the proceeds or take
any other action it deems, in good faith, to be appropriate in which case it
shall be held harmless for any such action.
b. Proxy Voting. With respect to domestic U.S. and Canadian Securities
(the latter if held in DTC), the Bank will send to the Customer or the
Authorized Person (as defined in Section 10) for a Custody Account, such proxies
(signed in blank, if issued in the name of the Bank's nominee or the nominee of
a central depository) and communications with respect to Securities in the
Custody Account as call for voting or relate to legal proceedings within a
reasonable time after sufficient copies are received by the Bank for forwarding
to its customers. In addition, the Bank will follow coupon payments,
redemptions, exchanges or similar matters with respect to Securities in the
Custody Account and advise the Customer or the Authorized Person for such
Account of rights issued, tender offers or any other discretionary rights with
respect to such Securities, in each case, of which the Bank has received notice
from the issuer of the Securities, or as to which notice is published in
publications routinely utilized by the Bank for this purpose.
With respect to Securities other than the foregoing, proxy voting
services shall be provided in accordance with separate proxy voting agreement
annexed hereto a Appendix B.
The foregoing proxy voting services may be provided by Bank, in whole
or in part, by one or more third parties appointed by the Bank (which may be
affiliates of the Bank), provided that the Bank shall be liable for the
performance of any such third parties to the same extent as the Bank would have
been if it performed such services itself.
c. Tax Reclaims. (i) Subject to the provisions hereof, the Bank will
apply for a reduction of withholding tax and any refund of any tax paid or tax
credits which apply in each applicable market in respect of income payments on
Securities for the benefit of the Customer which the Bank believes may be
available to such Customer. Where such reports are available, the Bank shall
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periodically report to Customer concerning the making of applications for a
reduction of withholding tax and refund of any tax paid or tax credits which
apply in each applicable market in respect of income payments on Securities for
the benefit of the Customer.
(ii) The provision of tax reclaim services by the Bank is conditional
upon the Bank receiving from the beneficial owner of Securities (A) a
declaration of its identity and place of residence and (B) certain other
documentation (pro forma copies of which are available from the Bank). The Bank
shall use reasonable means to advise the Customer of the declarations,
documentation and information which the Customer is to provide to the Bank in
order for the Bank to provide the tax reclaim services described herein. The
Customer acknowledges that, if the Bank does not receive such declarations,
documentation and information, additional United Kingdom taxation will be
deducted from all income received in respect of Securities issued outside the
United Kingdom and that U.S. non-resident alien tax or U.S. backup withholding
tax will be deducted from U.S. source income. The Customer shall provide to the
Bank such documentation and information as it may require in connection with
taxation, and warrants that, when given, this information shall be true and
correct in every respect, not misleading in any way, and contain all material
information. The Customer undertakes to notify the Bank immediately if any such
information requires updating or amendment.
(iii) Subject to subsection (vii) hereof, the Bank shall not be liable
to the Customer or any third party for any tax, fines or penalties payable by
the Bank or the Customer, and shall be indemnified accordingly, whether these
result from the inaccurate completion of documents by the Customer or any third
party, or as a result of the provision to the Bank or any third party of
inaccurate or misleading information or the withholding of material information
by the Customer or any other third party, or as a result of any delay of any
revenue authority or any other matter beyond the control of the Bank.
(iv) The Customer confirms that the Bank is authorized to deduct from
any cash received or credited to the Cash Account any taxes or levies required
by any revenue or governmental authority for whatever reason in respect of the
Securities or Cash Accounts.
(v) The Bank shall perform tax reclaim services only with respect to
taxation levied by the revenue authorities of the countries notified to the
Customer from time to time and the Bank may, by notification in writing, at its
absolute discretion, supplement or amend the markets in which the tax reclaim
services are offered. Other than as expressly provided in this sub-clause, the
Bank shall have no responsibility with regard to the Customer's tax position or
status in any jurisdiction. Except as provided in Section 8(c)(ii) and pursuant
to Instructions, the Bank shall take no action in the servicing of the
Customer's Securities which, in and of itself, creates a taxable nexus for the
Customer in any
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jurisdiction other than with respect to interest, dividends and capital gains
that may otherwise be subject to tax by such jurisdiction with respect to a
foreign investor not otherwise engaged in a trade or business in such
jurisdiction in a given taxable year. Bank shall not be liable for any tax
liability caused, directly or indirectly, by Customer's actions or status in any
jurisdiction.
(vi) In connection with obtaining tax relief, the Customer confirms
that the Bank is authorized to disclose any information requested by any revenue
authority or any governmental body in relation to the Customer or the Securities
and/or Cash held for the Customer. This provision does not authorize any other
voluntary disclosure to any revenue authority or any governmental body without
the prior written consent of Customer.
(vii) Tax reclaim services may be provided by the Bank or, in whole or
in part, by one or more third parties appointed by the Bank (which may be
affiliates of the Bank); provided that the Bank shall be liable for the
performance of any such third party to the same extent as the Bank would have
been if it performed such services itself.
9. Nominees.
Securities which are ordinarily held in registered form may be
registered in a nominee name of the Bank, Subcustodian or securities depository,
as the case may be. The Bank may without notice to the Customer cause any such
Securities to cease to be registered in the name of any such nominee and to be
registered in the name of the Customer. In the event that any Securities
registered in a nominee name are called for partial redemption by the issuer,
the Bank may allot the called portion to the respective beneficial holders of
such class of security in any manner the Bank deems to be fair and equitable.
The Customer agrees to hold the Bank, Subcustodians, and their respective
nominees harmless from any liability arising directly or indirectly from their
status as a mere record holder of Securities in the Custody Account.
10. Authorized Persons.
As used in this Agreement, the term "Authorized Person" means employees
or agents including investment managers as have been designated by written
notice from the Customer or its designated agent to act on behalf of the
Customer under this Agreement. Such persons shall continue to be Authorized
Persons until such time as the Bank receives Instructions from the Customer or
its designated agent that any such employee or agent is no longer an Authorized
Person.
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11. Instructions.
The term "Instructions" means instructions of any Authorized Person
received by the Bank, via telephone, telex, TWX, facsimile transmission, bank
wire or other teleprocess or electronic instruction or trade information system
acceptable to the Bank which the Bank reasonably believes in good faith to have
been given by Authorized Persons or which are transmitted with proper testing or
authentication pursuant to terms and conditions which the Bank may specify.
Unless otherwise expressly provided, all Instructions shall continue in full
force and effect until canceled or superseded. For purposes hereof,
reasonableness shall mean compliance with applicable procedures.
Any Instructions delivered to the Bank by telephone (including cash
transfer instructions as described below) shall promptly thereafter be confirmed
in writing by any two Authorized Persons (which confirmation may bear the
facsimile signature of such Persons), but the Customer will hold the Bank
harmless for the failure of such Authorized Persons to send such confirmation in
writing, the failure of such confirmation to conform to the telephone
instructions received or the Bank's failure to produce such confirmation at any
subsequent time; provided that, where the Bank receives a telephone Instruction
from an Authorized Person requiring the transfer of cash, prior to executing
such Instruction the Bank will, to confirm such Instruction, call back any one
of the individuals on a list of persons authorized to confirm such oral transfer
Instructions (which Person shall be a person other than the initiator of the
transfer Instruction) and the Bank shall not execute the Instruction until it
has received such confirmation. Either party may electronically record any
Instructions given by telephone, and any other telephone discussions with
respect to the Custody Account. The Customer shall be responsible for
safeguarding any testkeys, identification codes or other security devices which
the Bank shall make available to the Customer or its Authorized Persons.
12. Standard of Care; Liabilities.
(a) The Bank shall be responsible for the performance of only such
duties as are set forth in this Agreement or expressly contained in Instructions
which are consistent with the provisions of this Agreement as follows:
(i) The Bank will use reasonable care with respect to its obligations
under this Agreement and the safekeeping of Assets. The Bank shall be liable to
the Customer for any loss which shall occur as the result of the failure of a
Subcustodian to exercise reasonable care with respect to the safekeeping of such
Assets to the same extent that the Bank would be liable to the Customer if the
Bank were holding such Assets in New York. In the event that Securities are lost
by reason of the failure of the Bank or its Subcustodian to use reasonable care,
the Bank shall be liable to the Customer based on the market value of the
property which is the subject of the loss on the date it is replaced by the Bank
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and without reference to any special conditions or circumstances, it being
understood that for purposes of measuring damages hereunder, the value of
Securities which are sold by the Customer prior to the replacement thereof shall
be equal to the sale price thereof less the expenses of such sale incurred by
the Customer. The Bank shall act with reasonable promptness in making such
replacements. In no event shall the Bank be liable for special, indirect or
consequential loss or damage of any kind whatsoever (including but not limited
to lost profits), even if the Bank has been advised of the likelihood of such
loss or damage and regardless of the form of action. Subject to the Bank's
obligations pursuant to ss.4(e) hereof, the Bank will not be responsible for the
insolvency of any Subcustodian which is not a branch or affiliate of Bank.
(ii) The Bank will not be responsible for any act, omission, default or
the solvency of any broker or agent which it or a Subcustodian appoints unless
such appointment was made negligently or in bad faith.
(iii) (a) The Bank shall be indemnified by, and without liability to
the Customer for any action taken or omitted by the Bank whether pursuant to
Instructions or otherwise pursuant to this Agreement if such act or omission was
in good faith, without negligence. In performing its obligations under this
Agreement, the Bank may rely on the genuineness of any Customer document which
it reasonably believes in good faith to have been validly executed. (b) The Bank
shall hold Customer harmless from, and shall indemnify Customer for, any loss,
liability, claim or expense incurred by Customer (including, but not limited to,
Customer's reasonable legal fees) to the extent that such loss, liability, claim
or expense arises from the negligence or willful misconduct on the part of the
Bank or a Subcustodian; provided that, in no event shall the Bank be liable for
special, indirect or consequential loss or damage of any kind whatsoever
(including but not limited to lost profits), even if the Bank has been advised
of the likelihood of such loss or damage and regardless of the form of action.
Subject to the Bank's obligations pursuant to ss.4(e) hereof, the Bank will not
be responsible for the insolvency of any Subcustodian which is not a branch or
affiliate of Bank.
(iv) The Customer agrees to pay for and hold the Bank harmless from any
liability or loss resulting from the imposition or assessment of any taxes or
other governmental charges, and any related expenses with respect to income from
or Assets in the Accounts.
(v) The Bank shall be entitled to rely, and may act, upon the advice of
counsel (who may be counsel for the Customer) on all matters and shall be
without liability for any action reasonably taken or omitted pursuant to such
advice.
(vi) The Bank need not maintain any insurance for the benefit of the
Customer.
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(vii) Without limiting the foregoing, the Bank shall not be liable for
any loss which results from: 1) the general risk of investing, or 2) investing
or holding Assets in a particular country including, but not limited to, losses
resulting from nationalization, expropriation or other governmental actions;
regulation of the banking or securities industry; currency restrictions,
devaluations or fluctuations; and market conditions which prevent the orderly
execution of securities transactions or affect the value of Assets.
(viii) Neither party shall be liable to the other for any loss due to
forces beyond their control including, but not limited to strikes or work
stoppages, acts of war or terrorism, insurrection, revolution, nuclear fusion,
fission or radiation, or acts of God.
(b) Consistent with and without limiting the first paragraph of this
Section 12, it is specifically acknowledged that the Bank shall have no duty or
responsibility to:
(i) question Instructions or make any suggestions to the Customer or an
Authorized Person regarding such Instructions;
(ii) supervise or make recommendations with respect to investments or
the retention of Securities;
(iii) advise the Customer or an Authorized Person regarding any default
in the payment of principal or income of any security other than a Security.
(iv) except as may be otherwise provided in any securities lending
agreement between the Customer and the Bank, evaluate or report to the Customer
or an Authorized Person regarding the financial condition of any broker, agent
or other party to which Securities are delivered or payments are made pursuant
to this Agreement;
(v) except for trades settled at DTC where the broker provides to the
Bank the trade confirmation and the Customer provides for the Bank to receive
the trade instruction, review or reconcile trade confirmations received from
brokers. The Customer or its Authorized Persons (as defined in Section 10)
issuing Instructions shall bear any responsibility to review such confirmations
against Instructions issued to and statements issued by the Bank.
(c) The Customer authorizes the Bank to act, hereunder, in its capacity
as a custodian notwithstanding that the Bank or any of its divisions or
affiliates may have a material interest in a transaction, or circumstances are
such that the Bank may have a potential conflict of duty or interest including
the fact that the Bank or any of its affiliates may provide brokerage services
to other customers, act as financial advisor to the issuer of Securities, act as
a lender to the issuer of Securities, act in the
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same transaction as agent for more than one customer, have a material interest
in the issue of Securities, or earn profits from any of the activities listed
herein.
13. Fees and Expenses.
The Customer agrees to pay the Bank for its services under this
Agreement such amount as may be agreed upon in writing ("Fee Schedule"),
together with the Bank's reasonable out-of-pocket or incidental expenses (as
further defined in the Fee Schedule), including, but not limited to, legal fees.
The Bank shall have a lien on and is authorized to charge any Accounts of the
Customer for any amount owing to the Bank under any provision of this Agreement.
14. Miscellaneous.
(a) Foreign Exchange Transactions. To facilitate the administration of
the Customer's trading and investment activity, the Bank is authorized to enter
into spot or forward foreign exchange contracts with the Customer or an
Authorized Person for the Customer and may also provide foreign exchange through
its subsidiaries, affiliates or Subcustodians. Instructions, including standing
instructions, may be issued with respect to such contracts but the Bank may
establish rules or limitations concerning any foreign exchange facility made
available. In all cases where the Bank, its subsidiaries, affiliates or
Subcustodians enter into a foreign exchange contract related to Accounts, the
terms and conditions of the then current foreign exchange contract of the Bank,
its subsidiary, affiliate or Subcustodian and, to the extent not inconsistent,
this Agreement shall apply to such transaction.
(b) Certification of Residency, etc. The Customer certifies that it is
a resident of the United States and agrees to notify the Bank of any changes in
residency. The Bank may rely upon this certification or the certification of
such other facts as may be required to administer the Bank's obligations under
this Agreement. The Customer will indemnify the Bank against all losses,
liability, claims or demands arising directly or indirectly from any such
certifications.
(c) Access to Records. Applicable accounts, books and records of the
Bank shall be open to inspection and audit at all reasonable times during normal
business hours upon reasonable advance notice by Customer's independent public
accountants and by employees of Customer designated to the Bank. All such
materials shall, to the extent applicable, be maintained and preserved in
conformity with the Act and the rules and regulations thereunder, including
without limitation, SEC Rules 31a-1 and 31a-2. Subject to restrictions under
applicable law, the Bank shall also obtain an undertaking to permit the
Customer's independent public accountants reasonable access to the records of
any Subcustodian which has
<PAGE>
physical possession of any Assets as may be required in connection with the
examination of the Customer's books and records.
(d) Governing Law; Successors and Assigns. This Agreement shall be
governed by the laws of the State of New York and shall not be assignable by
either party, but shall bind the successors in interest of the Customer and the
Bank.
(e) Entire Agreement; Applicable Riders. Customer represents that the
Assets deposited in the Accounts are Mutual Fund assets subject to certain
Securities and Exchange Commission ("SEC") rules and regulations.
This Agreement consists exclusively of this document together with
Schedules A and B, Appendices 1 and 2, Exhibits I - _______ and the following
Rider(s) [Check applicable rider(s)]:
X MUTUAL FUND
-----
X SPECIAL TERMS AND CONDITIONS
-----
There are no other provisions of this Agreement, and this Agreement
supersedes any other agreements, whether written or oral, between the parties.
Any amendment to this Agreement must be in writing, executed by both parties.
(f) Severability. In the event that one or more provisions of this
Agreement are held invalid, illegal or unenforceable in any respect on the basis
of any particular circumstances or in any jurisdiction, the validity, legality
and enforceability of such provision or provisions under other circumstances or
in other jurisdictions and of the remaining provisions will not in any way be
affected or impaired.
(g) Waiver. Except as otherwise provided in this Agreement, no failure
or delay on the part of either party in exercising any power or right under this
Agreement operates as a waiver, nor does any single or partial exercise of any
power or right preclude any other or further exercise, or the exercise of any
other power or right. No waiver by a party of any provision of this Agreement,
or waiver of any breach or default, is effective unless in writing and signed by
the party against whom the waiver is to be enforced.
(h) Notices. All notices under this Agreement shall be effective when
actually received. Any notices or other communications which may be required
under this Agreement are to be sent to the parties at the following addresses or
such other addresses as may subsequently be given to the other party in writing:
<PAGE>
Bank: The Chase Manhattan Bank, N.A.
4 Chase MetroTech Center
Brooklyn, NY 11245
Attention: Global Custody Division
or telex:
----------------------------------------------------
Customer: Delaware Group of Funds
1818 Market St.
Philadelphia, PA 19103
att: Messrs. Bishof and O'Conner
or telex:
----------------------------------------------------
(i) Termination. This Agreement may be terminated by the Customer or
the Bank by giving sixty (60) days written notice to the other, provided that
such notice to the Bank shall specify the names of the persons to whom the Bank
shall deliver the Assets in the Accounts. If notice of termination is given by
the Bank, the Customer shall, within sixty (60) days following receipt of the
notice, deliver to the Bank Instructions specifying the names of the persons to
whom the Bank shall deliver the Assets. In either case the Bank will deliver the
Assets to the persons so specified, after deducting any amounts which the Bank
determines in good faith to be owed to it under Section 13. If within sixty (60)
days following receipt of a notice of termination by the Bank, the Bank does not
receive Instructions from the Customer specifying the names of the persons to
whom the Bank shall deliver the Assets, the Bank, at its election, may deliver
the Assets to a bank or trust company doing business in the State of New York to
be held and disposed of pursuant to the provisions of this Agreement, or to
Authorized Persons, or may continue to hold the Assets until Instructions are
provided to the Bank; provided that, where the Bank is the terminating party and
the Bank had not notified the Customer that termination was for breach of this
Agreement by the Customer, such 60 day period shall be extended for an
additional period as requested by Customer of up to 120 days.
Termination as to One or More Series. This Agreement may be terminated
as to one or more Series (but less than all the Series) by delivery of an
amended Schedule A deleting such Series, in which case termination as to the
deleted Series shall take effect sixty (60) days after the date of such
delivery. The execution and delivery of an amended Schedule A which deletes one
or more Series, shall constitute a termination hereof only with respect to such
deleted Series, shall be governed by the preceding provisions of Section 14 as
to the identification of a successor custodian and the delivery of the Assets of
the Series so deleted to such successor custodian, and shall not affect the
obligations of the Bank and the Customer hereunder with respect to the other
Series set forth in Schedule A, as amended from time to time.
<PAGE>
(j) Several Obligations of the Series. With respect to any obligations
of the Customer on behalf of the Series and their related Accounts arising
hereunder, the Custodian shall look for payment or satisfaction of any such
obligation solely to the assets and property of the Series and such Accounts to
which such obligation relates as though the Customer had separately contracted
with the Custodian by separate written instrument with respect to each Series
and its Accounts.
CUSTOMER
By:
---------------------
Title Vice President and Treasurer
THE CHASE MANHATTAN BANK, N.A.
By:
-----------------------
Title Vice President
STATE OF )
: ss.
COUNTY OF )
On this day of , , before me personally came
, to me known, who being by me duly sworn, did depose and say that he/she
resides in New Providence, NJ at 31 Sagamore Drive; that he/she is Vice
President of THE CHASE MANHATTAN BANK, the entity described in and which
executed the foregoing instrument; that she knows the seal of said entity, that
the seal affixed to said instrument is such seal, that it was so affixed by
order of said entity, and that she signed his/her name thereto by like order.
Sworn to before me this
day of .
- --------------
Notary
STATE OF NEW YORK )
: ss.
COUNTY OF NEW YORK )
<PAGE>
On this day of
,19 , before me personally came , to me
known, who being by me duly sworn, did depose and say that he/she
resides in at
; that he/she is
a Vice President of THE CHASE MANHATTAN BANK, (National Association), the
corporation described in and which executed the foregoing instrument; that
he/she knows the seal of said corporation, that the seal affixed to said
instrument is such corporate seal, that it was so affixed by order of the Board
of Directors of said corporation, and that he/she signed his/her name thereto by
like order.
Sworn to before me this _____________________
day of ________________, 19______.
_______________________________________________
Notary
Schedule A
Delaware Pooled Trust, Inc. - Global Fixed Income Portfolio
Delaware Pooled Trust, Inc. - International Equity Portfolio
Delaware Pooled Trust, Inc. - Labor Select International Equity Portfolio
Delaware Pooled Trust, Inc. - Real Estate Investment Trust Portfolio
Delaware Pooled Trust, Inc. - High Yield Portfolio
Delaware Pooled Trust, Inc. - International Fixed Income Portfolio
Delaware Pooled Trust, Inc. - Defensive Equity Utility Portfolio
Delaware Group Global & International Funds, Inc. - International Equity Fund
Delaware Group Global & International Funds, Inc. - Global Assets Fund
Delaware Group Global & International Funds, Inc. - Global Bond Fund
Delaware Group Global & International Funds, Inc. - Emerging Markets Fund
Delaware Group Premium Fund, Inc. - International Equity Series
Delaware Group Premium Fund, Inc. - Equity Income Series
<PAGE>
Delaware Group Premium Fund, Inc. - High Yield Series
Delaware Group Premium Fund, Inc. - Capital Reserves Series
Delaware Group Premium Fund, Inc. - Money Market Series
Delaware Group Premium Fund, Inc. - Growth Series
Delaware Group Premium Fund, Inc. - Multiple Strategy Series
Delaware Group Premium Fund, Inc. - Value Series
Delaware Group Premium Fund, Inc. - Emerging Growth Series
Delaware Group Premium Fund, Inc. - Global Bond Series
Delaware Group Income Funds, Inc. - Delchester Fund
Delaware Group Income Funds, Inc. - High-Yield Opportunitites Fund
Delaware Group Delaware Fund, Inc. - Delaware Fund
Delaware Group Delaware Fund, Inc. - Devon Fund
Delaware Group Value Fund, Inc.
Delaware Group DelCap Fund, Inc.
Delaware Group Dividend & Income Fund, Inc.
Delaware Group Advisor Funds, Inc. - Enterprise Fund
Delaware Group Advisor Funds, Inc. - U.S. Growth Fund
Delaware Group Advisor Funds, Inc. - World Growth Fund
Delaware Group Advisor Funds, Inc. - New Pacific Fund
Delaware Group Advisor Funds, Inc. - Federal Bond Fund
Delaware Group Advisor Funds, Inc. - Corporate Income Fund
<PAGE>
March, 1996 Schedule B
SUB-CUSTODIANS EMPLOYED BY
THE CHASE MANHATTAN BANK, N.A. LONDON, GLOBAL CUSTODY
<TABLE>
<CAPTION>
COUNTRY SUB-CUSTODIAN CORRESPONDENT BANK
<S> <C> <C>
ARGENTINA The Chase Manhattan Bank, N.A. The Chase Manhattan Bank, N.A.
Arenales 707, 5th Floor Buenos Aires
De Mayo 130/140
1061Buenos Aires
ARGENTINA
AUSTRALIA The Chase Manhattan Bank The Chase Manhattan Bank
Australia Limited Australia Limited
36th Floor Sydney
World Trade Centre
Jamison Street
Sydney
New South Wales 2000
AUSTRALIA
AUSTRIA Creditanstalt - Bankverein Credit Lyonnais
Schottengasse 6 Vienna
A - 1011, Vienna
AUSTRIA
BANGLADESH Standard Chartered Bank Standard Chartered Bank
18-20 Motijheel C.A. Dhaka
Box 536,
Dhaka-1000
BANGLADESH
BELGIUM Generale Bank Credit Lyonnais Bank
3 Montagne Du Parc Brussels
1000 Bruxelles
BELGIUM
BOTSWANA Barclays Bank of Botswana Limited Barclays Bank of Botswana
Barclays House Gaborone
Khama Crescent
Gaborone
BOTSWANA
<PAGE>
BRAZIL Banco Chase Manhattan, S.A. Banco Chase Manhattan S.A.
Chase Manhattan Center Sao Paulo
Rua Verbo Divino, 1400
Sao Paulo, SP 04719-002
BRAZIL
CANADA The Royal Bank of Canada Royal Bank of Canada
Royal Bank Plaza Toronto
Toronto
Ontario M5J 2J5
CANADA
Canada Trust Royal Bank of Canada
Canada Trust Tower Toronto
BCE Place
161 Bay at Front
Toronto
Ontario M5J 2T2
CANADA
CHILE The Chase Manhattan Bank, N.A. The Chase Manhattan Bank, N.A.
Agustinas 1235 Santiago
Casilla 9192
Santiago
CHILE
COLOMBIA Cititrust Colombia S.A. Cititrust Colombia S.A.
Sociedad Fiduciaria Sociedad Fiduciaria
Carrera 9a No 99-02 Santafe de Bogota
Santafe de Bogota, DC
COLOMBIA
CZECH REPUBLIC Ceskoslovenska Obchodni Banka,Na A.S.Komercni Banka, A.S.,
Prikope 14 Praha
115 20 Praha 1
CZECH REPUBLIC
DENMARK Den Danske Bank Den Danske Bank
2 Holmens Kanala DK 1091 Copenhagen
Copenhagen
DENMARK
EGYPT National Bank of Egypt National Bank of Egypt
24 Sherif Street Cairo
Cairo
EGYPT
<PAGE>
EUROBONDS Cedel S.A. ECU:Lloyds Bank PLC
67 Boulevard Grande Duchesse International Banking Division
Charlotte London
LUXEMBOURG
A/c The Chase Manhattan Bank, N.A. For all other currencies: see
London relevant country
A/c No. 17817
EURO CDS First Chicago Clearing Centre ECU:Lloyds Bank PLC
27 Leadenhall Street Banking Division London
London EC3A 1AA For all other currencies: see
UNITED KINGDOM relevant country
FINLAND Merita Bank KOP Merita Bank KOP
Aleksis Kiven 3-5 Helsinki
00500 Helsinki
FINLAND
FRANCE Banque Paribas Societe Generale
Ref 256 Paris
BP 141
3, Rue D'Antin
75078 Paris
Cedex 02
FRANCE
GERMANY Chase Bank A.G. Chase Bank A.G.
Alexanderstrasse 59 Frankfurt
Postfach 90 01 09
60441 Frankfurt/Main
GERMANY
GHANA Barclays Bank of Ghana Barclays Bank
Barclays House Accra
High Street
Accra
GHANA
GREECE Barclays Bank Plc National Bank of Greece S.A.
1 Kolokotroni Street Athens
10562 Athens A/c Chase Manhattan Bank, N.A.,
GREECE London
A/c No. 040/7/921578-68
<PAGE>
HONG KONG The Chase Manhattan Bank, N.A. The Chase Manhattan Bank, N.A.
40/F One Exchange Square Hong Kong
8, Connaught Place
Central, Hong Kong
HONG KONG
HUNGARY Citibank Budapest Rt. Citibank Budapest Rt.
Vaci Utca 19-21 Budapest
1052 Budapest V
HUNGARY
INDIA The Hongkong and Shanghai The Hongkong and Shanghai
Banking Corporation Limited Banking Corporation Limited
52/60 Mahatma Gandhi Road Bombay
Bombay 400 001
INDIA
Deutsche Bank AG, Bombay Branch Deutsche Bank
Securities & Custody Services Bombay
Kodak House
222 D.N. Road, Fort
Bombay 400 001
INDIA
INDONESIA The Hongkong and Shanghai The Chase Manhattan Bank, N.A.
Banking Corporation Limited Jakarta
World Trade Center
J1. Jend Sudirman Kav. 29-31
Jakarta 10023
INDONESIA
IRELAND Bank of Ireland Allied Irish Bank
International Financial Services Centre Dublin
1 Harbourmaster Place
Dublin 1
IRELAND
ISRAEL Bank Leumi Le-Israel B.M. Bank Leumi Le-Israel B.M.
19 Herzl Street Tel Aviv
61000 Tel Aviv
ISRAEL
ITALY The Chase Manhattan Bank, N.A. The Chase Manhattan Bank, N.A.
Piazza Meda 1 Milan
20121 Milan
ITALY
JAPAN The Chase Manhattan Bank, N.A. The Chase Manhattan Bank, N.A.
1-3 Marunouchi 1-Chome Tokyo
Chiyoda-Ku
Tokyo 100
JAPAN
<PAGE>
JORDAN Arab Bank Limited Arab Bank Limited
P O Box 950544-5 Amman
Amman
Shmeisani
JORDAN
KENYA Barclays Bank of Kenya Barclays Bank of Kenya
Third Floor Nairobi
Queensway House
Nairobi
Kenya
LUXEMBOURG Banque Generale du Luxembourg S.A. Banque Generale du Luxembourg S.A.
50 Avenue J.F. Kennedy Luxembourg
L-2951 LUXEMBOURG
MALAYSIA The Chase Manhattan Bank, N.A. The Chase Manhattan Bank, N.A.
Pernas International Kuala Lumpur
Jalan Sultan Ismail
50250, Kuala Lumpur
MALAYSIA
MAURITIUS Hongkong and Shanghai Banking The Hongkong and Shanghai Banking
Corporation Ltd Corporation Ltd.
Curepipe Road Curepipe
Curepipe
MAURITIUS
MEXICO The Chase Manhattan Bank, S.A. No correspondent Bank
(Equities) Montes Urales no. 470, 4th Floor
Col. Lomas de Chapultepec
11000 Mexico D.F.
(Bonds) (Government Banco Nacional de Mexico) No correspondent Bank
Avenida Juarez No. 104 - 11 Piso
06040 Mexico D.F.
MEXICO
MOROCCO Banque Commerciale du Maroc Banque Commerciale du Maroc
2 Boulevard Moulay Youssef Casablanca
Casablanca 20000
MOROCCO
<PAGE>
NETHERLANDS ABN AMRO N.V. Generale Bank
Securities Centre Nederland N.V.
P O Box 3200 Rotterdam
4800 De Breda
NETHERLANDS
NEW ZEALAND National Nominees Limited National Bank of New Zealand
Level 2 BNZ Tower Wellington
125 Queen Street
Auckland
NEW ZEALAND
NORWAY Den Norske Bank Den Norske Bank
Kirkegaten 21 Oslo
Oslo 1
NORWAY
PAKISTAN Citibank N.A. Citibank N.A.
I.I. Chundrigar Road Karachi
AWT Plaza
Karachi
PAKISTAN
Deutsche Bank Deutsche Bank
Unitowers Karachi
I.I. Chundrigar Road
Karachi
PAKISTAN
PERU Citibank, N.A. Citibank N.A.
Camino Real 457 Lima
CC Torre Real - 5th Floor
San Isidro, Lima 27
PERU
PHILIPPINES The Hongkong and Shanghai The Hongkong and Shanghai
Banking Corporation Limited Banking Corporation Limited
Hong Kong Bank Centre 3/F Manila
San Miguel Avenue
Ortigas Commercial Centre
Pasig Metro Manila
PHILIPPINES
POLAND Bank Polska Kasa Opieki S.A. Bank Polska Kasa Opieki S.A.
Curtis Plaza Warsaw
Woloska 18
02-675 Warsaw
POLAND
<PAGE>
For Mutual Funds:
Bank Handlowy W. Warsawie. S.A. Bank Polska Kasa Opieki S.A.
Custody Dept. Warsaw
Capital Markets Centre
Ul, Nowy Swiat 6/12
00-920 Warsaw
POLAND
PORTUGAL Banco Espirito Santo & Banco Nacional Ultra Marino
Comercial de Lisboa Lisbon
Servico de Gestaode Titulos
R. Mouzinho da Silveira, 36 r/c
1200 Lisbon
PORTUGAL
SHANGHAI The Hongkong and Shanghai Citibank
(CHINA) Banking Corporation Limited New York
Shanghai Branch
Corporate Banking Centre
Unit 504, 5/F Shanghai Centre
1376 Nanjing Xi Lu
Shanghai
THE PEOPLE'S REPUBLIC OF CHINA
SHENZHEN The Hongkong and Shanghai The Chase Manhattan Bank, N.A.
(CHINA) Banking Corporation Limited Hong Kong
1st Floor
Central Plaza Hotel
No.1 Chun Feng Lu
Shenzhen
THE PEOPLE'S REPUBLIC OF CHINA
SINGAPORE The Chase Manhattan Bank, N.A. The Chase Manhattan Bank, N.A.
Shell Tower Singapore
50 Raffles Place
Singapore 0104
SINGAPORE
SLOVAK REPUBLIC Ceskoslovenska Obchodni Banka, A.S. Ceskoslovenska Obchodni Banka
Michalska 18 Slovak Republic
815 63 Bratislava
SLOVAK REPUBLIC
SOUTH AFRICA Standard Bank of South Africa Standard Bank of South Africa
Standard Bank Chambers South Africa
46 Marshall Street
Johannesburg 2001
SOUTH AFRICA
<PAGE>
SOUTH KOREA The Hongkong & Shanghai The Hongkong & Shanghai
Banking Corporation Limited Banking Corporation Limited
6/F Kyobo Building Seoul
#1 Chongro, 1-ka Chongro-Ku,
Seoul
SOUTH KOREA
SPAIN The Chase Manhattan Bank, N.A. Banco Bilbao Vizcaya,
Calle Peonias 2 Madrid
7th Floor
La Piovera
28042 Madrid
SPAIN
SRI LANKA The Hongkong & Shanghai The Hongkong & Shangai
Banking Corporation Limited Banking Corporation Limited
Unit #02-02 West Block, Colombo
World Trade Center
Colombo 1,
SRI LANKA
SWEDEN Skandinaviska Enskilda Banken Svenska Handelsbanken
Kungstradgardsgatan 8 Stockholm
Stockholm S-106 40
SWEDEN
SWITZERLAND Union Bank of Switzerland Union Bank of Switzerland
45 Bahnhofstrasse Zurich
8021 Zurich
SWITZERLAND
TAIWAN The Chase Manhattan Bank, N.A. No correspondent Bank
115 Min Sheng East Road - Sec 3,
9th Floor
Taipei
TAIWAN
Republic of China
THAILAND The Chase Manhattan Bank, N.A. The Chase Manhattan Bank, N.A.
Bubhajit Building Bangkok
20 North Sathorn Road
Silom, Bangrak
Bangkok 10500
THAILAND
TUNISIA Banque Internationale Arabe de Tunisie Banque Internationale Arabe de
70-72 Avenue Habib Bourguiba Tunisie, Tunisia
P.O. Box 520
1080 Tunis Cedex
Tunisia
<PAGE>
TURKEY The Chase Manhattan Bank, N.A. The Chase Manhattan Bank, N.A.
Emirhan Cad. No: 145 Istanbul
Atakule, A Blok Kat:11
80700-Dikilitas/Besiktas
Istanbul
Turkey
U.K. The Chase Manhattan Bank, N.A. The Chase Manhattan Bank, N.A.
Woolgate House London
Coleman Street
London EC2P 2HD
UNITED KINGDOM
URUGUAY The First National Bank of Boston The First National Bank of Boston
Zabala 1463 Montevideo
Montevideo
URUGUAY
U.S.A. The Chase Manhattan Bank, N.A. The Chase Manhattan Bank, N.A.
1 Chase Manhattan Plaza New York
New York
NY 10081
U.S.A.
VENEZUELA Citibank N.A. Citibank N.A.
Carmelitas a Altagracia Caracas
Edificio Citibank
Caracas 1010
VENEZUELA
ZAMBIA Barclays Bank of Zambia Barclays Bank of Zambia
Kafue House Lusaka
Cairo Road
P.O.Box 31936
Lusaka
ZAMBIA
ZIMBABWE Barclays Bank of Zimbabwe Barclays Bank of Zimbabwe
Ground Floor Harare
Tanganyika House
Corner of 3rd Street & Union Avenue
Harare
ZIMBABWE
</TABLE>
<PAGE>
SECURITIES LENDING AGREEMENT ("Lending Agreement"), dated as of
, 1996 between ("Lender"), having its
principal place of business at , and The Chase Manhattan
Bank, N.A. ("Chase"), having its principal place of business at One Chase
Manhattan Plaza, New York, New York 10081.
It is hereby agreed as follows:
Section 1 - Definitions
Unless the context clearly requires otherwise, the following words
shall have the meanings set forth below when used herein:
a. "Account" shall mean the securities account established and
maintained by Chase on behalf of Lender pursuant to, as the case may be, a
separate custody agreement or a separate directed trust agreement ("Agreement")
between Chase and Lender, which Agreement provides, inter alia, for the
safekeeping of Securities received by Chase from time to time on behalf of
Lender.
b. "Agreement" shall have the meaning assigned thereto in Section 1(a)
hereof.
c. "Authorized Investment" shall mean any type of instrument, security,
participation or other property in which Cash Collateral may be invested or
reinvested, as described in Section 5(f) hereof and Appendix 4 hereto (and as
such Appendix may be amended from time to time by written agreement of the
parties).
d. "Authorized Person" shall mean, except to the extent that Chase is
advised to the contrary by Proper Instruction, any person who is authorized to
give instructions to Chase pursuant to the Agreement and any mandates given to
Chase in connection with such Agreement. An Authorized Person shall continue to
be so until such time as Chase receives Proper Instructions that nay such person
is no longer an Authorized Person.
e. "Borrower" shall mean an entity listed on Appendix 1 hereto, other
than an entity which Chase shall have been instructed to delete from list
pursuant to Written Instructions and as such Appendix may be amended in
accordance with Section 4(b) hereof.
f. "Business Day" shall have the meaning assigned thereto in the
applicable MSLA.
g. "Buy-in" shall have the meaning assigned thereto in Section 7(c)
hereof.
<PAGE>
h. "Cash Collateral" shall mean fed funds, New York Clearing House
Association funds and such non-U.S. currencies as may be pledged by a Borrower
in connection with a particular Loan.
i. "Collateral" shall have the meaning assigned thereto in the
applicable MSLA, together with Cash Collateral.
j. "Collateral Account" shall mean, as the case may be, an account
maintained by Chase with itself, with any Depository or with any Triparty
Institution and designated as a Collateral Account for the purpose of holding
any one or more of Collateral, Authorized Investments, and Proceeds in
connection with Loans hereunder.
k. "Collateral Amount" shall have the meaning assigned thereto in
Section 5(c) hereof.
l. "Collateral Criterion" shall have the meaning assigned thereto in
Section 5(c) hereof.
m. "Depository" shall mean: (1) the Depository Trust Company, the
Participants' Trust Company and any other securities depository or clearing
agency (and each of their respective successors and nominees) registered with
the U.S. Securities and Exchange Commission or registered with or regulated by
the applicable foreign equivalent thereof or otherwise able to act as a
securities depository or clearing agency, (ii) any transnational depository,
(iii) the Federal Reserve book-entry system for the receiving and delivering of
U.S. Government Securities, and (iv) any other national system for the receiving
and delivering of that country's government securities.
n. "Difference" shall have the meaning assigned thereto in Section 7(c)
hereof.
o. "Distributions" shall have the meaning assigned thereto in Section
3(b)(v) hereof.
p. "Dollars" shall have the meaning assigned thereto in Section 7(b)
hereof.
q. "Due Date" shall have the meaning assigned thereto in Section 7(b)
hereof.
r. "Insolvency Event" shall have the meaning assigned thereto in
Section 7(b) hereof.
s. "Letter of Credit" shall have the meaning assigned thereto in the
applicable MSLA and be issued by a bank listed on Appendix 2 hereto (as such
list may be amended by Chase from time to time on notice to Lender), other than
a bank deleted from such list pursuant to Written Instruction.
<PAGE>
t. "Loan" shall mean a loan of Securities hereunder and under the
applicable MSLA.
u. "Loan Fee" shall mean the amount payable by a Borrower to Chase
pursuant to the applicable MSLA in connection with Loans collateralized other
than by Cash Collateral.
v. "Market Value" shall have the meaning assigned thereto in the
applicable MSLA.
w. "MSLA" shall mean a master securities lending agreement between
Chase and a Borrower, pursuant to which Chase as agent lends securities on
behalf of its customers (including Lender) from time to time. A copy of Chase's
standard form of MSLA, including the international addendum thereto, is annexed
as Appendix 3.
x. "Net Assets" shall have the meaning assigned thereto in Section 8
hereof.
y. "Net Realized Income" shall have the meaning thereto in Section 8
hereof.
z. "Oral Instructions" shall have the meaning assigned thereto in
Section 10 hereof.
aa. "Proceeds" shall mean interest, dividends and other payments and
Distributions received by Chase in connection with Authorized Investments.
bb. "Proper Instructions" shall mean Oral Instructions and Written
Instructions.
cc. "Rebate" shall mean the amount payable by Chase on behalf of Lender
to a Borrower in connection with Loans collateralized by Cash Collateral.
dd. "Return Date" shall have the meaning assigned thereto in Section
7(c) hereof.
ee. "Securities" shall mean government securities (including U.S.
Government Securities), equity securities, bonds, debentures, other corporate
debt securities, notes, mortgages or other obligations, and any certificates,
warrants or other instruments representing rights to receive, purchase, or
subscribe for the same, or evidencing or representing any other rights or
interests therein and held pursuant to the Agreement.
ff. "Term Loan" shall have the meaning assigned thereto in Section 5(i)
hereof.
<PAGE>
gg. "Triparty Institution" shall mean a financial institution with
which Chase shall have previously entered a triparty agreement among itself,
such Triparty Institution and a particular Borrower providing, among other
things, for the holding of Collateral in a Collateral Account at such Triparty
Institution in Chase's name on behalf of Chase's lending customers and for the
substitution of Collateral; provided, however, that any substituted Collateral
shall meet the then standards for acceptable Collateral set by Chase.
hh. "U.S. Government Security" shall mean book-entry securities issued
by the U.S. Treasury defined in Subpart 0 of Treasury Department Circular No.
300 and any successor provisions) and any other securities issued or fully
guaranteed by the United States government or any agency, instrumentality or
establishment of the U.S. government, including, without limitation, securities
commonly known as "Ginnie Maes," Sally Maes," "Fannie Maes" and "Freddie Maes".
ii. "Written Instructions" shall have the meaning assigned thereto in
Section 10 hereof.
Section 2 - Appointment, Authority
(a) Appointment. Lender hereby appoints Chase as its agent to lend
Securities in the Account on Lender's behalf on a fully disclosed basis to
Borrowers from time to time in accordance with the terms hereof and on such
terms and conditions and at such times as Chase shall determine and Chase may
exercise all rights and powers provided under any MSLA as may be incidental
thereto, and Chase hereby accepts appointment as such agent and agrees to so
act.
(b) Authority. Lender hereby authorizes and empowers Chase to execute
in Lender's name on its behalf and at its risk all agreements and documents as
may be necessary to carry out any of the powers herein granted to Chase. Lender
grants Chase the authority set forth herein notwithstanding its awareness that
Chase, in its individual capacity or acting in a fiduciary capacity for other
accounts, may have transactions with the same institutions to which Chase may be
lending Securities hereunder, which transactions may give rise to actual or
potential conflict of interest situations. Chase shall not be bound to: (i)
account to Lender for any sum received or profit made by Chase for its own
account or the account of any other person or (ii) disclose or refuse to
disclose any information or take any other action if the same would or might in
Chase's judgment, made in good faith, constitute a breach of any law or
regulation or be otherwise actionable with respect to Chase; provided that, in
circumstances mentioned in (ii) above, Chase shall promptly inform Lender of the
relevant facts (except where doing so would, or might in Chase's judgment, made
in good faith, constitute a breach of any law or regulation or be otherwise
actionable as aforesaid).
<PAGE>
Section 3 - Representation and Warranties
(a) Representations of each party. Each party hereto represents and
warrants to the other that: (i) it has the power to execute and deliver this
Lending Agreement, to enter into the transactions contemplated hereby, and to
perform its obligations hereunder; (ii) it has taken all necessary action to
authorize such execution, delivery, and performance; (iii) this Lending
Agreement constitutes a legal, valid, and binding obligation enforceable against
it; and (iv) the execution, delivery, and performance by it of this Lending
Agreement shall at all times comply with all applicable laws and regulations.
(b) Representations of Lender. Lender represents and warrants to Chase
that: (i) this Lending Agreement is, and each Loan shall be, legally and validly
entered into, and does not and shall not violate any statute, regulation, rule,
order or judgment binding on Lender, or any provision of Lender's charter or
by-laws, or any agreement binding on Lender or affecting its property, and is
enforceable against Lender in accordance with its terms, except as enforcement
may be limited by bankruptcy, insolvency or similar laws, or by equitable
principles relating to or limiting creditors' rights generally; (ii) the person
executing this Lending Agreement and all Authorized Persons acting on behalf of
Lender has and have been duly and properly authorized to do so; (iii) it is
lending Securities as principal and shall not transfer, assign or encumber its
interest in, or rights with respect to, any Securities available for Loan
hereunder; (iv) it is the beneficial owner of all Securities or otherwise has
the right to lend Securities; and (v) it is entitled to receive all interest,
dividends and other distributions ("Distributions") made by the issuer with
respect thereto. Lender shall promptly identify to Chase by notice, which notice
may be oral, any Securities that are no longer subject to the representations
contained in (b).
Section 4 - Borrowers
(a) MSLA. Lender hereby acknowledges receipt of the form of MSLA and
authorizes Chase to lend Securities in the Account to Borrowers thereunder
pursuant to an agreement substantially in the form thereof.
(b) Borrowers. Securities may be lent to any Borrower selected by Chase
in Chase's sole discretion, in accordance with the terms hereof. In that
connection, Appendix 1 may be amended from time to time by Chase on notice to
Lender.
<PAGE>
Section 5 - Loans
(a) Securities to be lent, Lending opportunities, Loan initiation. All
Securities of Lender held by Chase that are issued, settled or traded in the
markets that have been approved by Chase from time to time for purposes of
Chase's discretionary securities lending program shall be subject to the terms
hereof. Chase shall seek to assure that Lender receives a fair allocation of
lending opportunities vis-a-vis other lenders, taking into account the demand
for and availability of Securities, types of Collateral, eligibility of
Borrowers, limitations on investments of Cash Collateral, tax treatment, and
similar commercial factors. From time to time, Chase may lend to Borrowers
Securities held in the Account (except Securities that are no longer subject to
the representations set forth in Section 3) and shall deliver such Securities
against receipt of Collateral in accordance with the applicable MSLA. Chase
shall have the right to decline to make any Loans to any Borrower and to
discontinue lending to any Borrower in its sole discretion and without notice to
Lender.
(b) Receipt of Collateral, Collateral substitution. For each Loan,
Chase shall receive and hold Letters of Credit received as Collateral and Chase
or a Triparty Institution shall receive and hold all other Collateral required
by the applicable MSLA in a Collateral Account, and Chase is hereby authorized
and directed, without obtaining any further approval from Lender, to invest and
reinvest all or substantially all Cash Collateral. Chase shall credit, or where
applicable shall have a Triparty Institution credit, all Collateral, Authorized
Investments and Proceeds to a Collateral Account and Chase shall not mark its
books and records to identify Lender's interest therein, it being understood,
however, that all monies credited to a Collateral Account may for purposes of
investment be commingled with cash collateral held for other lenders of
securities on whose behalf Chase may act. Chase may, in its sole discretion,
liquidate any Authorized Investment and credit the net proceeds in a Collateral
Account. Chase shall accept substitutions of Collateral in accordance with the
applicable MSLA and shall credit, or where applicable shall have a Triparty
Institution credit, all such substitutions to a Collateral Account.
(c) Mark to market procedures. (i) Chase shall require initial
Collateral for a Loan in an amount determined by applying the then applicable
"Collateral Criterion" (as defined below) to the Market Value of the Security
that is the subject of the Loan. The Collateral Criterion with respect to a
given Security shall be an amount equal to the then applicable percentage
(currently 102% for securities issued in the U.S. and 105% for securities issued
outside of the U.S.) of the Market Value of the Security (plus accrued interest,
if any, with respect to debt securities) which is the subject of a Loan as
determined as of the close of trading on the preceding Business Day. (ii) Each
Business Day Chase shall determine if the Market Value of all Collateral
received by Chase from a given Borrower in connection with all loans to such
Borrower from all lenders is at least equal to the aggregate amount ("Collateral
Amount") determined by applying the applicable Collateral Criterion to each
security on loan to such Borrower from all lenders. (iii) In accordance with
general market practice, the Market Value of certain securities (including,
without limitation, U.S. Government Securities) whether on Loan or received as
Collateral, may be determined on a same day basis by reference to recognized
pricing services.
<PAGE>
(d) Demand for additional Collateral. If the determination made in
Section 5(c)(ii) above demonstrates that the Market Value of all Collateral
received from a given Borrower is not at least equal to the Collateral Amount,
Chase shall demand additional Collateral from such Borrower in accordance with
the applicable MSLA so as to meet the Collateral Amount by making specific
Loans; provided that, Chase may from time to time establish de minimis
guidelines pursuant to which a mark would not be made even where the aggregate
Collateral Amount has not been met.
(e) Changes in procedures applicable to Collateral. The Collateral
procedures set forth in Sections 5(b)-(d) above reflect Chase's current practice
and may be changed by Chase from time to time based on general market conditions
(including volatility of Securities on Loan and of securities Collateral), the
Market Value of Securities on Loan to a given Borrower, and in accordance with
general market practice and regulatory requirements. Chase shall notify Lender
of material revisions to the foregoing procedures.
(f) Investment of Cash Collateral. (i) Chase is hereby authorized to
invest and reinvest cash Collateral in accordance with the investment guidelines
(and the interpretations, procedures and definitions included therewith) annexed
hereto as Appendix 4. (ii) Authorized Investments are made for the account of,
and at the sole risk of, Lender. In that connection, Lender shall pay to Chase
on demand in cash an amount equal to any deficiency in the amount of Collateral
available for return to a Borrower pursuant to an applicable MSLA.
(g) Lender's rights with respect to Securities on Loan; Distribution
and voting rights. (i) An amount equal to the amount of all Distributions paid
with respect to Securities on Loan that Lender would have received had such
Securities not been on Loan shall be credited to Lender's account on the date
such Distributions are delivered by Borrower to Chase. Any non-cash Distribution
on Securities on Loan which is in the nature of a stock split or a stock
dividend, shall be added to the Loan (and shall be considered to constitute
Securities on Loan) as of the date such non-cash Distribution is received by the
Borrower and shall be subject to the provisions of this Lending Agreement;
provided that the Lender may, by giving chase ten (10) Business Days' notice
prior to the date of such non-cash Distribution (or such different amount of
time as Chase may from time to time require on advice to Lender), direct Chase
to request that the Borrower deliver such non-cash Distribution to Chase
pursuant to the applicable MSLA, in which case Chase shall credit such non-cash
Distribution to Lender's account on the date it is delivered to Chase. Without
regard to the reference to "delivered" in the foregoing, the "AutoCredit"
provisions of the Agreement shall apply where a Borrower fails to make a
Distribution payment to Chase, the effect of which would be for Chase to credit
Lender's account with Distributions on the payable date. (ii) During the term of
any Loan, Chase will permit the Securities on Loan to be transferred into the
name of and be voted by the Borrower or others. Lender shall not be entitled to
participate in any dividend reinvestment program or to vote proxies with respect
to Securities that are eligible for Loan (whether or not actually on Loan) as of
the applicable record date for such Securities.
(h) Advances, overdrafts and indebtedness, Security Interest. Chase
may, in its sole discretion, advance funds on behalf of Lender in order to pay
to Borrowers any Rebates or to
<PAGE>
return to Borrowers Cash Collateral to which they are entitled pursuant to the
applicable MSLA. Lender shall repay Chase on demand the amount of any advance or
any other amount owned by Lender hereunder plus accrued interest at a rate per
annum not to exceed the rate customarily charged by Chase for such loans at the
time such loan is made and shall otherwise be on such terms and conditions as
Chase customarily makes such loans available. In order to secure repayment of
any advance or other indebtedness of Lender to Chase arising hereunder, Chase
shall have a continuing lien and security interest in and to all assets now or
hereafter held in the Account and any Collateral Account (to which Lender is
entitled hereunder) and any other property at any time held by it for the
benefit of Lender or in which Lender may have an interest which is then in
Chase's possession or control or in the possession or control of any third party
acting on Chase's behalf. In this regard, Chase shall be entitled to all the
rights and remedies of a pledgee under common law and a secured party under the
New York Uniform Commercial Code and/or any other applicable laws and/or
regulations as then in effect.
(i) Termination of a Loan. (i) Loans shall generally be terminable on
demand. With the prior approval of Lender, however, Loans may be made on the
basis of a reasonably anticipated termination date ("Term Loan") and without
providing for the right of substitution of equivalent Securities. Termination of
a Term Loan prior to its anticipated termination date by either Lender or
Borrower may result in the terminating party having to pay non-terminating party
damages based on the cost of obtaining a replacement loan. (ii) Chase shall
terminate any Loan of Securities to a Borrower as soon as practicable after (a)
receipt by Chase of a notice of termination of the respective MSLA; (b) receipt
by Chase of Written Instructions directing it to terminate a Loan; (c) receipt
by Chase of Written Instructions instructing it to delete from Appendix 2 the
Borrower to whom such Loans was made; (d) receipt by Chase of Written
Instructions advising that the Security subject to a Loan is no longer subject
to the representation contained in Section 3 hereof; (e) receipt by Chase of
notice advising that an Event of Default (as defined in the applicable MSLA) has
occurred and is continuing beyond any applicable grace period; (f) whenever
Chase, in its sole discretion, elects to terminate such Loan other than a Term
Loan; or (g) termination of this Lending Agreement. (iii) If Securities which
are the subject of a Loan being terminated are to be sold by Lender, Written
Instructions shall in no event be given to Chase later than the trade date
established by Lender for such sale or such earlier date of which Chase may
advise Lender from time to time with respect to particular markets. Chase shall
not be liable for any failure of a Borrower to return Securities on Loans in a
time fashion.
(j) Recordkeeping and Reports. Chase shall establish and maintain such
records as are reasonably necessary to account for Loans that are made and the
income derived therefrom. Chase shall provide Lender with a monthly statement
describing the Loans made during the preceding month, and the income derived
from Loans, during the period covered by such statement. A party shall comply
with the reasonable requests of the other party for information necessary to the
requester's performance of its duties hereunder.
Section 6 - Default by Borrower
(1) Chase may assume (unless it has actual knowledge to the contrary)
that any representations made by a Borrower in connection with any Loan are
true, that no event which is
<PAGE>
or may become an Event of Default (as defined in the applicable MSLA) has
occurred and that a Borrower has complied with its obligations under the
applicable MSLA. Subject to Sections 7(b)-(d), Chase shall have no
responsibility for the accuracy or completeness of any information supplied, or
for any breach of any obligation, by any Borrower under or in connection with
any MSLA or Loan. Chase shall not be liable as a result of taking or omitting to
take any action provided that Chase shall have carried out its responsibilities
hereunder in good faith. (ii) If any Borrower with respect to any Loan affected
pursuant hereto and pursuant to the applicable MSLA fails to return any loaned
Securities when due thereunder for reasons other than relating to the solvency
of the Borrower, Chase shall then take whatever action its deems appropriate in
accordance with general market practice and Chase's reasonable judgment,
including, but no necessarily limited to, claiming compensation from such
Borrower on behalf of Lender in the event a trade executed by Lender fails on
account of such Borrower's failure timely to have returned Securities on Loan
or, where Chase deems it necessary, such other action as may be permitted by the
applicable MSLA, including collecting any applicable MSLA fails to return any
Securities on Loan when due thereunder for reasons relating to the solvency of
the Borrower, Chase shall take such action as its deems appropriate in
accordance with Chase's reasonable judgment under the applicable MSLA.
Section 7 - Standard of Care, Liabilities, Indemnification
(a) Standard of care, Liabilities. Except as provided in paragraphs (b)
and (c) hereof, Chase shall be liable for any costs, expenses, damages,
liabilities or claims (including attorneys' and accountants' fees) incurred by
Lender, except those costs, expenses, damages, liabilities and claims arising
out of the negligence, bad faith or willful misconduct of Chase. Chase shall
have no obligation hereunder for: (i) costs, expenses, damages, liabilities or
claims (including attorneys' and accountants' fees), which are sustained or
incurred by Lender by reason of any action or inaction by any pricing service,
any Depository or a Triparty Institution or their respective successors or
nominees; and (ii) any failure to perform any obligation due to any matters
beyond the control of Chase. In no event shall Chase be liable for indirect or
consequential damages or lost profits or loss of business, arising hereunder or
in connection herewith, even if previously informed of the possibility of such
damages and regardless of the form of action.
Except for any costs or expenses incurred by Chase in performing its
obligations pursuant to paragraphs (b) and (c) hereof any ordinary operating
expenses incurred by Chase in providing services hereunder, Lender shall
indemnify Chase and hold it harmless from and against any and all costs,
expenses, damages, liabilities or claims, including reasonable fees and expenses
of counsel, which Chase may sustain or incur or which may be asserted against
Chase by reason of or as a result of any action taken or omitted by Chase in
connection with operating under this Lending Agreement or enforcing Lender's
rights under the applicable MSLA, other than those costs, expenses, damages,
liabilities or claims arising out of the negligence, bad faith or willful
misconduct of Chase. The foregoing indemnity shall be a continuing obligation of
the Lender, its successors and assigns, notwithstanding the termination of any
Loans hereunder or of this Lending Agreement. Chase may charge any amounts to
which it is entitled hereunder against the Account, and Lender shall be entitled
to an accounting of all amounts so charged. Actions taken or omitted in reliance
upon Proper Instructions, or upon any information, order, indenture, stock
<PAGE>
certificate, power of attorney, assignment, affidavit or other instrument
reasonably believed by Chase, in good faith, to be genuine or bearing the
signature of a person or persons believed, in good faith, to be authorized to
sign, countersign or execute the same, shall be conclusively presumed to have
been taken or omitted in good faith.
(b) Indemnification of Lender in respect to Distributions. If the
Borrower in respect of any Loan effected pursuant hereto and pursuant to the
applicable MSLA fails, as a result of its bankruptcy, insolvency,
reorganization, liquidation, receivership or similar event (each an "Insolvency
Event"), to remit to Chase for Lender's account any Distributions on or with
respect to Securities on Loan when due (the "Due Date") in accordance with such
MSLA and such Due Date occurs at least one day prior to an Insolvency Event then
Chase shall at its expense (subject to paragraph (d) hereof) and within one (1)
Business Day of the Due Date, undertake the following: (i) with respect to
Distributions in the form of cash, Chase shall credit Lender's account with the
full amount of such Distributions and (ii) with respect to Distributions in the
form of securities, Chase shall, at its option, either purchase replacement
securities (of an equal amount of the same issue, class, type or series as the
Distributions) on the principal market in which such securities are traded or
credit Lender's account with the market value in United States dollars
("Dollars") of such Distributions on the Due Date as determined by Chase in good
faith. Market value shall be determined by Chase in accordance with the
applicable MSLA, including the computation of Dollar equivalents where
Securities on Loan and/or Collateral (and Proceeds) are denominated in a
currency other than Dollars.
(c) Indemnification of Lender in respect of Securities. If the Borrower
in respect of any Loan effected pursuant hereto and pursuant to the applicable
MSLA fails to return any Securities on Loan to Chase for Lender's account when
due thereunder (the "Return Date") which is the date of default, then Chase
shall, at its expense (subject to paragraph (d) hereof) and within one (1)
Business Day of the Return Date, credit Lender's account in Dollars with the
difference ("Difference") (where a positive number), if any, between (x) the
market value of such lent Securities on the Return Date (including, in the case
of debt Securities, accrued but unpaid interest), and (y) in the case of Loans
collateralized by (i) Cash Collateral, the greater of (A) the Market Value of
the Cash Collateral on the date of initial pledge as adjusted for any subsequent
marks-to-market through the Return Date and (B) the Market Value of Cash
Collateral investments on the Return Date, (ii) non-Cash Collateral comprising
securities Collateral, the greater of the Market Value of such Collateral on the
(A) Business Day immediately preceding the Return Date and (B) Return Date, or
(iii) non-Cash Collateral comprising Letter of Credit Collateral, the Market
Value of the Letter of Credit Collateral on the date of initial pledge as
adjusted for any subsequent marks-to-market through the Return Date. Market
Value shall be determined by Chase in accordance with the applicable MSLA,
including the computation of Dollar equivalents where Securities on Loan and/or
Collateral (and Proceeds) are denominated in a currency other than Dollars.
Where Cash Collateral and non-Cash Collateral have each been allocated to a Loan
as of the Return Date, the Difference payable by Chase shall be computed in
accordance with the foregoing as if there had been two Loans in effect on the
Return Date, one collateralized by Cash Collateral and the other collateralized
by non-Cash Collateral. In lieu of paying Lender the Difference, Chase may, at
its sole option and expense, purchase for Lender's
<PAGE>
account ("Buy-in") replacement securities of the same issue, type, class, and
series as that of the Securities on Loan.
(d) Subrogation. If Chase makes a payment or a purchase pursuant to
Section 7(b) or effects a Buy-in pursuant to Section 7(c), or if Chase effects a
Difference payment pursuant to Section 7(c) on account of a failure to return
Securities on Loan not arising from an Insolvency Event, Chase shall, to the
extent of such payment, purchase, Difference payment or Buy-in, be subrogated
to, and Lender shall assign and be deemed to have assigned to Chase, all of its
rights in, to and against the Borrower (and any guarantor thereof) in respect of
such Loan, any Collateral pledged by the Borrower in respect of such Loan, and
all proceeds of such Collateral. In the event that Lender receives or is
credited with any payment, benefit or value from or on behalf of the Borrower in
respect of rights to which Chase is subrogated as provided herein, Lender shall
promptly remit or pay to Chase the same (or its Dollar equivalent) but only to
the extent that Lender has been paid all amounts owed to it by Borrower.
Section 8 - Chase Compensation
(a) In connection with each Loan hereunder, Lender shall pay to Chase a
fee equal to ___% of (i) earnings (less any Rebate paid by Chase to a Borrower)
derived from Authorized Investments in connection with Loans collateralized by
cash, and (ii) any Securities Loan Fee paid or payable by the Borrower on Loans
not collateralized by cash. (b) The fee payable to Chase for services performed
pursuant to Section 5(f) hereof shall be equal to one tenth of the one percent
(0.1%) of the Fund's average daily Assets (with "Fund" being as defined in
Appendix 4 hereto). All securities in the Fund shall be valued based on their
amortized cost. Fees shall be accrued and charged daily against the Fund's yield
or assets, as appropriate, and shall be payable monthly in arrears on the first
business day of the month following the month in which earned. (c) Chase is
authorized, on a monthly basis, to charge all the foregoing fees (together with
reasonable expenses incurred by Chase hereunder) and any other amounts owed by
Lender hereunder against the Account and/or a Collateral Account.
Section 9 - Taxes
Lender shall be responsible for all filings, tax returns and reports on
any Loans undertaken by Chase on Lender's behalf which are to be made to any
authority whether governmental or otherwise and for the payment of all unpaid
calls, taxes (including, without limitations, any value added tax), imposts,
levies or duties due on any principal or interest, or any other liability or
payments arising out of or in connection with any Securities or any Collateral,
and in so far as Chase is under obligation (whether of a governmental nature or
otherwise) to pay the same on Lender's behalf Chase may do so out of any monies
or assets held by it pursuant to the terms of the Agreement or hereunder.
Section 10 - Instructions
(a)(i) Written Instructions. "Written Instructions" shall mean written
communications actually received by Chase from an Authorized Person or from a
person reasonably believed by
<PAGE>
Chase to be an Authorized Person by letter, memorandum, telegram, cable, telex,
telecopy facsimile, computer, video (CRT) terminal or other on-line system, or
any other method reasonably acceptable to Chase and whereby Chase is able to
verify with a reasonable degree of certainty the identity of the sender of such
communications or with communications are transmitted with proper testing or
authentication pursuant to terms and conditions which Chase may specify. (ii)
Oral Instructions. "Oral Instructions" shall mean oral communications actually
received by Chase from an Authorized Person or from a person reasonably believed
by Chase to be an Authorized Person. Oral Instructions shall promptly thereafter
be confirmed in writing by an Authorized Person (which confirmation may bear the
facsimile signature of such Person), but Lender will hold Chase harmless for the
failure of an Authorized Person to send such confirmation in writing, the
failure of such confirmation to conform to the Oral Instructions received, or
Chase's failure to produce such confirmation at any subsequent time. Lender
shall be responsible for safeguarding any testkeys, identification codes or
other security devices which Chase may make available to Lender or its
Authorized Persons.
(b) Unless otherwise expressly provided, all Proper Instructions shall
continue in full force and effect until canceled or superseded.
Section 11 - Pricing Services
Chase may use any pricing service referred to in an applicable MSLA and
any other recognized pricing service (including itself and any of its
affiliates) in order to perform its valuation responsibilities with respect to
Securities, Collateral and Authorized Investments, and Lender shall hold Chase
harmless from and against any loss or damage suffered or incurred as a result of
errors or omissions of any such pricing service.
Section 12 - Termination
This Lending Agreement may be terminated at any time by either party
upon delivery to the other party of notice specifying the date of such
termination, which shall be not less than 30 days after the date of receipt of
such notice. Notwithstanding any such notice, this Lending Agreement shall
continue in full force and effect with respect to all Loans outstanding on the
termination date, which Loans shall, however, be terminated as soon as
reasonably practicable.
Section 13 - Miscellaneous
(a) Legal proceedings. Chase may refrain from bringing any legal action
or proceeding arising out of or in connection with any Loan until it shall have
received such security as it may require for all costs, expenses (including
legal fees) and liabilities which it will or may expend or incur in relation
thereto.
(b) Integration, Lending Agreement to Govern. This Lending Agreement
and the Agreement contain the complete agreement of the parties with respect to
the subject matter hereof and supersede and replace any previously made
proposals, representations, warranties or
<PAGE>
agreements with respect thereto by the parties. In the event of any conflict
between this Lending Agreement, and the Agreement, this Lending Agreement shall
govern.
(c) Notice. Unless expressly provided herein to the contrary, notices
hereunder shall be in writing, and delivered by telecopier, overnight express
mail, first-class postage prepaid, delivered personally or by receipt courier
service. All such notices which are mailed shall be deemed delivered upon
receipt. Notices shall be addresses as follows (or to such other address as a
party may from time to time designate on notice duly given in accordance with
this paragraph): notices to Chase shall be addressed to it at 2 Chase Manhattan
Plaza, 19th Floor, New York, New York 10081, Attention: Securities Lending
Division; notices to be given to Lender shall be addressed
to it at its offices at Attention: .
(d) Amendments, Waiver. This Lending Agreement may be modified only by
a written amendment signed by both parties, and no waiver of any provisions
hereof shall be effective unless expressed in a writing signed by the party to
be charged.
(e) Government Law, Consent to Jurisdiction, Waiver of Immunity. This
Lending Agreement shall be construed in accordance with laws of the State of New
York, without regard to the conflict of laws principles thereof. Chase and
Lender each hereby consents to the jurisdiction of a state or federal court
situated in New York City, New York in connection with any dispute arising
hereunder and Lender hereby waives any claim of forum non conveniens to the
extent that it may lawfully do so. To the extent that in any jurisdiction Lender
may now or hereafter be entitled to claim, for itself or its assets, immunity
from suit, execution, attachment (before or after judgment) or other legal
process, Lender irrevocably shall not claim, and it hereby waives, such
immunity.
<PAGE>
(f) Counterparts, Headings. This Lending Agreement may be executed in
several counterparts, each one of which shall constitute an original, and all
collectively shall constitute but one instrument. The headings of the sections
hereof are included for convenience of reference only and do not form part of
this Lending Agreement.
(g) Severability. Any provisions of this Lending Agreement which may be
determined by competent authority to be prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition, or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceably in any jurisdiction
shall not invalidate or render unenforceable such provisions in any other
jurisdiction.
IN WITNESS WHEREOF, the parties have executed this Lending Agreement as
of the date first above-written.
[Insert name of LENDER] THE CHASE MANHATTAN BANK, N.A.
By: By:
Title: Title:
<PAGE>
PROPOSED AGREEMENT
SUBJECT TO BOARD APPROVAL
[Name of Investment Company]
[Names of Portfolio(s)]
SHAREHOLDERS SERVICES AGREEMENT
THIS AGREEMENT, made as of the ____ day of _________, 199_ by and
between [Name of Investment Company] ("Fund"), a Maryland corporation, for the
[Names of Portfolio(s)] series (together, the "Series"), and DELAWARE SERVICE
COMPANY, INC. ("DSC"), a Delaware corporation.
W I T N E S S E T H:
WHEREAS, the Investment Management Agreements between the Fund on
behalf of the Series and Delaware Management Company, Inc. provide that the Fund
shall conduct its own business affairs and shall bear the expenses and salaries
necessary and incidental thereto including, but not in limitation of the
foregoing, the costs incurred in: the maintenance of its corporate existence;
the maintenance of its own books, records and procedures; dealing with its own
shareholders; the payment of dividends; transfers of stock, including issuance,
redemption and repurchase of shares; preparation of share certificates; reports
and notices to stockholders; calling and holding of stockholders' meetings;
miscellaneous office expenses; brokerage commissions; custodian fees; legal and
accounting fees; taxes; and federal and state registration fees; and
<PAGE>
WHEREAS, the FUND and DSC desire to have a written agreement concerning
the performance of the foregoing services and providing compensation therefor;
and
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
set forth, and intending legally to be bound, it is agreed:
I. APPOINTMENT AS AGENT
1.1 The Fund hereby appoints DSC Shareholder Services Agent for the
Series to provide as agent for the Fund services as Transfer Agent, Dividend
Disbursing Agent and Shareholder Servicing Agent and DSC hereby accepts such
appointment and agrees to provide the Fund, as its agent, the services described
herein.
1.2 The Fund shall pay DSC and DSC shall accept, for the services
provided hereunder, the compensation provided for in Section VIII hereof. The
Fund also shall reimburse DSC for expenses incurred or advanced by it for the
Fund in connection with its services hereunder.
-2-
<PAGE>
II. DOCUMENTATION
2.1 The Fund represents that it has provided or made available to DSC
(or has given DSC an opportunity to examine) copies of, and DSC represents that
it has received from the Fund (or is otherwise familiar with), the following
documents:
(a) The Articles of Incorporation or other documents
evidencing the Fund's form of organization and any current amendments or
supplements thereto;
(b) The By-Laws of the Fund;
(c) Any resolution or other action of the Fund or the Board of
Directors of the Fund establishing or affecting the rights, privileges or other
status of each class or series of shares of the Fund, including those relating
to the Series, or altering or abolishing such class or series;
(d) A certified copy of a resolution of the Board of Directors
of the Fund appointing DSC as Shareholder Services Agent for the Series and
authorizing the execution of this Agreement;
(e) The forms of share certificates for the Series in the form
approved by the Board of Directors of the Fund;
(f) A copy of the Fund's currently effective Prospectuses and
Statement of Additional Information under the Securities Act of 1933, if
effective;
(g) Copies of all account application forms and other
documents relating to stockholder accounts in the Series;
(h) Copies of documents relating to Plans of the Fund for the
purchase, sale or repurchase of its shares, including
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periodic payment or withdrawal plans, reinvestment plans or retirement plans, if
any;
(i) Any opinion of counsel to the Fund relating to the
authorization and validity of the shares of the Series issued or proposed to be
issued under the law of the State of the Fund's organization, including the
status thereof under any applicable securities laws;
(j) A certified copy of any resolution of the Board of
Directors of the Fund authorizing any person to give instructions to DSC under
this Agreement (with a specimen signature of such person if not already
provided), setting forth the scope of such authority; and
(k) Any amendment, revocation or other documents altering,
adding, qualifying or repealing any document or authority called for under this
Section 2.1.
2.2 The Fund and DSC may consult as to forms or documents that may be
required in performing services hereunder.
2.3 The Fund shall provide or make available to DSC a certified copy of
any resolution of the stockholders or the Board of Directors of the Fund
providing for a dividend, capital gains distribution, distribution of capital,
stock dividend, stock split or other similar action affecting the authorization
or issuance of shares of the Series or the payment of dividends.
2.4 In the case of any recapitalization or other capital adjustment
requiring a change in the form of stock certificates or
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the books recording the same, the Fund shall deliver or make available to DSC:
(a) A certified copy of any document authorizing or effecting
such change;
(b) Written instructions from an authorized officer
implementing such change; and
(c) An opinion of counsel to the Fund as to the validity of
such action, if requested by DSC.
2.5 The Fund warrants the following:
(a) The Fund is, or will be, a properly registered investment
company under the Investment Company Act of 1940 and any and all Series shares
which it issues will be properly registered and lawfully issued under applicable
federal and state laws.
(b) The provisions of this Agreement do not violate the terms
of any instrument by which the Fund is bound; nor do they violate any law or
regulation of any body having jurisdiction over the Fund or its property.
2.6 DSC warrants the following:
(a) DSC is and will be properly registered as a transfer agent
under the Securities Exchange Act of 1934 and is duly authorized to serve, and
may lawfully serve as such.
(b) The provisions of this Agreement do not violate the terms
of any instrument by which DSC is bound; nor do they violate any law or
regulation of any body having jurisdiction over DSC or its property.
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III. STOCK CERTIFICATES
3.1 The Fund shall furnish or authorize DSC to obtain, at the Fund's
expense, a sufficient supply of blank stock certificates for the Series, and
from time to time will replenish such supply upon the request of DSC. The Fund
agrees to indemnify and exonerate, save and hold DSC harmless, from and against
any and claims or demands that may be asserted against DSC concerning the
genuineness of any stock certificate supplied to DSC pursuant to this Section.
3.2 DSC shall safeguard, and shall account to the Fund, upon its demand
for, all such stock certificates: (a) as issued, showing to whom issued, or (b)
as unissued, establishing the safekeeping, cancellation or destruction thereof.
3.3 The Fund shall promptly inform DSC in writing of any change in the
officers authorized to sign stock certificates or in the form thereof. If an
officer whose manual or facsimile signature is affixed to any blank share
certificate shall die, resign or be removed prior to the issuance of such
certificate, DSC may nevertheless issue such certificate notwithstanding such
death, resignation or removal, and the Fund shall with respect thereto promptly
provide to DSC any approval, adoption or ratification as may be required by DSC.
IV. TRANSFER AGENT
4.1 As Transfer Agent for the Fund, DSC shall issue, redeem and
transfer shares of the Series, and, in connection therewith but not in
limitation thereof, it shall:
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(a) Upon receipt of authority to issue shares, determine the
total shares to be issued and issue such shares by crediting shares to accounts
created and maintained in the registration forms provided; as applicable,
prepare, issue and deliver stock certificates.
(b) Upon proper transfer authorization, transfer shares by
debiting transferor-stockholder accounts and crediting such shares to accounts
created and/or maintained for transferee- stockholders; if applicable, issue
and/or cancel stock certificates.
(c) Upon proper redemption authorization, determine the total
shares redeemed and to be redeemed; determine the total redemption payments made
and to be made; redeem shares by debiting stockholder accounts; as applicable,
receive and cancel stock certificates for shares redeemed; and remit or cause to
be remitted the redemption proceeds to stockholders.
(d) Create and maintain accounts; reconcile and control cash
due and paid, shares issued and to be issued, cash remitted and to be remitted
and shares debited and credited to accounts; provide such notices, instructions
or authorizations as the Fund may require.
4.2 DSC shall not be required to issue, transfer or redeem Series
shares upon receipt of DSC from the Fund, or from any federal or state
regulatory agency or authority, written notice that the issuance, transfer or
redemption of Series shares has been suspended or discontinued.
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V. DIVIDEND DISBURSING AGENT
5.1 As Dividend Disbursing Agent for the Fund, DSC shall disburse and
cause to be disbursed to stockholders of each Series dividends, capital gains
distributions or any payments from other sources as directed by the Fund. In
connection therewith, but not in limitation thereof, DSC shall:
(a) Calculate the total disbursement due and payable and the
disbursement to each stockholder as to shares owned, in accordance with the
Fund's authorization.
(b) Calculate the total disbursements for each stockholder, as
aforesaid, to be disbursed in cash; prepare and mail checks therefor.
(c) Calculate the total disbursement for each stockholder of
each Series, as aforesaid, for which shares are to be issued and authorized and
instruct the issuance of such shares in accordance with Section IV hereof.
(d) Prepare and mail or deliver such forms and notices
pertaining to disbursements as required by federal or state authority.
(e) Create and maintain records, reconcile and control
disbursements to be made and made, both as to cash and shares, as aforesaid;
provide such notices, instruction or authorization as the Fund may require.
5.2 DSC shall not be required to make any disbursement upon the receipt
of DSC from the Fund, or from any federal or state
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agency or authority, written notice that such disbursement shall not be made.
VI. SHAREHOLDER SERVICING AGENT
6.1 As Shareholder Servicing Agent for the Fund, DSC shall provide
those services ancillary to but in implementation of the services provided under
Sections I through V hereof, and those generally defined and accepted as
shareholder services. In connection therewith, but not in limitation thereof,
DSC shall:
(a) Except where instructed in writing by the Fund not to do
so, and where in compliance with applicable law, accept orders on behalf of the
Fund; receive and process investments and applications; remit to the Fund or its
custodian payments for shares acquired and to be issued; and direct the issuance
of shares in accordance with Section IV hereof.
(b) Receive, record and respond to communications of
stockholders and their agents.
(c) As instructed by the Fund, prepare and mail stockholder
account information, mail Series stockholder reports and Series prospectuses.
(d) Prepare and mail proxies and material for Fund stockholder
meetings, receive and process proxies from stockholders, and deliver such
proxies as directed by the Fund.
(e) Administer investment plans offered by the Fund to
investors and stockholders of each Series, including retirement plans, including
activities not otherwise provided in Sections I through V of this Agreement
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<PAGE>
VII. PERFORMANCE OF DUTIES
7.1 The parties hereto intend that Series stockholders and their
stockholdings shall be confidential, and any information relating thereto shall
be released by DSC only to those persons or authorities who DSC has reason to
believe are authorized to receive such information; or, as instructed by the
Fund.
7.2 DSC may, in performing this Agreement, require the Fund or the
Fund's distributor to provide it with an adequate number of copies of
prospectuses, reports or other documents required to be furnished to investors
or stockholders.
7.3 DSC may request or receive instructions from the Fund and may, at
the Fund's expense, consult with counsel for the Fund or its own counsel with
respect to any matter arising in connection with the performance of its duties
hereunder, and shall not be liable for any action taken or omitted by it in good
faith in accordance with such instructions or opinions of counsel.
7.4 DSC shall maintain reasonable insurance coverage for errors and
omissions and reasonable bond coverage for fraud.
7.5 Upon notice thereof to the Fund, DSC may employ others to provide
services to DSC in its performance of this Agreement.
7.6 Personnel and facilities of DSC used to perform services hereunder
may be used to perform similar services to other funds of the Delaware Group and
to others, and may be used to perform other services for the Fund, the other
funds of the Delaware Group and others.
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7.7 DSC shall provide its services as transfer agent hereunder in
accordance with Section 17 of the Securities Exchange Act of 1934, and the rules
and regulations thereunder. Further, the parties intend that the processes,
procedures, safeguard and controls employed should be those generally applied
and accepted for the type services provided hereunder by other institutions
providing the same or similar services, and, those which should provide
efficient, safe and economical services so as to promote promptness and accuracy
and to maintain the integrity of the Fund's records.
7.8 The Fund and DSC may, from time to time, set forth in writing
Guidelines For Selective Procedures to be applicable to the services hereunder.
VIII. COMPENSATION
8.1 The Fund and DSC acknowledge that because DSC has common ownership
and close management ties with the Fund's investment advisor and the Fund's
distributor and serves the other funds of the Delaware Group (DSC having been
originally established to provide the services hereunder for the funds of the
Delaware Group), advantages and benefits to the Fund in the employment of DSC
hereunder can be available which may not generally be available to it from
others providing similar services.
8.2 The Fund and DSC further acknowledge that the compensation by the
Fund to DSC is intended to induce DSC to provide services under this Agreement
of a nature and quality which the Board of Directors of the Fund, including a
majority who are
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<PAGE>
not parties to this Agreement or interested persons of the parties hereto, has
determined after due consideration to be necessary for the conduct of the
business of the Fund, in the best interests of the Fund, the Series and their
stockholders.
8.3 Compensation by the Fund to DSC hereunder shall be determined in
accordance with Schedule A hereto as it shall be amended from time to time as
provided for herein and which is incorporated herein as a part hereof.
8.4 Compensation as provided in Schedule A shall be reviewed and
approved in the manner set forth in Section 10.1 hereof by the Board of
Directors of the Fund at least annually and may be reviewed and approved more
frequently at the request of either party. The Board may request, and DSC shall
provide, such information as the Board may reasonably require to evaluate the
basis of and approve the compensation.
IX. STANDARD OF CARE
9.1 The Fund acknowledges that DSC shall not be liable for, and in the
absence of willful misfeasance, bad faith, gross negligence or reckless
disregard of the performance of its duties under this Agreement, agrees to
indemnify DSC against, any claim or deficiency arising from the performance of
DSC's duties hereunder, including DSC's costs, counsel fees and expenses
incurred in investigating or defending any such claim or any administrative or
other proceeding, and acknowledges that any risk of loss or damage arising from
the conduct of the Fund's affairs in accordance
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herewith or in accordance with Guidelines or instructions given hereunder, shall
be borne by the Fund.
X. CONTRACTUAL STATUS
10.1 This Agreement shall be executed and become effective on the date
first written above if approved by a vote of the Board of Directors of the Fund,
including an affirmative vote of a majority of the non-interested members of the
Board, cast in person at a meeting called for the purpose of voting on such
approval. It shall continue in effect for an indeterminate period, and is
subject to termination on sixty (60) days notice by either party unless earlier
terminated or amended by agreement among the parties. Compensation under this
Agreement shall require approval by a majority vote of the Board of Directors of
the Fund, including an affirmative vote of the majority of the non-interested
members of the Board cast in person at a meeting called for the purpose of
voting on such approval.
10.2 This Agreement may not be assigned without the approval of the
Fund.
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<PAGE>
10.3 This Agreement shall be governed by the laws of the Commonwealth
of Pennsylvania.
DELAWARE SERVICE COMPANY, INC.
Attest: By:
------------------- --------------------------
Name: Name:
Title: Title:
[Name of Investment Company]
for the [Name(s) of Portfolio(s)]
series
Attest: By:
------------------- --------------------------
Name: Name:
Title: Title:
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<PAGE>
SCHEDULE A
[Name of Investment Company]
SHAREHOLDERS SERVICES AGREEMENT
COMPENSATION SCHEDULE
1. Delaware Service Company, Inc. ("DSC") will determine and
report to the Fund, at least annually, the compensation
for services to be provided to the Fund for DSC's
forthcoming fiscal year or period.
2. In determining such compensation, DSC will fix and report a
fee to be charged per account and/or transaction, as may be
applicable, for services provided. DSC will bill, and the Fund
will pay, such compensation monthly.
3. For the period commencing on _________ __, 199_, the charge
will consist of two charges, an annual charge and a per
transaction charge for each account on DSC's records and each
account on an automated retirement processing system. These
charges are as follows:
A. ANNUAL CHARGE
Daily Dividend Funds $11.00 Per Annum
Non-Daily Dividend Funds $ 5.50 Per Annum
Merrill Lynch - Omnibus Accounts:
Regular Accounts $11.00 Per Annum
Accounts with a Contingent
Deferred Sales Charge $14.00 Per Annum
Networked Accounts $3.00-$6.00 Per Annum
<PAGE>
SCHEDULE A
[Name of Investment Company]
SHAREHOLDERS SERVICES AGREEMENT
COMPENSATION SCHEDULE
PAGE 2
B. TRANSACTION CHARGE
Transaction Charge
1. Dividend Payment $ 0.25
2. New Account $ 6.00
3. Purchase:
a. Wire $ 8.00
b. Automated $ 1.50
c. Other $ 2.60
4. Transfer $ 8.00
5. Certificate Issuance $ 4.00
6. Liquidations
a. Wires $12.25
b. Drafts $ 0.75
c. Money Market Regular $ 4.50
d. Other Regular $ 4.50
7. Exchanges
a. Dividend Exchanges $ 3.00
b. Other $10.00
<PAGE>
DELAWARE GROUP OF FUNDS
FUND ACCOUNTING AGREEMENT
THIS AGREEMENT, made as of this 19th day of August, 1996 by and between
the registered investment companies in the Delaware Group listed on Schedule A,
which Schedule may be amended from time to time as provided in Section 8 hereof
(each corporation or common law or business trust, hereinafter referred to as a
"Company," and all such entities collectively hereinafter referred to as, the
"Companies"), on behalf of the portfolio(s) of securities of such Companies
listed on Schedule A, which Schedule may be amended from time to time (when used
in this Agreement in the context of a Company that offers only a single
portfolio/series of shares, the term "Portfolio" shall be a reference to such
Company, and when used in the context of a Company that offers multiple
portfolios/series of shares, shall be a reference to each portfolio/series of
such Company) and DELAWARE SERVICE COMPANY, INC. ("DSC"), a Delaware
corporation, having its principal office and place of business at 1818 Market
Street, Philadelphia, Pennsylvania 19103.
W I T N E S S E T H:
WHEREAS, the Investment Management Agreements between the Companies
with respect to each Portfolio and either Delaware Management Company, Inc. or
its U.K. affiliate, Delaware
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International Advisers Ltd., provide, in part, that each Portfolio shall conduct
its business and affairs and shall bear the expenses necessary and incidental
thereto including, but not in limitation of the foregoing, the costs incurred
with respect to accounting services; and
WHEREAS, the services to be provided under this agreement
previously were provided by employees of the Companies; and
WHEREAS, the Companies and DSC desire to have a written agreement
concerning the performance of accounting services for each Portfolio and
providing compensation therefor;
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
set forth, and intending legally to be bound, it is agreed:
I. APPOINTMENT AS AGENT
Section 1.1 The Companies hereby appoint DSC the accounting
agent ("Accounting Agent") for all of the classes of each Portfolio, to provide
such accounting services as are set forth herein and DSC hereby accepts such
appointment and agrees to provide the Companies, as their agent, the services
described herein.
Section 1.2 The Companies shall pay DSC and DSC shall accept,
for the services provided hereunder, the compensation provided for in Section VI
hereof. The Companies
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also shall reimburse DSC for expenses incurred or advanced by it for the
Companies in connection with its services hereunder.
II. DOCUMENTATION
Section 2.1 Each Company represents that it has provided or
made available to DSC (or has given DSC an opportunity to examine) copies of,
and, DSC represents that it has received from the Companies (or is otherwise
familiar with), the following documents:
A. The Articles of Incorporation or
Agreement and Declaration of Trust or other document, as relevant, evidencing
each Company's form of organization and any current amendments thereto;
B. The By-Laws or Procedural
Guidelines of each Company;
C. Any resolution or other action of
each Company or the Board of Directors or Trustees of each Company establishing
or affecting the rights, privileges or other status of any class of shares of a
Portfolio, or altering or abolishing any such class;
D. A certified copy of a resolution of
the Board of Directors or Trustees of each Company appointing DSC as Accounting
Agent for each Portfolio and authorizing the execution of this Agreement or an
amendment to Schedule A of this Agreement;
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E. A copy of each Company's currently
effective prospectus[es] and Statement[s] of Additional
Information under the Securities Act of 1933, if effective;
F. A certified copy of any resolution
of the Board of Directors or Trustees of each Company authorizing any person to
give instructions to DSC under this Agreement (with a specimen signature of such
person if not already provided), setting forth the scope of such authority; and
G. Any amendment, revocation or other
document altering, adding, qualifying or repealing any document or authority
called for under this Section 2.1.
Section 2.2 Each Company and DSC may consult as to forms or
documents that may be required in performing services hereunder.
Section 2.3 Each Company warrants the following:
A. The Company is, or will be, a
properly registered investment company under the Investment Company Act of 1940
(the "1940 Act") and any and all shares of a Portfolio which it issues will be
properly registered and lawfully issued under applicable federal and state laws.
B. The provisions of this contract do
not violate the terms of any instrument by which the Company or the Company on
behalf of a Portfolio is bound; nor do they violate any law or regulation of any
body having jurisdiction over the Company or its property.
Section 2.4 DSC warrants the following:
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A. The provisions of this contract do
not violate the terms of any instrument by which DSC is bound; nor do they
violate any law or regulation of any body having jurisdiction over DSC or its
property.
III. SERVICES TO BE PROVIDED BY DSC
Section 3.1 Daily Net Asset Value ("NAV") Calculation. As
Accounting Agent for each Portfolio of the Companies, DSC will perform all
functions necessary to provide daily Portfolio NAV calculations, including:
A. Maintaining each Portfolio's
securities portfolio history by:
1. recording portfolio purchases
and sales;
2. recording corporate actions
and capital changes relating to portfolio securities;
3. accruing interest, dividends
and expenses; and
4. maintaining the income history
for securities purchased by a Portfolio.
B. Determining distributions to
Portfolio shareholders;
C. Recording and reconciling
shareholder activity including:
1. recording subscription,
liquidations and dividend reinvestments;
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2. recording settlements of
shareholder activity; and
3. reconciling Portfolio shares
outstanding to the records maintained by DSC, as transfer agent
of the Portfolio.
D. Valuing a Portfolio's securities
portfolio which includes determining the NAVs for all classes of
the Portfolio;
E. Disseminating Portfolio NAVs and
dividends to interested parties (including the National Association of
Securities Dealers Automated Quotation System ("NASDAQ"), the Investment Company
Institute ("ICI"), Morningstar, and Lipper Analytical Services, Inc.
("Lipper")); and
F. Resolving pricing and/or custody
discrepancies.
Section 3.2 Financial Reporting. As Accounting Agent, DSC
shall perform financial reporting services for each Portfolio, which shall
include:
A. The preparation of semi-annual and
annual reports for shareholders which involves the performance of
the following functions:
1. preparing all statements of
net assets, statements of operations and statements of changes in
net assets for the Portfolio;
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2. preparing footnotes to
financial statements for the Portfolio;
3. preparing workpapers for each
Company's annual audit by its independent public accountants; and
4. coordinating the annual audit
by each Company's independent public accountants.
B. Reporting to the ICI in response
to requests for monthly and other periodic information;
C. Performing statistical reporting,
which includes daily, monthly, quarterly and annual reports for Lipper,
Weisenberger and other third party reporting agencies; and
D. Furnishing financial information
for any additional required SEC reporting, such as the preparation of financial
information for each Company's reporting on Form N-SAR, the furnishing of
financial information for each Company's prospectus[es] and statement[s] of
additional information, and the financial information required for each
Company's annual Rule 24f-2 notice filing;
Section 3.3 Compliance Testing. DSC will monitor, test and
prepare and maintain supporting schedules which evidence compliance with the
definitional and distribution requirements under the Internal Revenue Code of
1986, as amended ("IRC"), including the following:
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A. The requirement to be registered at
all times during the taxable year under the 1940 Act (IRC Section
851(a));
B. The annual ninety percent gross
income test (IRC Section 851(b)(2));
C. The short/short (thirty percent)
gross income test (IRC Section 851(b)(3));
D. The quarterly IRC industry
diversification tests (IRC Sections 851(b)(4) and 817(h)); and
E. The 90% distribution requirements
(IRC Section 852(a)).
Section 3.4 Other Services. In addition to the above, DSC, in
its capacity as Accounting Agent for the Company, will perform the following
services:
A. The calculation of required
Portfolio monthly yields and total return calculations in accordance with the
prescribed rules of the U.S. Securities and Exchange Commission;
B. Providing the financial information
necessary for the preparation of all federal and state tax
returns and ancillary schedules, including:
1. year-end excise tax
distributions; and
2. compliance with Subchapter M
and Section 4982 of the IRC;
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C. Performing special tax reporting to
shareholders, including the preparation of reports which reflect income earned
by each Portfolio by state, exempt income and distributions that qualify for the
corporate dividends received deduction;
D. The preparation of expense and
budget figures for each Portfolio, including the maintenance of detailed records
pertaining to expense accruals and payments and adjusting reports to reflect
accrual adjustments;
E. The preparation of reports for
Boardof Directors' or Trustees' meetings;
F. Coordination of the custody
relationships;
G. Facilitating security settlements;
H. Performance of required foreign
security accounting functions;
I Performance of daily cash
reconciliations for each Portfolio;
J. Providing identified reports to
portfolio managers including:
1. providing portfolio holdings
and security valuation reports;
2. preparing cash forecasts and
reconciliations as mutually agreed upon; and
3. preparing income projections.
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IV. PERFORMANCE OF DUTIES
Section 4.1 DSC may request or receive instructions from a
Company and may, at a Portfolio's expense, consult with counsel for the Company
or its own counsel, with respect to any matter arising in connection with the
performance of its duties hereunder, and shall not be liable for any action
taken or omitted by it in good faith in accordance with such instructions or
opinions of counsel.
Section 4.2 DSC shall maintain reasonable insurance coverage
for errors and omissions and reasonable bond coverage for fraud.
Section 4.3 Upon notice thereof to a Company, DSC may employ
others to provide services to DSC in its performance of this Agreement.
Section 4.4 Personnel and facilities of DSC used to perform
services hereunder may be used to perform similar services to all Companies of
the Delaware Group and their Portfolios and to others, and may be used to
perform other services for all of the Companies of the Delaware Group and
others.
Section 4.5 The Companies and DSC may, from time to time, set
forth in writing at the Companies' expense certain guidelines to be applicable
to the services hereunder.
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V. ACCOUNTS AND RECORDS
Section 5.1 The parties hereto agree and acknowledge that the
accounts and records maintained by DSC with respect to a Portfolio shall be the
property of such Portfolio, and shall be made available to the relevant Company
promptly upon request and shall be maintained for the periods prescribed in Rule
31a-2 under the Investment Company Act of 1940 or such longer period as shall be
agreed to by the parties hereto, at such Portfolio's expense.
VI. COMPENSATION
Section 6.1 The Companies and DSC acknowledge that the
compensation to be paid hereunder to DSC is intended to induce DSC to provide
services under this Agreement of a nature and quality which the Boards of
Directors or Trustees of the Companies, including a majority who are not parties
to this Agreement or interested person of the parties hereto, have determined
after due consideration to be necessary for the conduct of the business of a
Portfolio in the best interests of a Portfolio and its shareholders.
Section 6.2 Compensation by a Portfolio hereunder shall be
determined in accordance with Schedule B hereto as it shall be amended from time
to time as provided for herein and which is incorporated herein as a part
hereof.
Section 6.3 Compensation as provided in Schedule B
shall be reviewed and approved for each Portfolio in the manner
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<PAGE>
set forth in Section 8.1 hereof by the Boards of Directors or Trustees of the
Companies at least annually and may be reviewed and approved more frequently at
the request of either party. The Boards may request and DSC shall provide such
information as the Boards may reasonably require to evaluate the basis of and
approve the compensation.
VII. STANDARD OF CARE
Section 7.1 The Companies on behalf of each Portfolio
acknowledge that DSC shall not be liable for, and in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of the
performance of its duties under this contract, agree to indemnify DSC against,
any claim or deficiency arising from the performance of DSC's duties hereunder,
including DSC's costs, counsel fees and expenses incurred in investigating or
defending any such claim or any administrative or other proceeding, and
acknowledge that any risk of loss or damage arising from the conduct of a
Portfolio's affairs in accordance herewith or in accordance with guidelines or
instructions given hereunder, shall be borne by the Portfolio. The
indemnification provided for in this Section 7.1 shall be made Portfolio by
Portfolio so that DSC is only entitled to indemnification from a Company on
behalf of a Portfolio for actions arising from the performance of DSC's duties
as to that Portfolio.
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VIII. CONTRACTUAL STATUS
Section 8.1 This Agreement shall be executed and become
effective as to a Company with regard to a Portfolio listed on Schedule A as of
the date first written above if approved by a vote of such Company's Board of
Directors or Trustees, including an affirmative vote of a majority of the non-
interested members of the Board of such Company, cast in person at a meeting
called for the purpose of voting on such approval. It shall continue in effect
for an indeterminate period, and is subject to termination as to a Company on
behalf of a Portfolio or DSC, as the case may be, on sixty (60) days notice by
either that Company or DSC, unless earlier terminated or amended by agreement
among the parties. A Company shall be permitted to terminate this Agreement as
to a Portfolio on sixty (60) days notice to DSC. Compensation under this
Agreement by a Portfolio shall require approval by a majority vote of the Board
of Directors or Trustees of such Portfolio's Company, including an affirmative
vote of the majority of the non-interested members of such Board cast in person
at a meeting called for the purpose of voting such approval.
Section 8.2 This Agreement shall become effective as to any
Company or Portfolio not included on Schedule A as of the date first written
above, but desiring to participate in this Agreement, on such date as an amended
Schedule A adding such new Company or Portfolio to such Schedule is executed by
DSC and such new Company or a Company on behalf of a new Portfolio following
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approval by the Company or by the Company on behalf of a new Portfolio desiring
to be included in this Agreement in accordance with the method specified in
Section 8.1. Any such amended Schedule A shall not affect the validity of this
Agreement as between DSC and the other Companies which have executed this
Agreement or any subsequent amendment to Schedule A of this Agreement.
Section 8.3 This Agreement may not be assigned by DSC without
the approval of all of the Companies.
Section 8.4 This Agreement shall be governed by the laws of
the Commonwealth of Pennsylvania.
DELAWARE SERVICE COMPANY, INC.
By: /s/David K. Downes
-------------------------
David K. Downes
Senior Vice President/Chief
Administrative Officer/Chief
Financial Officer
DELAWARE GROUP CASH RESERVE, INC.
DELAWARE GROUP DECATUR FUND, INC.
DELAWARE GROUP DELAWARE FUND, INC.
DELAWARE GROUP TAX-FREE FUND, INC.
DELAWARE GROUP TAX-FREE MONEY FUND, INC.
DELAWARE GROUP LIMITED-TERM GOVERNMENT
FUNDS, INC.
DELAWARE GROUP TREND FUND, INC.
DELAWARE GROUP DELCHESTER HIGH-YIELD
BOND FUND, INC.
DMC TAX-FREE INCOME TRUST - PENNSYLVANIA
DELAWARE GROUP VALUE FUND, INC.
DELAWARE GROUP GLOBAL & INTERNATIONAL
FUNDS, INC.
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<PAGE>
DELAWARE GROUP DELCAP FUND, INC.
DELAWARE GROUP PREMIUM FUND, INC.
DELAWARE GROUP GOVERNMENT FUND, INC.
DELAWARE GROUP ADVISER FUNDS, INC.
By: /s/Wayne A. Stork
----------------------------
Wayne A. Stork
Chairman, President and
Chief Executive Officer
DELAWARE POOLED TRUST, INC.
By: /s/Wayne A. Stork
----------------------------
Wayne A. Stork, Chairman
-15-
<PAGE>
SCHEDULE A
COMPANIES AND PORTFOLIOS COMPRISING THE DELAWARE GROUP*
Delaware Group Cash Reserve, Inc.
Delaware Group Decatur Fund, Inc.
Decatur Income Fund
Decatur Total Return Fund
Delaware Group Delaware Fund, Inc.
Delaware Fund
Devon Fund
Delaware Group Tax-Free Fund, Inc.
Tax-Free USA Fund
Tax-Free Insured Fund
Tax-Free USA Intermediate Fund
Delaware Group Tax-Free Money Fund, Inc.
Delaware Group Limited-Term Government Funds, Inc.
Limited-Term Government Fund
U.S. Government Money Fund
Delaware Group Trend Fund, Inc.
Delaware Group Delchester High-Yield Bond Fund, Inc.
DMC Tax-Free Income Trust - Pennsylvania
Delaware Group Value Fund, Inc.
- --------
* Except as otherwise noted, all Portfolios included on this Schedule A are
Existing Portfolios for purposes of the compensation described on Schedule B to
that Fund Accounting Agreement between Delaware Service Company, Inc. and the
Delaware Group of Funds dated as of August 19, 1996 ("Agreement"). All
Portfolios added to this Schedule A by amendment executed by a Company on behalf
of such Portfolio hereof shall be a New Portfolio for purposes of Schedule B to
the Agreement.
-16-
<PAGE>
Delaware Group Global & International Funds, Inc.
International Equity Fund
Global Bond Fund
Global Assets Fund
Emerging Markets Fund (New)
Delaware Group DelCap Fund, Inc.
Delaware Pooled Trust, Inc.
The Defensive Equity Portfolio
The Aggressive Growth Portfolio
The International Equity Portfolio
The Defensive Equity Small/Mid-Cap Portfolio (New) The
Defensive Equity Utility Portfolio (New) The Labor Select
International Equity Portfolio The Real Estate Investment
Trust Portfolio The Fixed Income Portfolio The Limited-Term
Maturity Portfolio (New) The Global Fixed Income Portfolio The
International Fixed Income Portfolio (New) The High-Yield Bond
Portfolio (New)
Delaware Group Premium Fund, Inc.
Equity/Income Series
High Yield Series
Capital Reserves Series
Money Market Series
Growth Series
Multiple Strategy Series
International Equity Series
Value Series
Emerging Growth Series
Global Bond Series (New)
Delaware Group Government Fund, Inc.
Delaware Group Adviser Funds, Inc.
Enterprise Fund
U.S. Growth Fund
World Growth Fund
New Pacific Fund
Federal Bond Fund
Corporate Income Fund
Dated as of: August 19, 1996
-17-
<PAGE>
SCHEDULE B
COMPENSATION
Fee Schedule for The Delaware Group of Funds
--------------------------------------------
Part 1 -- Fees for Existing Portfolios
- ------
Existing Portfolios are those so designated on Schedule A to the Fund Accounting
Agreement between Delaware Service Company, Inc. and the Delaware Group of Funds
dated as of August 19, 1996 ("Agreement").
Annual Asset Based Fees
-----------------------
First $10 Billion of Aggregate
Complex Net Assets 2.5 Basis Points
Aggregate Complex Net Assets
over $10 Billion 2.0 Basis Points
Annual asset based fees will be charged at a rate of 2.5 basis points for the
first $10 Billion of Aggregate Complex Net Assets. Aggregate Complex Net Assets
over $10 Billion will be charged at a rate of 2.0 basis points. These fees will
be charged to a Portfolio on an aggregated pro rated basis.
Annual Minimum Fees
-------------------
Domestic Equity Portfolio $35,000
Domestic Fixed Income Portfolio $45,000
International Series Portfolio $70,000
Per Class of Share Fee $ 4,000
There is an annual minimum fee that will be charged only if the annual asset
based fee is less than the calculation for the minimum fee. This fee is based on
the type and the number of classes per Portfolio. For an equity Portfolio
$35,000 will be charged; for a fixed income Portfolio $45,000 will be charged,
and for an international Portfolio $70,000 will be charged. For each class of
shares, $4,000 will be charged, such amount to be prorated over a period of less
than a year for any classes added after April 30, 1996. A total of all minimum
fees will be compared to the total asset based fee to determine which fee is
higher and, subsequently, will be used to bill the Companies.
Part 2 -- Fees for New Portfolios
- ------
For each Portfolio designated as a New Portfolio on Schedule A to the Agreement,
there will be a fee of 2.0 basis points, providing that the Delaware complex net
assets are above $10 Billion (the
-18-
<PAGE>
rate would be 2.5 basis points if under $10 Billion and then 2.0 basis points
once the net assets cross $10 Billion), or an annual minimum fee calculated in
the manner described above, whichever is higher. This new fee would be added to
the total of Existing Portfolio fees and then pro rated. Fees shall not be
charged for New Portfolios included on Schedule A until such Portfolios shall
have commenced operations.
Dated as of: August 19, 1996
-19-
<PAGE>
AMENDMENT NO. 1 TO
SCHEDULE A
TO DELAWARE GROUP OF FUNDS*
FUND ACCOUNTING AGREEMENT
Delaware Group Cash Reserve, Inc.
Delaware Group Decatur Fund, Inc.
Decatur Income Fund
Decatur Total Return Fund
Delaware Group Delaware Fund, Inc.
Delaware Fund
Devon Fund
Delaware Group Tax-Free Money Fund, Inc.
Delaware Group Tax-Free Fund, Inc.
Tax-Free USA Fund
Tax-Free Insured Fund
Tax-Free USA Intermediate Fund
Delaware Group Limited-Term Government Funds, Inc.
Limited-Term Government Fund
U.S. Government Money Fund
Delaware Group Trend Fund, Inc.
Delaware Group Income Funds, Inc.
Delchester Fund
Strategic Income Fund (New)
*Except as otherwise noted, all Portfolios included on this Schedule A
are Existing Portfolios for purposes of the compensation described on Schedule B
to that Fund Accounting Agreement between Delaware Service Company, Inc. and the
Delaware Group of Funds dated as of August 19, 1996 ("Agreement"). All
portfolios added to this Schedule A by amendment executed by a Company on behalf
of such Portfolio hereof shall be a New Portfolio for purposes of Schedule B to
the Agreement.
1
<PAGE>
DMC Tax-Free Income Trust - Pennsylvania
Delaware Group Value Fund, Inc.
Delaware Group Global & International Funds, Inc.
International Equity Fund
Global Bond Fund
Global Assets Fund
Emerging Markets Fund (New)
Delaware Group DelCap Fund, Inc.
Delaware Pooled Trust, Inc.
The Defensive Equity Portfolio
The Aggressive Growth Portfolio
The International Equity Portfolio
The Defensive Equity Small/Mid-Cap Portfolio (New)
The Defensive Equity Utility Portfolio (New)
The Labor Select International Equity Portfolio
The Real Estate Investment Trust Portfolio
The Fixed Income Portfolio
The Limited-Term Maturity Portfolio (New)
The Global Fixed Income Portfolio
The International Fixed Income Portfolio (New)
The High-Yield Bond Portfolio (New)
Delaware Group Premium Fund, Inc.
Equity/Income Series
High Yield Series
Capital Reserves Series
Money Market Series
Growth Series
Multiple Strategy Series
International Equity Series
Value Series
Emerging Growth Series
Global Bond Series (New)
Delaware Group Government Fund, Inc.
2
<PAGE>
Delaware Group Adviser Funds, Inc.
Enterprise Fund
U.S. Growth Fund
World Growth Fund
New Pacific Fund
Federal Bond Fund
Corporate Income Fund
Dated as of: September 30, 1996
DELAWARE SERVICE COMPANY, INC.
By:/s/ David K. Downes
-------------------------------------
David K. Downes
Senior Vice President/Chief
Administrative Officer/Chief
Financial Officer
DELAWARE GROUP CASH RESERVE, INC.
DELAWARE GROUP DECATUR FUND, INC.
DELAWARE GROUP DELAWARE FUND, INC.
DELAWARE GROUP TAX-FREE FUND, INC.
DELAWARE GROUP TAX-FREE MONEY FUND,INC.
DELAWARE GROUP LIMITED-TERM GOVERNMENT
FUNDS, INC.
DELAWARE GROUP TREND FUND, INC.
DELAWARE GROUP INCOME FUNDS, INC.
DMC TAX-FREE INCOME TRUST - PENNSYLVANIA
DELAWARE GROUP VALUE FUND, INC.
DELAWARE GROUP GLOBAL & INTERNATIONAL
FUNDS, INC.
DELAWARE GROUP DELCAP FUND, INC.
DELAWARE GROUP PREMIUM FUND, INC.
DELAWARE GROUP GOVERNMENT FUND, INC.
DELAWARE GROUP ADVISER FUNDS, INC.
By:/s/ Wayne A. Stork
-------------------------------------
Wayne A. Stork
Chairman, President and
Chief Executive Officer
DELAWARE POOLED TRUST, INC.
By:/s/ Wayne A. Stork
-------------------------------------
Wayne A. Stork
Chairman
3
<PAGE>
SCHEDULE A
COMPANIES AND PORTFOLIOS COMPRISING THE DELAWARE GROUP*
[NAME OF INVESTMENT COMPANIES]
- --------
* Except as otherwise noted, all Portfolios included on this Schedule A are
Existing Portfolios for purposes of the compensation described on Schedule B to
that Fund Accounting Agreement between Delaware Service Company, Inc. and the
Delaware Group of Funds dated as of _________ __, 199_ ("Agreement"). All
Portfolios added to this Schedule A by amendment executed by a Company on behalf
of such Portfolio hereof shall be a New Portfolio for purposes of Schedule B to
the Agreement.
Dated as of: __________ __, 199_
<PAGE>
EXHIBIT A
DISTRIBUTION PLAN
[Name of Investment Company]
[Name of Portfolio]
[Name of Portfolio] A CLASS
The following Distribution Plan (the "Plan") has been adopted
pursuant to Rule l2b-l under the Investment Company Act of l940 (the "Act") by
[Name of Investment Company] (the "Fund"), for the [Name of Portfolio]
series (the "Series") on behalf of the [Name of Portfolio] A Class ("Class"),
which Fund, Series and Class may do business under these or such other names as
the Board of Directors of the Fund may designate from time to time. The Plan has
been approved by a majority of the Board of Directors, including a majority of
the Directors who are not interested persons of the Fund and who have no direct
or indirect financial interest in the operation of the Plan or in any agreements
related thereto ("non-interested Directors"), cast in person at a meeting called
for the purpose of voting on such Plan. Such approval by the Directors included
a determination that in the exercise of reasonable business judgment and in
light of their fiduciary duties, there is a reasonable likelihood that the Plan
will benefit the Series and shareholders of the Class. The Plan has been
approved by a majority of the outstanding voting securities of the Class, as
defined in the Act.
<PAGE>
The Fund is a corporation organized under the laws of the
State of Maryland, is authorized to issue different series and classes of
securities and is an open-end management investment company registered under the
Act. Delaware Management Company, Inc. serves as the Series' investment adviser
and manager pursuant to an Investment Management Agreement. Delaware Service
Company, Inc. serves as the Series' shareholder servicing, dividend disbursing
and transfer agent. Delaware Distributors, L.P. (the "Distributor") is the
principal underwriter and national distributor for the Series' shares, including
shares of the Class, pursuant to the Distribution Agreement between the
Distributor and the Fund on behalf of the Series ("Distribution Agreement").
The Plan provides that:
l. The Fund shall pay to the Distributor a monthly fee not to
exceed 0.3% (3/10 of l%) per annum of the Series' average daily net assets
represented by shares of the Class (the "Maximum Amount") as may be determined
by the Fund's Board of Directors from time to time. Such monthly fee shall be
reduced by the aggregate sums paid by the Fund on behalf of the Series to
persons other than broker-dealers (the "Service Providers") who may, pursuant to
servicing agreements, provide to the Series services in the Series' marketing of
shares of the Class.
2. (a) The Distributor shall use the monies paid to it
pursuant to paragraph l above to furnish, or cause or encourage others to
furnish, services and incentives in connection with the promotion, offering and
sale of Class shares and, where suitable and appropriate, the retention of Class
shares by shareholders.
<PAGE>
(b) The Service Providers shall use the monies paid
respectively to them to reimburse themselves for the actual costs they have
incurred in confirming that their customers have received the Prospectus and
Statement of Additional Information, if applicable, and as a fee for (l)
assisting such customers in maintaining proper records with the Fund, (2)
answering questions relating to their respective accounts, and (3) aiding in
maintaining the investment of their respective customers in the Class.
3. The Distributor shall report to the Fund at least monthly
on the amount and the use of the monies paid to it under the Plan. The Service
Providers shall inform the Fund monthly and in writing of the amounts each
claims under the Plan; both the Distributor and the Service Providers shall
furnish the Board of Directors of the Fund with such other information as the
Board may reasonably request in connection with the payments made under the Plan
and the use thereof by the Distributor and the Service Providers, respectively,
in order to enable the Board to make an informed determination of the amount of
the Fund's payments and whether the Plan should be continued.
4. The officers of the Fund shall furnish to the Board of
Directors of the Fund, for their review, on a quarterly basis, a written report
of the amounts expended under the Plan and the purposes for which such
expenditures were made.
<PAGE>
5. This Plan shall take effect at such time as the Distributor
shall notify the Fund in writing of the commencement of the Plan (the
"Commencement Date"); thereafter, the Plan shall continue in effect for a period
of more than one year from the Commencement Date only so long as such
continuance is specifically approved at least annually by a vote of the Board of
Directors of the Fund, and of the non-interested Directors, cast in person at a
meeting called for the purpose of voting on such Plan.
6. (a) The Plan may be terminated at any time by vote of a
majority of the non-interested Directors or by vote of a majority of the
outstanding voting securities of the Class.
(b) The Plan may not be amended to increase materially the
amount to be spent for distribution pursuant to paragraph l thereof without
approval by the shareholders of the Class.
7. All material amendments to this Plan shall be approved by
the non-interested Directors in the manner described in paragraph 5 above.
8. So long as the Plan is in effect, the selection and
nomination of the Fund's non-interested Directors shall be committed to the
discretion of such non-interested Directors.
9. The definitions contained in Sections 2(a)(19) and 2(a)(42)
of the Act shall govern the meaning of "interested person(s)" and "vote of a
majority of the outstanding voting securities," respectively, for the purposes
of this Plan.
This Plan shall take effect on the Commencement Date, as
previously defined.
_________ __, 199_
<PAGE>
EXHIBIT B
DISTRIBUTION PLAN
[Name of Investment Company]
[Name of Portfolio]
[Name of Portfolio] B CLASS
The following Distribution Plan (the "Plan") has been adopted pursuant
to Rule 12b-1 under the Investment Company Act of 1940 (the "Act") by [Name of
Investment Company] (the "Fund"), for the [Name of Portfolio] series (the
"Series") on behalf of the [Name of Portfolio] B Class (the "Class"), which
Fund, Series and Class may do business under these or such other names as the
Board of Directors of the Fund may designate from time to time. The Plan has
been approved by a majority of the Board of Directors, including a majority of
the Directors who are not interested persons of the Fund and who have no direct
or indirect financial interest in the operation of the Plan or in any agreements
related thereto ("non-interested Directors"), cast in person at a meeting called
for the purpose of voting on such Plan. Such approval by the Directors included
a determination that in the exercise of reasonable business judgment and in
light of their fiduciary duties, there is a reasonable likelihood that the Plan
will benefit the Series and shareholders of the Class. The Plan has been
approved by a vote of the holders of a majority of the outstanding voting
securities of the Class, as defined in the Act.
<PAGE>
The Fund is a corporation organized under the laws of the State of
Maryland, is authorized to issue different series and classes of securities and
is an open-end management investment company registered under the Act. Delaware
Management Company, Inc. serves as the Fund's investment adviser and manager
pursuant to an Investment Management Agreement. Delaware Service Company,
Inc. serves as the Fund's shareholder servicing, dividend disbursing and
transfer agent. Delaware Distributors, L.P. (the "Distributor") is the principal
underwriter and national distributor for the Fund's shares, including shares of
the Class, pursuant to the Distribution Agreement between the Distributor and
the Fund ("Distribution Agreement").
The Plan provides that:
1.(a) The Fund shall pay to the Distributor a monthly fee not to exceed
0.75% (3/4 of 1%) per annum of the Fund's average daily net assets represented
by shares of the Class as may be determined by the Fund's Board of Directors
from time to time.
(b) In addition to the amounts described in paragraph 1(a) above, the
Fund shall pay: (i) to the Distributor for payment to dealers or others or (ii)
directly to others, an amount not to exceed 0.25% (1/4 of 1%) per annum of the
Fund's average daily net assets represented by shares of the Class, as a service
fee pursuant to dealer or servicing agreements.
2.(a) The Distributor shall use the monies paid to it pursuant to
paragraph 1(a) above to assist in the distribution and promotion of shares of
the Class. Payments made to the Distributor under the Plan may be used for,
among other things, preparation and distribution of advertisements, sales
literature and prospectuses and reports used for sales purposes, as well as
compensation related to sales and marketing personnel, and holding special
promotions. In addition, such fees may be used to pay for advancing the
commission costs to dealers with respect to the sale of Class shares.
<PAGE>
(b) The monies to be paid pursuant to paragraph 1(b) above shall be
used to pay dealers or others for, among other things, furnishing personal
services and maintaining shareholder accounts, which services include confirming
that customers have received the Prospectus and Statement of Additional
Information, if applicable; assisting such customers in maintaining proper
records with the Fund; answering questions relating to their respective
accounts; and aiding in maintaining the investment of their respective customers
in the Class.
3. The Distributor shall report to the Fund at least monthly on the
amount and the use of the monies paid to it under paragraph 1(a) above. In
addition, the Distributor and others shall inform the Fund monthly and in
writing of the amounts paid under paragraph 1(b) above; both the Distributor and
any others receiving fees under the Plan shall furnish the Board of Directors of
the Fund with such other information as the Board may reasonably request in
connection with the payments made under the Plan and the use thereof by the
Distributor and others in order to enable the Board to make an informed
determination of the amount of the Fund's payments and whether the Plan should
be continued.
4. The officers of the Fund shall furnish to the Board of Directors of
the Fund, for their review, on a quarterly basis, a written report of the
amounts expended under the Plan and the purposes for which such expenditures
were made.
<PAGE>
5. This Plan shall take effect at such time as the Distributor shall
notify the Fund of the commencement of the Plan (the "Commencement Date");
thereafter, the Plan shall continue in effect for a period of more than one year
from the Commencement Date only so long as such continuance is specifically
approved at least annually by a vote of the Board of Directors of the Fund, and
of the non-interested Directors, cast in person at a meeting called for the
purpose of voting on such Plan.
6. (a) The Plan may be terminated at any time by vote of a majority
of the non-interested Directors or by vote of a majority of the outstanding
voting securities of the Class.
(b) The Plan may not be amended to increase materially the
amount to be spent for distribution pursuant to paragraph 1 thereof without
approval by the shareholders of the Class.
7. All material amendments to this Plan shall be approved by the
non-interested Directors in the manner described in paragraph 5 above.
8. So long as the Plan is in effect, the selection and nomination of
the Fund's non-interested Directors shall be committed to the discretion of such
non-interested Directors.
9. The definitions contained in Sections 2(a)(19) and 2(a)(42) of the
Act shall govern the meaning of "interested person(s)" and "vote of a majority
of the outstanding voting securities," respectively, for the purposes of this
Plan.
This Plan shall take effect on the Commencement Date, as previously
defined.
_________ __, 199_
<PAGE>
EXHIBIT C
DISTRIBUTION PLAN
[Name of Investment Company]
[Name of Portfolio]
[Name of Portfolio] C CLASS
The following Distribution Plan (the "Plan") has been adopted pursuant
to Rule 12b-1 under the Investment Company Act of 1940 (the "Act") by [Name of
Investment Company] (the "Fund"), for the [Name of Portfolio] series (the
"Series") on behalf of the [Name of Portfolio] C Class (the "Class"), which
Fund, Series and Class may do business under these or such other names as the
Board of Directors of the Fund may designate from time to time. The Plan has
been approved by a majority of the Board of Directors, including a majority of
the Directors who are not interested persons of the Fund and who have no direct
or indirect financial interest in the operation of the Plan or in any agreements
related thereto ("non-interested Directors"), cast in person at a meeting called
for the purpose of voting on such Plan. Such approval by the Directors included
a determination that in the exercise of reasonable business judgment and in
light of their fiduciary duties, there is a reasonable likelihood that the Plan
will benefit the Series and shareholders of the Class. The Plan has been
approved by a vote of the holders of a majority of the outstanding voting
securities of the Class, as defined in the Act.
<PAGE>
The Fund is a corporation organized under the laws of the State of
Maryland, is authorized to issue different series and classes of securities and
is an open-end management investment company registered under the Act. Delaware
Management Company, Inc. serves as the Fund's investment adviser and manager
pursuant to an Investment Management Agreement. Delaware Service Company,
Inc. serves as the Fund's shareholder servicing, dividend disbursing and
transfer agent. Delaware Distributors, L.P. (the "Distributor") is the principal
underwriter and national distributor for the Fund's shares, including shares of
the Class, pursuant to the Distribution Agreement between the Distributor and
the Fund ("Distribution Agreement").
The Plan provides that:
1.(a) The Fund shall pay to the Distributor a monthly fee not to exceed
0.75% (3/4 of 1%) per annum of the Fund's average daily net assets represented
by shares of the Class as may be determined by the Fund's Board of Directors
from time to time.
(b) In addition to the amounts described in paragraph 1(a) above, the
Fund shall pay: (i) to the Distributor for payment to dealers or others or (ii)
directly to others, an amount not to exceed 0.25% (1/4 of 1%) per annum of the
Fund's average daily net assets represented by shares of the Class, as a service
fee pursuant to dealer or servicing agreements.
2.(a) The Distributor shall use the monies paid to it pursuant to
paragraph 1(a) above to assist in the distribution and promotion of shares of
the Class. Payments made to the Distributor under the Plan may be used for,
among other things, preparation and distribution of advertisements, sales
literature and prospectuses and reports used for sales purposes, as well as
compensation related to sales and marketing personnel, and holding special
promotions. In addition, such fees may be used to pay for advancing the
commission costs to dealers with respect to the sale of Class shares.
<PAGE>
(b) The monies to be paid pursuant to paragraph 1(b) above shall be
used to pay dealers or others for, among other things, furnishing personal
services and maintaining shareholder accounts, which services include confirming
that customers have received the Prospectus and Statement of Additional
Information, if applicable; assisting such customers in maintaining proper
records with the Fund; answering questions relating to their respective
accounts; and aiding in maintaining the investment of their respective customers
in the Class.
3. The Distributor shall report to the Fund at least monthly on the
amount and the use of the monies paid to it under paragraph 1(a) above. In
addition, the Distributor and others shall inform the Fund monthly and in
writing of the amounts paid under paragraph 1(b) above; both the Distributor and
any others receiving fees under the Plan shall furnish the Board of Directors of
the Fund with such other information as the Board may reasonably request in
connection with the payments made under the Plan and the use thereof by the
Distributor and others in order to enable the Board to make an informed
determination of the amount of the Fund's payments and whether the Plan should
be continued.
4. The officers of the Fund shall furnish to the Board of Directors of
the Fund, for their review, on a quarterly basis, a written report of the
amounts expended under the Plan and the purposes for which such expenditures
were made.
<PAGE>
5. This Plan shall take effect at such time as the Distributor shall
notify the Fund of the commencement of the Plan (the "Commencement Date");
thereafter, the Plan shall continue in effect for a period of more than one year
from the Commencement Date only so long as such continuance is specifically
approved at least annually by a vote of the Board of Directors of the Fund, and
of the non-interested Directors, cast in person at a meeting called for the
purpose of voting on such Plan.
6.(a) The Plan may be terminated at any time by vote of a majority of
the non-interested Directors or by vote of a majority of the outstanding voting
securities of the Class.
(b) The Plan may not be amended to increase materially the amount to
be spent for distribution pursuant to paragraph 1 thereof without approval by
the shareholders of the Class.
7. All material amendments to this Plan shall be approved by the
non-interested Directors in the manner described in paragraph 5 above.
8. So long as the Plan is in effect, the selection and nomination of
the Fund's non-interested Directors shall be committed to the discretion of such
non-interested Directors.
9. The definitions contained in Sections 2(a)(19) and 2(a)(42) of the
Act shall govern the meaning of "interested person(s)" and "vote of a majority
of the outstanding voting securities," respectively, for the purposes of this
Plan.
This Plan shall take effect on the Commencement Date, as previously
defined.
_________ __, 199_
<PAGE>
APPENDIX A
List of Funds and Their Classes
1. Delaware Group Delaware Fund, Inc.
Delaware Fund
Delaware Fund A Class
Delaware Fund B Class
Delaware Fund C Class
Delaware Fund Institutional Class
Devon Fund
Devon Fund A Class
Devon Fund B Class
Devon Fund C Class
Devon Fund Institutional Class
2. Delaware Group Trend Fund, Inc.
Trend Fund A Class
Trend Fund B Class
Trend Fund C Class
Trend Fund Institutional Class
3. Delaware Group Value Fund, Inc.
Value Fund A Class
Value Fund B Class
Value Fund C Class
Value Fund Institutional Class
4. Delaware Group DelCap Fund, Inc.
DelCap Fund A Class
DelCap Fund B Class
DelCap Fund C Class
DelCap Fund Institutional Class
5. Delaware Group Decatur Fund, Inc.
Decatur Income Fund
Decatur Income Fund A Class
Decatur Income Fund B Class
Decatur Income Fund C Class
-1-
<PAGE>
Decatur Income Fund Institutional Class
Decatur Total Return Fund
Decatur Total Return Fund A Class
Decatur Total Return Fund B Class
Decatur Total Return Fund C Class
Decatur Total Return Fund Institutional Class
6. Delaware Group Global & International Funds, Inc.
International Equity Series
International Equity Fund A Class
International Equity Fund B Class
International Equity Fund C Class
International Equity Fund Institutional Class
Global Bond Series
Global Bond Fund A Class
Global Bond Fund B Class
Global Bond Fund C Class
Global Bond Fund Institutional Class
Global Assets Series
Global Assets Fund A Class
Global Assets Fund B Class
Global Assets Fund C Class
Global Assets Fund Institutional Class
-2-
<PAGE>
Emerging Markets Series (Added May 1, 1996)
Emerging Markets Fund A Class
Emerging Markets Fund B Class
Emerging Markets Fund C Class
Emerging Markets Fund Institutional Class
7. Delaware Group Income Funds, Inc.
Strategic Income Fund (Added September 30, 1996)
Strategic Income Fund A Class
Strategic Income Fund B Class
Strategic Income Fund C Class
Strategic Income Fund Institutional Class
-3-
<PAGE>
APPENDIX A
List of Funds and Their Classes
[NAMES OF INVESTMENT COMPANIES]
