<PAGE>
For more information contact the Delaware Group at 800-828-5052.
INVESTMENT MANAGER
Delaware Management Company, Inc.
One Commerce Square
Philadelphia, PA 19103
NATIONAL DISTRIBUTOR
Delaware Distributors, L.P.
1818 Market Street
Philadelphia, PA 19103
SHAREHOLDER SERVICING,
DIVIDEND DISBURSING,
ACCOUNTING SERVICES
AND TRANSFER AGENT
Delaware Service Company, Inc.
1818 Market Street
Philadelphia, PA 19103
LEGAL COUNSEL
Stradley, Ronon, Stevens & Young, LLP
One Commerce Square
Philadelphia, PA 19103
INDEPENDENT AUDITORS
Ernst & Young LLP
Two Commerce Square
Philadelphia, PA 19103
CUSTODIAN
Bankers Trust Company
One Bankers Trust Plaza
New York, NY 10006
- ---------------------------------------------------------
DECATUR INCOME FUND INSTITUTIONAL
- ---------------------------------------------------------
DECATUR TOTAL RETURN FUND
INSTITUTIONAL
- ---------------------------------------------------------
P R O S P E C T U S
- ---------------------------------------------------------
FEBRUARY 24, 1997
DELAWARE
GROUP
---------
<PAGE>
TABLE OF CONTENTS
Cover Page
Synopsis
Summary of Expenses
Financial Highlights
Investment Objectives and Strategies
Suitability
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 Funds
Other Investment Policies and Risk Considerations
Appendix A-Ratings
-1-
<PAGE>
DECATUR INCOME FUND PROSPECTUS
DECATUR TOTAL RETURN FUND FEBRUARY 24, 1997
INSTITUTIONAL CLASS SHARES
---------------------------------------------------------------------
1818 Market Street, Philadelphia, PA 19103
For more information about the
Decatur Income Fund Institutional Class and
Decatur Total Return Fund Institutional Class
call the Delaware Group at 800-828-5052.
This Prospectus describes the shares of Decatur Income Fund series and
Decatur Total Return Fund series (individually, a "Fund" and collectively, the
"Funds") of Delaware Group Equity Funds II, Inc. ("Equity Funds II, Inc.")
(formerly, Delaware Group Decatur Fund, Inc.), a professionally-managed mutual
fund of the series type. Decatur Income Fund's objective is to achieve the
highest possible current income by investing primarily in common stocks that
provide the potential for income and capital appreciation without undue risk to
principal. Decatur Total Return Fund's objective is to achieve long-term growth
by investing primarily in securities that provide the potential for income and
capital appreciation without undue risk to principal.
Decatur Income Fund offers Decatur Income Fund Institutional Class and
Decatur Total Return Fund offers Decatur Total Return Fund Institutional Class
(individually, a "Class" and collectively, the "Classes").
Shares of each Class are available for purchase only by certain
enumerated investors and are offered at net asset value without the imposition
of a front-end or contingent deferred sales charge and without a 12b-1 charge.
See How to Buy Shares.
This Prospectus relates only to the Classes and sets forth information
that you should read and consider before you invest. Please retain it for future
reference. The Funds' Statement of Additional Information ("Part B" of Equity
Funds II, Inc.'s registration statement), dated February 24, 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 Funds' financial statements appear in its Annual Report, which
will accompany any response to requests for Part B.
-2-
<PAGE>
Decatur Income Fund also offers Decatur Income Fund A Class, Decatur
Income Fund B Class and Decatur Income Fund C Class. Decatur Total Return Fund
also offers Decatur Total Return Fund A Class, Decatur Total Return Fund B Class
and Decatur Total Return Fund C Class. 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.
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.
-3-
<PAGE>
SYNOPSIS
Investment Objective
Decatur Income Fund - The investment objective of Decatur Income Fund
is to achieve the highest possible current income by investing primarily in
common stocks that provide the potential for income and capital appreciation
without undue risk to principal.
Decatur Total Return Fund - The investment objective of Decatur Total
Return Fund is to achieve long-term growth by investing primarily in securities
that provide the potential for income and capital appreciation without undue
risk to principal.
For further details, see Investment Objectives and Strategies and Other
Investment Policies and Risk Considerations.
Risk Factors and Special Considerations
Decatur Income Fund may invest up to 15% of its net assets in
high-yield securities (junk bonds) and, consequently, greater risks may be
involved with an investment in the Fund. See High Yield, High Risk Securities
under Other Investment Policies and Risk Considerations.
Each Fund may enter into options and futures transactions for hedging
purposes to counterbalance portfolio volatility. While the Funds do not engage
in options and futures for speculative purposes, there are risks that result
from use of these instruments, and the investor should review the descriptions
of these risks in this Prospectus. See Futures Contracts and Options 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. Delaware
Distributors, L.P. (the "Distributor") is the national distributor for each 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 each Fund and for all of
the other mutual funds in the Delaware Group. See Summary of Expenses and
Management of the Funds for further information regarding the Manager and the
fees payable under each Fund's Investment Management Agreement.
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.
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.
-4-
<PAGE>
Open-End Investment Company
Equity Funds II, Inc. 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 first organized
as a Delaware corporation in 1956 and was subsequently reorganized as a Maryland
corporation on March 4, 1983. See Shares under Management of the Funds.
-5-
<PAGE>
SUMMARY OF EXPENSES
<TABLE>
<CAPTION>
Decatur Income Decatur Total Return
Shareholder Transaction Expenses Fund Institutional Class Fund Institutional Class
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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
Exchange Fees................................................... None* None*
Annual Operating Expenses Decatur Income Decatur Total Return
(as a percentage of average daily net assets) Fund Institutional Class Fund Institutional Class
- ---------------------------------------------------------------------------------------------------------------------------------
Management Fees................................................. 0.49% 0.59%
12b-1 Fees...................................................... None None
Other Operating Expenses........................................ 0.20% 0.22%
----- -----
Total Operating Expenses......................... 0.69% 0.81%
===== =====
</TABLE>
*Exchanges are subject to the requirements of each fund and a front-end sales
charge may apply.
For expense information about Decatur Income Fund A Class, Decatur Income
Fund B Class, Decatur Income Fund C Class, Decatur Total Return Fund A Class,
Decatur Total Return Fund B Class and Decatur Total Return Fund C Class, see the
separate prospectus relating to those classes.
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
tables above, Equity Funds II, Inc. charges no redemption fees.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Decatur Income Fund
Institutional Class $7 $22 $38 $86
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Decatur Total Return
Fund Institutional Class $8 $26 $45 $100
</TABLE>
The purpose of the above tables is to assist the investor in
understanding the various costs and expenses that an investor in either 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>
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The following financial highlights are derived from the financial statements of
Decatur Income Fund and Decatur Total Return Fund of Delaware Group Equity Funds
II, Inc. (formerly known as Delaware Group Decatur Fund, Inc.) and have been
audited by Ernst & Young LLP, independent auditors. The data should be read in
conjunction with the financial statements, related notes and the report of Ernst
& Young LLP covering such financial information and highlights, all of which are
incorporated by reference into Part B. Further information about each Funds'
performance is contained in the Annual Report to shareholders. A copy of the
Funds' Annual Report (including the report of Ernst & Young LLP) may be obtained
from Equity Funds II, Inc. upon request at no charge.
- -------------------------------------------------------------------------------
-7-
<PAGE>
<TABLE>
<CAPTION>
Decatur Income Fund Institutional Class
--------------------------------------------------------------------------------------------
Period
1/13/94
Year Ended through Year Ended
11/30/96 11/30/95 11/30/94(2) 11/30/94(1) 11/30/93(1) 11/30/92(1) 11/30/91(1) 11/30/90(1)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $19.06 $15.59 $16.72 $18.24 $17.20 $15.76 $14.53 $19.07
Income From Investment Operations
Net Investment Income ............... 0.69 0.71 0.59 0.67 0.78 0.78 0.83 0.93
Net Gains (Losses) on Securities
(both realized and unrealized)...... 3.62 3.92 (1.10) (0.73) 1.79 1.47 1.37 (2.93)
------ ------ ------ ------ ------ ------ ------ ------
Total From Investment Operations 4.31 4.63 (0.51) (0.06) 2.57 2.25 2.20 (2.00)
------ ------ ------ ------ ------ ------ ------ ------
Less Distributions
Dividends (from net investment income) (0.72) (0.74) (0.62) (0.86) (0.68) (0.81) (0.97) (1.05)
Distributions (from capital gains)... (1.34) (0.42) none (1.75) (0.85) none none (1.49)
Returns of Capital................... none none none none none none none none
------ ------ ------ ------ ------ ------ ------ ------
Total Distributions............. (2.06) (1.16) (0.62) (2.61) (1.53) (0.81) (0.97) (2.54)
------ ------ ------ ------ ------ ------ ------ ------
Net Asset Value, End of Period....... $21.31 $19.06 $15.59 $15.57 $18.24 $17.20 $15.76 $14.53
====== ====== ====== ====== ====== ====== ====== ======
- -----------------------
Total Return......................... 24.65% 31.14% (0.45%) (0.57%)(3) 15.85%(3) 14.55%(3) 15.46%(3) (12.04%)(3)
- -----------------------
Ratios/Supplemental Data
Net Assets, End of Period
(000's omitted)..................... $244,048 $211,409 $182,105 $1,153,884 $1,512,194 $1,508,206 $1,579,521 $1,560,641
Ratio of Expenses to Average
Daily Net Assets.................... 0.69% 0.74% 0.70% 0.81% 0.71% 0.72% 0.70% 0.70%
Ratio of Net Investment Income to
Average Daily Net Assets............ 3.56% 4.16% 4.03% 3.92% 4.34% 4.55% 5.18% 5.78%
Portfolio Turnover Rate.............. 101% 74% 92% 92% 80% 79% 78% 44%
Average Commission Rate Paid......... $0.060 N/A N/A N/A N/A N/A N/A N/A
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
11/30/89(1) 11/30/88(1) 11/30/87(1)
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $16.89 $15.86 $19.32
Income From Investment Operations
Net Investment Income ............... 1.00 0.76 0.77
Net Gains (Losses) on Securities
(both realized and unrealized)...... 2.25 2.75 (1.43)
------ ------ ------
Total From Investment Operations 3.25 3.51 (0.66)
------ ------ ------
Less Distributions
Dividends (from net investment income) (0.81) (0.73) (0.80)
Distributions (from capital gains)... (0.26) (1.75) (2.00)
Returns of Capital................... none none none
------ ------ ------
Total Distributions............. (1.07) (2.48) (2.80)
------ ------ ------
Net Asset Value, End of Period....... $19.07 $16.89 $15.86
====== ====== ======
- -----------------------
Total Return......................... 19.84%(3) 25.20%(3) (4.48%)(3)
- -----------------------
Ratios/Supplemental Data
Net Assets, End of Period
(000's omitted)..................... $1,848,129 $1,517,445 $1,346,411
Ratio of Expenses to Average
Daily Net Assets.................... 0.67% 0.73% 0.69%
Ratio of Net Investment Income to
Average Daily Net Assets............ 5.48% 4.80% 4.37%
Portfolio Turnover Rate.............. 38% 39% 56%
Average Commission Rate Paid......... N/A N/A N/A
</TABLE>
- ----------
(1) Data for Decatur Income Fund Institutional Class are derived from data of
Decatur Income Fund A Class (formerly known as the Decatur Fund I class),
which prior to May 2, 1994 was not subject to Rule 12b-1 distribution
expenses.
(2) Data are derived from data for Decatur Income Fund Institutional Class
(formerly known as the Decatur Fund I (Institutional) class), which
commenced operations on January 13, 1994. Ratios and total return have been
annualized.
(3) Does not reflect current maximum sales charges that are or were in effect
applicable to Decatur Income Fund A Class.
<PAGE>
<TABLE>
<CAPTION>
Decatur Total Return Fund Institutional Class
--------------------------------------------------------------------------------------------
Period
7/26/93(2)
Year Ended through Year Ended
11/30/96 11/30/95 11/30/94 11/30/93 11/30/93(1) 11/30/92(1) 11/30/91(1) 11/30/90(1)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $15.65 $12.35 $14.40 $14.10 $13.98 $12.73 $11.71 $13.64
Income From Investment Operations
Net Investment Income ............... 0.37 0.47 0.43 0.15 0.45 0.47 0.53 0.58
Net Gains (Losses) on Securities
(both realized and unrealized)...... 3.23 3.65 (0.37) 0.25 1.45 1.30 1.07 (1.44)
------ ------ ------ ------ ------ ------ ------ ------
Total From Investment Operations 3.60 4.12 0.06 0.40 1.90 1.77 1.60 (0.86)
------ ------ ------ ------ ------ ------ ------ ------
Less Distributions
Dividends (from net investment income) (0.39) (0.40) (0.45) (0.10) (0.45) (0.52) (0.58) (0.60)
Distributions (from capital gains)... (1.29) (0.42) (1.66) none (1.05) none none (0.47)
Returns of Capital................... none none none none none none none none
------ ------ ------ ------ ------ ------ ------ ------
Total Distributions............. (1.68) (0.82) (2.11) (0.10) (1.50) (0.52) (0.58) (1.07)
------ ------ ------ ------ ------ ------ ------ ------
Net Asset Value, End of Period....... $17.57 $15.65 $12.35 $14.40 $14.38 $13.98 $12.73 $11.71
====== ====== ====== ====== ====== ====== ====== ======
- -----------------------
Total Return......................... 25.24% 35.13% 0.19% 14.89% 14.47%(4) 14.12%(4) 13.94%(4) (6.84%)(4)
- -----------------------
Ratios/Supplemental Data
Net Assets, End of Period
(000's omitted)..................... $45,958 $11,520 $1,376 $1,181 $43,638 $408,986 $394,338 $357,139
Ratio of Expenses to Average
Daily Net Assets.................... 0.81% 0.89% 0.96% 0.92% 1.22% 1.23% 1.23% 1.23%
Ratio of Net Investment Income to
Average Daily Net Assets............ 2.53% 3.02% 3.18% 3.45% 3.15% 3.44% 4.20% 4.87%
Portfolio Turnover Rate.............. 87% 81% 74% 119% 119% 98% 67% 54%
Average Commission Rate Paid......... $0.060 N/A N/A N/A N/A N/A N/A N/A
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
11/30/89(1) 11/30/88(1) 11/30/87(1)
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $11.47 $ 9.04 $10.29
Income From Investment Operations
Net Investment Income ............... 0.54 0.50 0.31
Net Gains (Losses) on Securities
(both realized and unrealized)...... 2.12 2.30 (1.30)
------ ------ ------
Total From Investment Operations 2.66 2.80 (0.99)
------ ------ ------
Less Distributions
Dividends (from net investment income) (0.49) (0.37) (0.26)
Distributions (from capital gains)... none none none
Returns of Capital................... none none none
------ ------ ------
Total Distributions............. (0.49) (0.37) (0.26)
------ ------ ------
Net Asset Value, End of Period....... $13.64 $11.47 $ 9.04
====== ====== ======
- -----------------------
Total Return......................... 23.73%(4) 31.51%(4) (10.08%)(4)
- -----------------------
Ratios/Supplemental Data
Net Assets, End of Period
(000's omitted)..................... $318,871 $200,085 $146,632
Ratio of Expenses to Average
Daily Net Assets.................... 1.24% 1.28% 1.27%(4)
Ratio of Net Investment Income to
Average Daily Net Assets............ 4.60% 4.77% 4.17%(4)
Portfolio Turnover Rate.............. 60% 69% 39%
Average Commission Rate Paid......... N/A N/A N/A
</TABLE>
- ----------
(1) Data are derived from data of Decatur Total Return Fund A Class (formerly
known as the Decatur Fund II class) and reflect the impact of Rule 12b-1
distribution expenses paid by Decatur Total Return Fund A Class. Decatur
Total Return Fund Institutional Class (formerly known as the Decatur Fund
II (Institutional) class) is not subject to Rule 12b-1 distribution
expenses and per share data for periods beginning on and after July 26,
1993 will not reflect the deduction of such expenses.
(2) Date of initial public offering of Decatur Total Return Fund Institutional
Class (formerly known as the Decatur Fund II (Institutional) class); ratios
and total return for this period have been annualized.
(3) Does not reflect any maximum sales charges that are or were in effect.
Total return for 1987 reflects expense limitation referenced in Note 4.
(4) The Manager undertook to waive its management fee and assume expenses to
the extent necessary to limit Decatur Total Return Fund's ratio of annual
operating expenses, exclusive of taxes, interest, brokerage commissions and
extraordinary expenses, to average daily net assets to 1% for a six-month
period after the initial public offering on August 26, 1986. Ratio of
expenses and net investment income to average daily net assets prior to
expense limitation was 1.41% and 4.03%, respectively.
<PAGE>
INVESTMENT OBJECTIVES AND STRATEGIES
SUITABILITY
Decatur Income Fund - The Fund may be suitable for investors looking
for current income with the potential for capital appreciation. The Fund will
invest in common stocks and other income-producing securities, including high
yield, higher risk fixed-income securities, and investors should be willing to
accept the risks associated with such investments.
Decatur Total Return Fund - The Fund may be suitable for the patient
investor interested in long-term growth and current income potential offered by
dividend-paying common stocks. Investors should be willing to accept the risks
associated with investments in common stocks and income-producing securities
that are convertible into common stocks.
* * *
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.
Ownership of shares of each Fund reduces the bookkeeping and
administrative inconveniences that would be involved with direct purchases of
the securities held in each Fund's portfolio.
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
Decatur Income Fund - The objective of Decatur Income Fund is to earn the
highest possible current income by investing primarily in common stocks that
provide the potential for income and capital appreciation without undue risk to
principal. This is a fundamental policy and cannot be changed without
shareholder approval. The Fund primarily aims to earn and pay its shareholders
dependable current income. It seeks to accomplish this objective while
attempting to limit risk to principal through prudent investing. Although it is
not a fundamental policy, the Fund will normally invest at least 65% of its
total assets in income-producing securities. The Fund may invest up to 15% of
its net assets in high yield, higher risk fixed-income securities, which are
generally considered to be speculative. See High Yield, High Risk Securities
under Other Investment Policies and Risk Considerations.
The Manager carefully selects the Fund's diversified group of
securities for their high yields relative to risk involved.
The Fund generally invests in common stocks that the Manager believes
have better potential for income and appreciation than fixed-income securities.
It may, however, invest its assets in all classes of securities, including
bonds, preferred stocks, and common stocks, in any proportions deemed prudent
for defensive purposes
-8-
<PAGE>
under existing market and economic conditions. All available types of
securities, including foreign securities (which may include American or European
Depository Receipts), are under continuous study, and the management regularly
transfers investments between securities or types of securities in carrying out
its investment policy. It is the Fund's policy not to purchase and sell
securities with a view toward obtaining short-term profits. However, the Fund
may hold securities for any period of time.
Decatur Total Return Fund - Decatur Total Return Fund's investment objective is
to achieve long-term growth by investing primarily in securities that provide
the potential for income and capital appreciation without undue risk to
principal. The Fund generally invests in common stocks and income-producing
securities that are convertible into common stocks. The portfolio manager looks
for securities that have a better dividend yield than the average dividend yield
of the Standard & Poor's 500 Stock Index ("S&P 500"), as well as capital gains
potential.
All available types of appropriate securities are under continuous
study. While the Fund may invest in all classes of securities, including bonds
and preferred and common stocks, in any proportion deemed prudent under existing
market and economic conditions, the focus on fixed-income securities can be
expected to be less than that of Decatur Income Fund. The Fund may also invest
in foreign securities.
Income-producing 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.
It is the Fund's policy to purchase and sell securities with a view
toward obtaining long-term rather than short-term capital gains. However, the
Fund may hold securities for any period of time.
* * *
For additional information about each Fund's investment policies and
certain risks associated with investments in certain types of securities, see
Other Investment Policies and Risk Considerations.
-9-
<PAGE>
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) a bank, trust company and similar financial institution investing
for its own account or for the account of its trust customers for whom such
financial institution is exercising investment discretion in purchasing shares
of the Class, except where the investment is part of a program that requires
payment to the financial institution of a Rule 12b-1 Plan fee; and (e)
registered investment advisers investing on behalf of clients that consist
solely of institutions and high net-worth individuals having at least $1,000,000
entrusted to the adviser for investment purposes, but only if the adviser is not
affiliated or associated with a broker or dealer and derives compensation for
its services exclusively from its clients for such advisory services.
Decatur Income Fund A Class, Decatur Income Fund B Class, Decatur Income Fund C
Class, Decatur Total Return Fund A Class, Decatur Total Return Fund B Class and
Decatur Total Return Fund C Class
In addition to offering Decatur Income Fund Institutional Class and
Decatur Total Return Fund Institutional Class, Decatur Income Fund also offers
Decatur Income Fund A Class, Decatur Income Fund B Class and Decatur Income Fund
C Class, and Decatur Total Return Fund also offers Decatur Total Return Fund A
Class, Decatur Total Return Fund B Class and Decatur Total Return Fund C Class,
which are described in a separate prospectus. Decatur Income Fund A Class and
Decatur Total Return Fund A Class 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. Decatur Income Fund B Class, Decatur Income
Fund C Class, Decatur Total Return Fund B Class and Decatur Total Return Fund C
Class have no front-end sales charge but are subject to annual 12b-1 expenses
equal to a maximum of 1%. Shares of Decatur Income Fund B Class, Decatur Income
Fund C Class, Decatur Total Return Fund B Class and Decatur Total Return Fund C
Class and certain shares of Decatur Income Fund A Class and Decatur Total Return
Fund A Class 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.
-10-
<PAGE>
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 the 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.
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 for the Fund and Class in which
you are investing).
1. Initial Purchases--Before you invest, telephone the 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, for the specific Fund and Class
selected by you, 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 Funds. However, shares of
Decatur Income Fund B Class, Decatur Income Fund C Class, Decatur Total Return
Fund B Class and Decatur Total Return Fund C Class and 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 the Classes. If you wish to open an account by
exchange, call your Client Services Representative at 800-828-5052 for more
information. See Redemption and Exchange for more complete information
concerning your exchange privileges.
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 to the
Fund. They may charge for this service.
Purchase Price and Effective Date
The purchase price (net asset value) of each Class 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 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 share price is determined, as noted above. Purchase orders received after
such time will be effective the next business day.
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The Conditions of Your Purchase
Each Fund reserves the right to reject any purchase order. If a
purchase is cancelled 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 purchases 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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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 at a price based on the net
asset value next determined after a Fund receives your request in good order.
For example, redemption and exchange requests received in good order after the
time the net asset value of shares is determined 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 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 written redemption requests as to shares for which
a check was rendered 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 a 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 Class B Shares or Class
C Shares of any 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 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 and Exchange
You can write to a 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
your shares into another mutual fund in the Delaware Group, subject
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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. Each
Fund reserves the right to reject a signature guarantee supplied by an eligible
institution based on its creditworthiness. A Fund may require further
documentation from corporations, executors, retirement plans, administrators,
trustees or guardians.
Payment is normally mailed the next business day after receipt of your
redemption request. 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 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 a Fund by telephone during periods when market or economic conditions lead
to an unusually large volume of telephone requests.
Neither the Funds nor their Transfer Agent is responsible for any
shareholder loss incurred in acting upon written or telephone instructions for
redemption or exchange of Fund shares which are reasonably believed to be
genuine. With respect to such telephone transactions, a Fund will follow
reasonable procedures to confirm that instructions communicated by telephone are
genuine (including verification of a form of personal identification) as, if it
does not, such Fund or the Transfer Agent may be liable for any losses due to
unauthorized or fraudulent transactions. 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
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.
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
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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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DIVIDENDS AND DISTRIBUTIONS
Equity Funds II, Inc. currently intends to make monthly payments from
Decatur Income Fund's net investment income and quarterly payments from Decatur
Total Return Fund's net investment income. Payments from net realized securities
profits of a Fund, if any, will be made in the quarter following the close of
the fiscal year. Both dividends and distributions, if any, are automatically
reinvested in your account at net asset value.
Each class of a Fund will share proportionately in the investment
income and expenses of that Fund, except that the Classes will not incur any
distribution fees under the 12b-1 Plans which apply to Decatur Income Fund A
Class, Decatur Income Fund B Class, Decatur Income Fund C Class, Decatur Total
Return Fund A Class, Decatur Total Return Fund B Class and Decatur Total Return
Fund C Class.
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TAXES
The tax discussion set forth below is included for general information
only. Investors should contact their own tax advisers concerning the federal,
state, local or foreign tax consequences of an investment in a fund.
Each Fund has qualified, and intends to continue 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, even though received 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 each Fund's shareholders. For the fiscal
year ended November 30, 1996, 44% and 59% of, respectively, Decatur Income
Fund's and Decatur Total Return Fund's dividends from net investment income
qualified for the corporate dividends-received deduction.
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. The Funds do not seek to realize any particular
amount of capital gains during a year; rather, realized gains are a by-product
of Fund management activities. Consequently, capital gains distributions may be
expected to vary considerably from year to year. Also, for those investors
subject to tax, if purchases of shares in a Fund are made shortly before the
record date for a 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 year declared.
The sale of shares of a Fund is a taxable event and may result in a
capital gain or loss to shareholders subject to tax. Capital gain or loss may be
realized from an ordinary redemption of shares or an exchange of shares between
a Fund and any other fund 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.
Each year, Equity Funds II, Inc. will mail you information on the tax
status of each Fund's dividends and distributions paid by the Fund in which you
hold shares. Shareholders will also receive each year information as to the
portion of dividend income, if any, that is derived from U.S. government
securities that are exempt from state income tax. Of course, shareholders who
are not subject to tax on their income would not be required to pay tax on
amounts distributed to them by the Fund.
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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 their
shareholders.
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CALCULATION OF NET ASSET VALUE PER SHARE
The purchase and redemption price of a Class is the net asset value
("NAV") per share of Class shares 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. Portfolio
securities for which market 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 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 the Fund represented by the value of shares of such classes,
except that the Classes will not incur any of the expenses under the Fund's
12b-1 Plans and Decatur Income Fund A, B and C Classes and Decatur Total Return
Fund A, B and C Classes alone will bear the 12b-1 Plan fees 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 and dividends paid to
each class of a Fund will vary.
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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 November 30, 1996, the Manager and its affiliates
within the Delaware Group, including Delaware International Advisers Ltd., were
managing in the aggregate more than $32 billion in assets in the various
institutional (approximately $20,311,204,000) and investment company
(approximately $11,765,348,000) 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. In connection with the merger, new
Investment Management Agreements between Equity Funds II, Inc. on behalf of each
Fund and the Manager were executed following shareholder approval.
The Manager manages each Fund's portfolio and makes investment
decisions which are implemented by Equity Funds II, Inc.'s Trading Department.
The Manager also administers Equity Funds II, Inc.'s affairs and pays the
salaries of all the directors, officers and employees of Equity Funds II, Inc.
who are affiliated with the Manager. For these services, under the Investment
Management Agreement for Decatur Income Fund, the Manager is paid an annual fee
of 0.60% on the first $100 million of 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 Decatur Income Fund's
proportionate share of all directors' fees paid to the unaffiliated directors by
Equity Funds II, Inc. For the fiscal year ended November 30, 1996, investment
management fees paid by Decatur Income Fund were 0.49% of its average daily net
assets.
For the services noted above, under the Investment Management Agreement
for Decatur Total Return Fund, the Manager is paid an annual fee of 0.60% on the
first $500 million of average daily net assets of the Fund, 0.575% on the next
$250 million and 0.55% of the average daily net assets in excess of $750
million, less Decatur Total Return Fund's proportionate share of all directors'
fees paid to the unaffiliated directors by Equity Funds II, Inc. For the fiscal
year ended November 30, 1996, investment management fees paid by Decatur Total
Return Fund were 0.59% of its average daily net assets.
John B. Fields has primary responsibility for making day-to-day
investment decisions for each Fund. He has been the Senior Portfolio Manager for
Decatur Income Fund since 1993 and for Decatur Total Return Fund since 1992. Mr.
Fields, who has 26 years experience in investment management, earned a
bachelor's degree and an MBA from Ohio State University. Before joining the
Delaware Group in 1992, he was Director of Domestic Equity Risk Management at
DuPont. Prior to that, he was Director of Equity Research at Comerica Bank. Mr.
Fields is a member of the Financial Analysts Society of Wilmington, Delaware.
In making investment decisions for each Fund, Mr. Fields works with a
team of 12 portfolio managers and analysts, each of whom specializes in a
different industry sector and makes recommendations accordingly. Mr.
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Fields also regularly consults with Wayne A. Stork and Richard G. Unruh, Jr. Mr.
Stork, Chairman of the Manager's and of Equity Funds II, Inc.'s Board of
Directors, is a graduate of Brown University and attended New York University's
Graduate School of Business Administration. Mr. Stork joined the Delaware Group
in 1962 and has served in various executive capacities at different times within
the Delaware organization. A graduate of Brown University, Mr. Unruh received
his MBA from the University of Pennsylvania's Wharton School and joined the
Delaware Group in 1982 after 19 years of investment management experience with
Kidder, Peabody & Co. Inc. Mr. Unruh was named an Executive Vice President of
Equity Funds II, Inc. in 1994. He is also a member of the Board of Directors of
the Manager and was named an executive vice president of the Manager in 1994.
Portfolio Trading Practices
Each Fund normally will not invest for short-term trading purposes.
However, each Fund may sell securities without regard to the length of time they
have been held. The degree of portfolio activity will affect brokerage costs of
each Fund and may affect taxes payable by such Fund's shareholders to the extent
that net capital gains are realized. Given each Fund's investment objective, its
annual portfolio turnover rate is not expected to exceed 100%. For the past two
fiscal years, each Fund's portfolio turnover rates were as follows:
November 30,
Fund 1996 1995
---- ---- ----
Decatur Income Fund 101% 74%
Decatur Total Return Fund 87% 81%
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
its 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, Decatur Income Fund and Decatur Total Return Fund
may quote yield or total return performance of their Classes in advertising and
other types of literature.
The current yield for a Class will be calculated by dividing the
annualized net investment income earned by that Class during a recent 30-day
period by the net asset value per share on the last day of the period. The yield
formula provides for semi-annual compounding which assumes that net investment
income is earned and reinvested at a constant rate and annualized at the end of
a six-month period.
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Total return will be based on a hypothetical $1,000 investment,
reflecting the reinvestment of all distributions at net asset value. 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.
Because securities prices fluctuate, investment results of a Class will
fluctuate over time and past performance should not be considered a guarantee of
future results.
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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 distributions. You
should examine statements and confirmations immediately and promptly report any
discrepancy by calling your Client Services Representative.
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.
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 April 3, 1995, as amended on November 29, 1995. 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 February 24, 1997. The
Transfer Agent also provides accounting services to the Funds pursuant to the
terms of separate Fund Accounting Agreement. The directors annually review
service fees paid to the Transfer Agent. Certain recordkeeping services 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 those services.
In addition, participant account maintenance fees may be assessed for certain
recordkeeping services 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 Agreements and those borne
by the Distributor under the Distribution Agreements. For the fiscal year ended
November 30, 1996, the ratio of operating expenses to average daily net assets
for Decatur Income Fund Institutional Class was 0.69% and for Decatur Total
Return Fund Institutional Class was 0.81%.
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 1956. Equity Funds II, Inc. currently
offers four series of shares - Decatur Income Fund series, Decatur Total Return
Fund series, Blue Chip Fund series and Quantum Fund series. Fund shares have a
par value of $1.00, equal voting rights, except as noted below, and are equal in
all other respects. Each Fund will vote separately on any matter which affects
only that Fund. Shares of each Fund have priority over shares of any other fund
of Equity Funds II, Inc.
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
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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
shares may request that a special meeting be called to consider the removal of a
director.
In addition to the classes, Decatur Income Fund and Decatur Total
Return Fund also offer Decatur Income Fund A Class, Decatur Income Fund B Class,
Decatur Income Fund C Class, Decatur Total Return Fund A Class, Decatur Total
Return Fund B Class and Decatur Total Return Fund C Class. Shares of each class
represent proportionate interests in the assets of the respective Fund and have
the same voting and other rights and preferences as Decatur Income Fund
Institutional Class and Decatur Total Return Fund Institutional Class,
respectively, except that shares of the Classes are not subject to, and may not
vote on matters affecting, the Distribution Plans under Rule 12b-1 relating to
Decatur Income Fund A Class, Decatur Income Fund B Class, Decatur Income Fund C
Class, Decatur Total Return Fund A Class, Decatur Total Return Fund B Class and
Decatur Total Return Fund C Class.
Effective as of the close of business February 21, 1997, the name of
Delaware Group Decatur Fund, Inc. was changed to Delaware Group Equity Funds II,
Inc.
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OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS
High Yield, High Risk Securities
Decatur Income Fund may invest up to 15% of its net assets in high
yield, high risk fixed-income securities. These securities are rated lower than
BBB by Standard & Poor's Ratings Group ("S&P"), Baa by Moody's Investors
Service, Inc. ("Moody's") and/or rated similarly by another rating agency, or,
if unrated, are considered by the Manager to be of equivalent quality. The Fund
will not invest in securities which are rated lower than C by S&P, Ca by Moody's
or similarly by another rating agency, or, if unrated, are considered by the
Manager to be of a quality that is lower than such ratings. See Appendix A -
Ratings to this Prospectus for more rating information. Fixed- income securities
of this type are considered to be of poor standing and predominantly
speculative. Such securities are subject to a substantial degree of credit risk.
In the past, in the opinion of the Manager, the high yields from these
bonds have more than compensated for their higher default rates. There can be no
assurance, however, that yields will continue to offset default rates on these
bonds in the future. The Manager intends to maintain an adequately diversified
portfolio of these bonds. While diversification can help to reduce the effect of
an individual default on the Fund, there can be no assurance that
diversification will protect the Fund from widespread bond defaults brought
about by a sustained economic downturn.
Medium and low-grade bonds held by the Fund may be issued as a
consequence of corporate restructurings, such as leveraged buy-outs, mergers,
acquisitions, debt recapitalizations or similar events. Also these bonds are
often issued by smaller, less creditworthy companies or by highly leveraged
(indebted) firms, which are generally less able than more financially stable
firms to make scheduled payments of interest and principal. The risks posed by
bonds issued under such circumstances are substantial.
The economy and interest rates may affect these high yield, high risk
securities differently than other securities. Prices have been found to be less
sensitive to interest rate changes than higher rated investments, but more
sensitive to adverse economic changes or individual corporate developments.
Also, during an economic downturn or substantial period of rising interest
rates, highly leveraged issuers may experience financial stress which would
adversely affect their ability to service principal and interest payment
obligations, to meet projected business goals and to obtain additional
financing. Changes by recognized rating agencies in their rating of any security
and in the ability of an issuer to make payments of interest and principal will
also ordinarily have a more dramatic effect on the values of these investments
than on the values of higher-rated securities. Such changes in value will not
affect cash income derived from these securities, unless the issuers fail to pay
interest or dividends when due. Such changes will, however, affect the Fund's
net asset value per share.
Restricted and 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. Rule 144A permits many privately
placed and legally restricted securities to be freely traded among certain
institutional buyers such as the Funds. Each Fund may invest no more than 10% of
the value of its net assets in illiquid securities.
While maintaining oversight, the Board of Directors of Equity Funds II,
Inc. has delegated to the Manager the day-to-day function of determining whether
or not individual Rule 144A Securities are liquid for purposes of a Fund's 10%
limitation on investments in illiquid assets. The Board has instructed the
Manager to consider the following factors in determining the liquidity of a Rule
144A Security: (i) the frequency of trades and trading volume for the security;
(ii) whether at least three dealers are willing to purchase or sell the security
and the number of potential purchasers; (iii) whether at least two dealers are
making a market in the security; and (iv) the nature of
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the security and the nature of the marketplace trades (e.g., the time needed to
dispose of the security, the method of soliciting offers, and the mechanics of
transfer).
If the Manager determines that a Rule 144A Security that was previously
determined to be liquid is no longer liquid and, as a result, a Fund's holdings
of illiquid securities exceed the Fund's 10% limit on investments in such
securities, the Manager will determine what action to take to ensure that the
Fund continues to adhere to such limitation.
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.
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, each Fund will only enter into loan arrangements
after a review of all pertinent facts by the Manager, subject to overall
supervision by 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.
Futures Contracts
Each Fund may enter into futures contracts on stocks, stock indices,
interest rates 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 such 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 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 contract more or
less valuable, a process known as "marking to the market."
Purchases or sales of stock or bond index futures contracts are used
for hedging purposes to attempt to protect a Fund's current or intended
investments from broad fluctuations in stock or bond prices. For example, a Fund
may sell stock or bond 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
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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 or
bond 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 or bond index futures contracts will be closed out.
Interest rate futures contracts are purchased or sold for hedging
purposes to attempt to protect against the effects of interest rate changes on a
Fund's current or intended investments in fixed-income securities. For example,
if a Fund owned long-term bonds and interest rates were expected to increase,
the Fund might sell interest rate futures contracts. Such a sale would have much
the same effect as selling some of the long-term bonds in the Fund's portfolio.
However, since the futures market is more liquid than the cash market, the use
of interest rate futures contracts as a hedging technique allows the Fund to
hedge its interest rate risk without having to sell its portfolio securities. If
interest rates did increase, the value of the debt securities in the portfolio
would decline, but the value of the Fund's interest rate futures contracts would
be expected to increase at approximately the same rate, thereby keeping the net
asset value of the Fund from declining as much as it otherwise would have. On
the other hand, if interest rates were expected to decline, interest rate
futures contracts could be purchased as a hedge in anticipation of subsequent
purchases of long-term bonds at higher prices. Because the fluctuations in the
value of the interest rate futures contracts should be similar to those of
long-term bonds, the Fund could protect itself against the effects of the
anticipated rise in the value of long-term bonds without actually buying them
until the necessary cash became available or the market had stabilized. At that
time, the interest rate futures contracts could be liquidated, and the Fund's
cash reserve could then be used to buy long-term bonds on the cash market.
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. A 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, the Fund's loss on the
foreign currency futures contract 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 the Fund is exercised, the Fund will be subject to all the risks
associated with the trading of futures contracts, such as payment
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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. A 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 the
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. For the
option to be considered to be covered, the Fund writing the option must own the
common stock underlying the option or securities convertible into such common
stock. In addition, each Fund may write call options on stock indices. Each Fund
may also purchase put options on individual issues and on stock indices. The
Manager 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 Funds do not currently intend to write or purchase
options on stock indices.
While there is no limit on the amount of a Fund's assets which may be
invested in covered call options, neither Fund will invest more than 2% of its
net assets in put options. The Funds 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 exercise 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
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or offsetting any capital loss or decline in market value of the security.
However, if the Manager'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.
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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.
* * *
Borrowing
Although each Fund is permitted under certain circumstances to borrow
money, neither Fund normally do so. A Fund will not purchase new securities
while any borrowings are outstanding.
Repurchase Agreements
Each Fund may use repurchase agreements that are at least 100%
collateralized by securities in which the Fund can invest directly, including
securities issued or guaranteed by the U.S. government or its agencies or
instrumentalities. Repurchase agreements help a Fund to invest cash on a
temporary basis. Under a repurchase agreement, a Fund acquires ownership and
possession of a security, and the seller agrees to buy the security back at a
specified time and higher price. If the seller is unable to repurchase the
security, the Fund could experience delays in liquidating the securities. To
minimize this possibility, the Manager, pursuant to direction from Equity Funds,
II, Inc.'s Board of Directors, considers the creditworthiness of the banks and
dealers with whom it enters into repurchase agreements.
* * *
Part B sets forth more specific investment restrictions, some of which
limit the percentage of assets that may be invested in certain types of
securities.
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APPENDIX A--RATINGS
Decatur Income Fund has the ability to invest up to 15% of its net
assets in high yield, high risk fixed-income securities. The table set forth
below shows the assets composition, based on rating categories, of such
securities held by the Fund. Certain securities may not be rated because the
rating agencies were either not asked to provide ratings (e.g., many issuers of
privately placed bonds do not seek ratings) or because the rating agencies
declined to provide a rating for some reason, such as insufficient data. The
table below shows the percentage of Decatur Income Fund's high yield, high risk
securities which are not rated. The information contained in the table was
prepared based on a dollar weighted average of the Fund's portfolio composition
based on month end data for the fiscal year ended November 30, 1996. The
paragraphs following the table contain excerpts from Moody's and S&P's rating
descriptions. These credit ratings evaluate only the safety of principal and
interest and do not consider the market value risk associated with high yield
securities.
Rating Moody's Average Weighted
and/or Percentage of
S&P Portfolio
-------------- ----------------
Baa/BBB 0.15%
Ba/BB 2.47%
B/B 6.99%
Not Rated/Other 0.20%
General Rating Information
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.
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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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