<PAGE>
The Delaware Group includes --------------------------------
funds with a wide range of
investment objectives. Stock funds, DECATUR INCOME FUND
income funds, tax-free funds, money DECATUR TOTAL RETURN FUND
market funds, global and BLUE CHIP FUND
international funds and closed-end QUANTUM FUND
equity funds give investors the --------------------------------
ability to create a portfolio that
fits their personal financial
goals. For more information, A CLASSES
shareholders of the Fund Classes --------------------------------
should contact their financial
adviser or call Delaware Group at
800-523-4640, and shareholders of B CLASSES
the Institutional Class should --------------------------------
contact Delaware Group at
800-828-5052.
C CLASSES
--------------------------------
INVESTMENT MANAGER
Delaware Management Company, Inc.
One Commerce Square INSTITUTIONAL CLASSES
Philadelphia, PA 19103 ================================
SUB-ADVISER
Blue Chip Fund and CLASSES OF DELAWARE GROUP
Quantum Fund: EQUITY FUNDS II, INC.
Vantage Global Advisors, Inc. --------------------------------
630 Fifth Avenue
New York, NY 10111
NATIONAL DISTRIBUTOR
Delaware Distributors, L.P.
1818 Market Street PART B
Philadelphia, PA 19103
STATEMENT OF
SHAREHOLDER SERVICING, ADDITIONAL INFORMATION
DIVIDEND DISBURSING,
ACCOUNTING SERVICES --------------------------------
AND TRANSFER AGENT
Delaware Service Company, Inc.
1818 Market Street
Philadelphia, PA 19103 FEBRUARY 24, 1997
LEGAL COUNSEL
Stradley, Ronon, Stevens & Young, LLP
One Commerce Square
Philadelphia, PA 19103
DELAWARE
INDEPENDENT AUDITORS GROUP
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
<PAGE>
<TABLE>
<CAPTION>
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PART B--STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY 24, 1997
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C>
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 Class A Shares, Class B Shares and Class C Shares:
Nationwide 800-523-4640
Information on Existing Accounts of Class A Shares, Class B Shares and Class C Shares:
(SHAREHOLDERS ONLY) Nationwide 800-523-1918
Dealer Services: (BROKER/DEALERS ONLY) Nationwide 800-362-7500
- -------------------------------------------------------------------------------------------------------------------------------
TABLE OF CONTENTS
- -------------------------------------------------------------------------------------------------------------------------------
Cover Page
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Investment Policies and Portfolio Techniques
- -------------------------------------------------------------------------------------------------------------------------------
Accounting and Tax Issues
- -------------------------------------------------------------------------------------------------------------------------------
Performance Information
- -------------------------------------------------------------------------------------------------------------------------------
Trading Practices and Brokerage
- -------------------------------------------------------------------------------------------------------------------------------
Purchasing Shares
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Investment Plans
- -------------------------------------------------------------------------------------------------------------------------------
Determining Offering Price
and Net Asset Value
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Redemption and Repurchase
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Distributions and Taxes
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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
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</TABLE>
-1-
<PAGE>
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, 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 of a Fund
may be purchased at a price equal to the next determined net asset value per
share. Class A Shares may be purchased at the public offering price, which is
equal to the next determined net asset value per share, plus a front-end sales
charge. Class A Shares are subject to a maximum front-end sales charge of 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 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, February 24, 1997 and the current
Prospectuses for the Institutional Classes dated February 24, 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. A prospectus
relating to the Fund Classes and a prospectus relating to the Institutional
Classes may be obtained by writing or calling your investment dealer or by
contacting the Funds' national distributor, Delaware Distributors, L.P. (the
"Distributor"), 1818 Market Street, Philadelphia, PA 19103.
-2-
<PAGE>
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.
-3-
<PAGE>
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.
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 ("1940 Act"), 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.
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. 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.
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).
-4-
<PAGE>
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 ("1933 Act").
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.
-5-
<PAGE>
13. Invest in interests in oil, gas or other mineral exploration or
development programs.
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 1940 Act
except for notes to banks.
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 ("1934 Act") or American Depositary 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 Decatur Income Fund and Decatur Total Return
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.
-6-
<PAGE>
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, 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. Blue Chip Fund shall not issue senior securities as
defined in the 1940 Act, except for notes to banks.
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 1933 Act.
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.
-7-
<PAGE>
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.
-8-
<PAGE>
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. Quantum Fund shall not issue senior securities as defined
in the 1940 Act, except for notes to banks.
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 1933 Act.
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.
-9-
<PAGE>
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 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
-10-
<PAGE>
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 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
1940 Act, 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 1940 Act 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 a 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, each Fund 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
-11-
<PAGE>
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 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.
-12-
<PAGE>
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 expires unexercised, a Fund will realize a short-term
capital gain in the amount of the premium on the option, less the commission
paid. Such a gain, however, may be offset by depreciation in the market value of
the underlying security during the option period. If a call option is exercised,
a Fund will realize a gain or loss from the sale of the underlying security
equal to the difference between the cost of the underlying security, and the
proceeds of the sale of the security plus the amount of the premium on the
option, less the commission paid.
The market value of a call option generally reflects the market price
of an underlying security. Other principal factors affecting market value
include supply and demand, interest rates, the price volatility of the
underlying security and the time remaining until the expiration date.
A Fund will write call options only on a covered basis, which means
that 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.
-13-
<PAGE>
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 ("S&P 500") or the New York Stock Exchange Composite
Index, or a narrower market index such as the Standard & Poor's 100
-14-
<PAGE>
("S&P 100"). Indices are also based on an industry or market segment such as the
AMEX Oil and Gas Index or the Computer and Business Equipment Index. Options on
stock indices are currently traded on the following Exchanges among others: The
Chicago Board Options Exchange, New York Stock Exchange and American Stock
Exchange.
The effectiveness of purchasing or writing stock index options as a
hedging technique will depend upon the extent to which price movements in a
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
-15-
<PAGE>
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.
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
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<PAGE>
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, 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-
-17-
<PAGE>
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.
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.
-18-
<PAGE>
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.
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.
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<PAGE>
In addition, as a matter of non-fundamental policy, 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 of equipment for the
production of nuclear power;
3. The manufacture of, or contracting for, military weapons; or
4. The liquor, tobacco or gambling industries.
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.
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<PAGE>
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 regulated investment companies 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.
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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.
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.
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.
The average annual total rate of return for each Class is based on a
hypothetical $1,000 investment that includes capital appreciation and
depreciation during the stated periods. The following formula will be used for
the actual computations:
n
P(1 + T) = ERV
Where: P = a hypothetical initial purchase order of $1,000
from which, in the case of only Class A Shares,
the maximum front-end sales charge is deducted;
T = average annual total return;
n = number of years; and
ERV = redeemable value of the hypothetical $1,000
purchase at the end of the period after the
deduction of the applicable CDSC, if any, with
respect to Class B Shares and Class C Shares.
Aggregate or cumulative total return is calculated in a similar manner,
except that the results are not annualized. Each calculation assumes the maximum
front-end sales charge, if any, is deducted from the initial $1,000 investment
at the time it is made with respect to Class A Shares and that all distributions
are
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<PAGE>
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,
1996, computed as described above.
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.
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<PAGE>
<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 18.57% 24.47% 24.65%
3 years ended 11/30/96 15.59% 17.48% 17.62%
5 years ended 11/30/96 15.43% 16.56% 16.65%
10 years ended 11/30/96 11.55% 12.09% 12.13%
15 years ended 11/30/96 14.71% 15.09% 15.11%
3/18/57(5) through 11/30/96 12.19% 12.32% 12.33%
</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 of Decatur Income Fund Institutional Class
was January 13, 1994.
(5) Date of initial public offering of Decatur Income Fund A Class.
<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)
1 year ended 1 year ended
11/30/96 19.43% 23.43% 11/30/96 22.47% 23.47%
<S> <C> <C> <C> <C> <C>
Period Period
9/6/94(1) 11/29/95(2)
through through
11/30/96 19.46% 20.53% 11/30/96 23.23% 23.23%
</TABLE>
(1) Date of initial public offering of Decatur Income Fund B Class.
(2) Date of initial public offering of Decatur Income Fund C Class.
-24-
<PAGE>
<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 18.95% 24.89% 25.24%
3 years ended 11/30/96 16.99% 18.91% 19.24%
5 years ended 11/30/96 15.97% 17.10% 17.33%
10 years ended 11/30/96 12.54% 13.08% 13.19%
Period 8/27/86(3)
through 11/30/96 13.03% 13.57% 13.68%
</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 of Decatur Total Return Fund Institutional
Class was July 26, 1993.
(3) Date of initial public offering of Decatur Total Return Fund A Class.
<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 20.01% 24.01% 11/30/96 23.04% 24.04%
Period Period
9/6/94(1) 11/29/95(2)
through through
11/30/96 21.30% 22.35% 11/30/96 23.90% 23.90%
</TABLE>
(1) Date of initial public offering of Decatur Total Return Fund B Class.
(2) Date of initial public offering of Decatur Total Return Fund C Class.
Total return information regarding 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.
-25-
<PAGE>
The yield computation is determined by dividing the net investment
income per share earned during the period by the maximum offering price per
share on the last day of the period and annualizing the resulting figure,
according to the following formula:
a--b 6
YIELD = 2[(-------- + 1) -- 1]
cd
Where: a = dividends and interest earned during the period;
b = expenses accrued for the period (net of
reimbursements);
c = the average daily number of shares outstanding
during the period that were entitled to receive
dividends;
d = the maximum offering price per share on the last
day of the period.
The above formula will be used in calculating quotations of yield of
each Class, based on specified 30-day periods identified in advertising by the
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 2.87% 1.84%
Class B Shares 2.18% 1.22%
Class C Shares 2.18% 1.22%
Institutional Class Shares 3.18% 2.22%
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 Fund'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 Fund'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 the time-proven Decatur investment style to the institutional investing
community. As of December 31, 1996, Delaware Investment Advisers managed
approximately $20 billion in institutional assets under management in that
style.
-26-
<PAGE>
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 S&P 500
Stock Index and the Dow Jones Industrial Average and other unmanaged indices.
The S&P 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.
From time to time, each Fund may also quote actual total return
performance of 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.
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 activity and performance of the Funds 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 each 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.
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.
-27-
<PAGE>
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.
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.
The following tables are examples, for purposes of illustration only,
of cumulative total return performance for Class A Shares, Class B Shares, Class
C Shares and 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, but does
not reflect any income taxes payable by shareholders on the reinvested
distributions. The performance of Class A Shares reflects the maximum front-end
sales charge paid on the purchases of shares but may also be shown without
reflecting the impact of any front-end sales charge. The performance of Class B
Shares and Class C Shares is calculated both with the applicable CDSC included
and excluded. Comparative information on the S&P 500 Stock Index and the Dow
Jones Industrial Average is also included.
-28-
<PAGE>
Cumulative Total Return
Decatur Income Fund
<TABLE>
<CAPTION>
Class A
Shares(1)(2)(3) Institutional S&P 500 Dow Jones
(at Offer) Class(4) Index(5) Industrial(5)
<S> <C> <C> <C> <C>
3 months ended 11/30/96 7.22% 12.56% 16.75% 16.76%
6 months ended 11/30/96 7.17%(6) 12.63% 14.38% 16.86%
9 months ended 11/30/96 11.26% 16.91% 20.20% 20.87%
1 year ended 11/30/96 18.57% 24.65% 27.86% 31.39%
3 years ended 11/30/96 54.44% 62.73% 76.90% 90.84%
5 years ended 11/30/96 104.89% 115.95% 130.70% 157.51%
10 years ended 11/30/96 198.36% 214.32% 311.36% 367.40%
15 years ended 11/30/96 683.74% 725.83% 919.23% 1,155.10%
3/18/57(7) through 11/30/96 9,516.48% 10,032.89% N/A N/A
</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 of Decatur Income Fund Institutional Class
was January 13, 1994.
(5) Source: Interactive Data Corp.
(6) For the six months ended November 30, 1996, cumulative total return for
Decatur Income Fund A Class at net asset value was 7.17%.
(7) Date of initial public offering of Decatur Income Fund A Class.
-29-
<PAGE>
Cumulative Total Return
Decatur Income Fund
<TABLE>
<CAPTION>
Class B Shares Class B Shares
(Including (Excluding
Deferred Deferred S&P 500 Dow Jones
Sales Charge) Sales Charge) Index(1) Industrial(1)
<C> <C> <C> <C> <C>
3 months ended 11/30/96 8.34% 12.34% 16.75% 16.76%
6 months ended 11/30/96 8.09% 12.09% 14.38% 16.86%
9 months ended 11/30/96 12.09% 16.09% 20.20% 20.87%
1 year ended 11/30/96 19.43% 23.43% 27.86% 31.39%
Period 9/6/94(2)
through 11/30/96 48.81% 51.81% 68.26% 76.28%
</TABLE>
(1) Source: Interactive Data Corp.
(2) Date of initial public offering of Decatur Income Fund B Class.
Cumulative Total Return
Decatur Income Fund
<TABLE>
<CAPTION>
Class C Shares Class C Shares
(Including (Excluding
Deferred Deferred S&P 500 Dow Jones
Sales Charge) Sales Charge) Index(1) Industrial(1)
<C> <C> <C> <C> <C>
3 months ended 11/30/96 11.36% 12.36% 16.75% 16.76%
6 months ended 11/30/96 11.04% 12.04% 14.38% 16.86%
9 months ended 11/30/96 15.09% 16.09% 20.20% 20.87%
1 year ended 11/30/96 22.47% 23.47% 27.86% 31.39%
Period 11/29/95(2)
through 11/30/96 23.37% 23.37% 27.85% 31.50%
</TABLE>
(1) Source: Interactive Data Corp.
(2) Date of initial public offering of Decatur Income Fund C Class.
-30-
<PAGE>
Cumulative Total Return
Decatur Total Return Fund
<TABLE>
<CAPTION>
Class A Shares Institutional S&P 500 Dow Jones
(at Offer)(1) Class(2) Index(3) Industrial(3)
<S> <C> <C> <C> <C>
3 months ended 11/30/96 8.22% 13.70% 16.75% 16.76%
6 months ended 11/30/96 7.85%(4) 13.41% 14.38% 16.86%
9 months ended 11/30/96 11.75% 17.61% 20.20% 20.87%
1 year ended 11/30/96 18.95% 25.24% 27.86% 31.39%
3 years ended 11/30/96 60.12% 69.56% 76.90% 90.84%
5 years ended 11/30/96 109.76% 122.32% 130.70% 157.51%
10 years ended 11/30/96 225.77% 245.29% 311.36% 367.40%
Period 8/27/86(5)
through 11/30/96 251.47% 272.82% 308.99% 376.51%
</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 of Decatur Total Return Fund Institutional
Class 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 7.85%.
(5) Date of initial public offering of Decatur Total Return Fund A Class.
Cumulative Total Return
Decatur Total Return Fund
<TABLE>
<CAPTION>
Class B Shares Class B Shares
(Including (Excluding
Deferred Deferred S&P 500 Dow Jones
Sales Charge) Sales Charge) Index(1) Industrial(1)
<S> <C> <C> <C> <C>
3 months ended 11/30/96 9.36% 13.36% 16.75% 16.76%
6 months ended 11/30/96 8.78% 12.78% 14.38% 16.86%
9 months ended 11/30/96 12.66% 16.66% 20.20% 20.87%
1 year ended 11/30/96 20.01% 24.01% 27.86% 31.39%
Period 9/6/94(2)
through 11/30/96 53.99% 56.99% 68.26% 76.28%
</TABLE>
(1) Source: Interactive Data Corp.
(2) Date of initial public offering of Decatur Total Return Fund B Class.
-31-
<PAGE>
Cumulative Total Return
Decatur Total Return Fund
<TABLE>
<CAPTION>
Class C Shares Class C Shares
(Including (Excluding
Deferred Deferred S&P 500 Dow Jones
Sales Charge) Sales Charge) Index(1) Industrial(1)
<C> <C> <C> <C> <C>
3 months ended 11/30/96 12.39% 13.39% 16.75% 16.76%
6 months ended 11/30/96 11.80% 12.80% 14.38% 16.86%
9 months ended 11/30/96 15.70% 16.70% 20.20% 20.87%
1 year ended 11/30/96 23.04% 24.04% 27.86% 31.39%
Period 11/29/95(2)
through 11/30/96 24.04% 24.04% 27.85% 31.50%
</TABLE>
(1) Source: Interactive Data Corp.
(2) Date of initial public offering of Decatur Total Return Fund C Class.
See Appendix C - Performance Overview 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.
-32-
<PAGE>
THE POWER OF COMPOUNDING
When you opt to reinvest your current income for additional Fund
shares, your investment is given yet another opportunity to grow. It's called
the Power of Compounding 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:
9% Rate 11% Rate 13% Rate
of Return of Return of Return
--------- --------- ---------
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
Results at various assumed fixed rates of return on a $10,000
investment compounded quarterly for 10 years:
8% Rate 10% Rate 12% Rate 14% Rate
of Return of Return of Return of Return
--------- --------- --------- ---------
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
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 or sales charges, are not intended to
be a projection of investment results and do not reflect the actual performance
results of any of the Classes.
-33-
<PAGE>
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 Decatur Income Fund
were $3,843,614, $3,039,414 and $4,041,197, respectively. During the same
periods, the aggregate dollar amounts of brokerage commissions paid by Decatur
Total Return Fund were $895,815, $1,150,026 and $1,488,884, 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
$563,577,586 and $250,606,532, respectively, resulting in brokerage commissions
of $735,196 and $339,613, respectively, were directed to brokers for brokerage
and research services provided.
As provided in the 1934 Act and each Fund's Investment Management
Agreement, higher commissions are permitted to be paid to broker/dealers who
provide brokerage and research services than to broker/dealers who do not
provide such services if such higher commissions are deemed reasonable in
relation to the value of the brokerage and research services provided. Although
transactions are directed to broker/dealers who provide such brokerage and
research services, the Funds believe that the commissions paid to such
broker/dealers are not, in general, higher than commissions that would be paid
to broker/dealers not providing such services and that such commissions are
reasonable in relation to the value of the brokerage and research services
provided. In some instances, services may be provided to the Manager which
constitute in some part brokerage and research services used by the Manager in
connection with its investment decision-making process and constitute in some
part services used by the Manager in connection with administrative or other
functions not related to its investment decision-making process. In such cases,
the Manager will make a good faith allocation of brokerage and research services
and will pay out of its own
-34-
<PAGE>
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 a Fund 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 1940 Act, 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. However, it is generally anticipated that a Fund's
portfolio turnover rate will be less than 100%,
The degree of portfolio activity may affect brokerage costs of a Fund
and taxes payable by a Fund's shareholders to the extent of any net realized
capital gains. Each Fund's portfolio turnover rate is not expected to exceed
100%; however, under certain market conditions a Fund may experience a rate of
portfolio turnover which could exceed 100%. 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.
During the past two fiscal years, Decatur Income Fund's portfolio
turnover rates were 74% and 101%, respectively, and Decatur Total Return Fund's
portfolio turnover rates were 81% and 87%, 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.
-35-
<PAGE>
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 of such classes
generally must be at least $100. The initial and subsequent minimum investments
for Class A Shares will be waived for purchases by officers, directors and
employees of any 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 are responsible for transmitting orders promptly.
Equity Funds II, Inc. reserves the right to reject any order for the purchase of
shares of a Fund if in the opinion of management such rejection is in such
Fund's best interests.
The NASD has adopted Rules of Fair Practice, as amended, 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.
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 are higher than those to which
Class A Shares are subject and 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.
-36-
<PAGE>
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 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 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 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
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>
<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 a % 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% 4.97% 4.97% 4.94% 4.94% 4.00%
$100,000 but under $250,000 3.75 3.89 3.88 3.88 3.88 3.00
$250,000 but under $500,000 2.50 2.58 2.57 2.59 2.59 2.00
$500,000 but under $1,000,000* 2.00 2.02 2.05 2.00 2.00 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 respective Fund's 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
the front-end sales charges shown above. Dealers who receive 90% or
more of the sales charge may be deemed to be underwriters under the
1933 Act.
- --------------------------------------------------------------------------------
-38-
<PAGE>
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
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 Shares and Class C Shares are purchased without a front-end
sales charge. Class B Shares redeemed within six years of purchase may be
subject to a CDSC at the rates set forth 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 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.
-39-
<PAGE>
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 of shares to which the Plan applies. The Plans do
not apply to Institutional Classes of shares. Such shares are not included in
calculating the Plans' fees, and the Plans are not used to assist in the
distribution and marketing of shares of Institutional Classes. Shareholders of
Institutional Classes may not vote on matters affecting the Plans.
The Plans permit a Fund, pursuant to its Distribution Agreement, to pay
out of the assets of 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.
In addition, each Fund may make payments out of the assets of 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 a
Fund's 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.
-40-
<PAGE>
Although the maximum fee payable under the 12b-1 Plan relating to
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 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 Decatur Income Fund A Class shares 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 Decatur
Income Fund A Class 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 Decatur Income
Fund A Class under its Plan, the fee is a Class A Shares' expense so that all
shareholders of 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 of Decatur
Income Fund 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 Decatur Income Fund A Class' Plan, such Plan permits a full 0.30% on all
of the Fund's 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.
Each year, the directors must determine whether continuation of the
Plans is in the best interest of shareholders of, respectively, Class A Shares,
Class B Shares and Class C Shares of the respective Funds 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 securities 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.
-41-
<PAGE>
For the fiscal year ended November 30, 1996, payments from Decatur
Income Fund A Class, Decatur Income Fund B Class and Decatur Income Fund C Class
amounted to $2,303,100, $364,605 and $16,488, respectively. 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 $10,611 ---- ----
Annual/Semi-Annual Reports $56,820 ---- ----
Broker Trails $1,915,006 $91,815 ----
Broker Sales Charges ---- $138,344 $15,444
Dealer Service Expenses ---- ---- ----
Interest on Broker Sales Charges ---- $116,879 $1,044
Commissions to Wholesalers $67,788 $14,234 ----
Promotional-Broker Meetings $53,974 $3,333 ----
Promotional-Other $159,048 ---- ----
Prospectus Printing $22,068 ---- ----
Telephone $7,235 ---- ----
Wholesaler Expenses $10,550 ---- ----
Other ---- ---- ----
</TABLE>
-42-
<PAGE>
For the fiscal year ended November 30, 1996, payments from Decatur
Total Return Fund A Class, Decatur Total Return Fund B Class and Decatur Total
Return Fund C Class amounted to $1,757,417, $301,417 and $29,264, respectively.
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 $12,348 ---- ----
Annual/Semi-Annual Reports $41,256 ---- ----
Broker Trails $1,430,874 $76,002 ----
Broker Sales Charges ---- $115,150 $27,517
Dealer Service Expenses ---- ---- ----
Interest on Broker Sales Charges ---- $95,842 $1,747
Commissions to Wholesalers $80,612 $11,519 ----
Promotional-Broker Meetings $32,207 $2,904 ----
Promotional-Other $112,260 ---- ----
Prospectus Printing $25,890 ---- ----
Telephone $6,020 ---- ----
Wholesaler Expenses $15,950 ---- ----
Other ---- ---- ----
</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, the Manager's
affiliates, 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
shares of any of the other 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.
-43-
<PAGE>
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. In addition, purchases of Class A Shares may be made by financial
institutions investing for the account of their trust customers when they are
not eligible to purchase shares of a Fund's Institutional Class. 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 Class A Shares intended to be
purchased until such purchase is completed within the 13-month period. A Letter
of Intention may be dated to include shares purchased up to 90 days prior to the
date the Letter is signed. The 13-month period begins on the date of the
earliest purchase. If the intended investment is not completed, except as noted
below, the purchaser will be asked to pay an amount equal to the difference
between the front-end sales charge on Class A Shares purchased at the reduced
rate and the front-end sales charge otherwise applicable to the total shares
purchased. If such payment is not made within 20 days following the expiration
of the 13-month period, the Transfer Agent will surrender an appropriate number
of the escrowed shares for redemption in order to realize the difference. Such
purchasers may include the value (at offering price at the level designated in
their Letter of Intention) of all their shares of the Funds and of any class of
any of the other mutual funds in the Delaware 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 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.
-44-
<PAGE>
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 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
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.
-45-
<PAGE>
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 00, 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.
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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) 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 fee; and (e) registered investment advisers investing on behalf of clients
that consist solely of institutions and high net-worth individuals having at
least $1,000,000 entrusted to the adviser for investment purposes, but only if
the adviser is not affiliated or associated with a broker or dealer and derives
compensation for its services exclusively from its clients for such advisory
services.
Shares of the Institutional 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.
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INVESTMENT PLANS
Reinvestment Plan/Open Account
Unless otherwise designated by shareholders in writing, dividends from
net investment income and distributions from realized securities profits, if
any, will be automatically reinvested in additional shares of the respective
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 Institutional Class shares at the net
asset value, at the end of the day of receipt. A reinvestment plan may be
terminated at any time. This plan does not assure a profit nor protect against
depreciation in a declining market.
Reinvestment of Dividends in Other Delaware 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.
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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.
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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 giving
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 a 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.
Purchases of Class B Shares are subject to a maximum purchase
limitation of $250,000 for retirement plans. Purchases of Class C Shares must be
in an amount that is less than $1,000,000 for such plans. The maximum purchase
limitations apply only to the initial purchase of shares by the retirement plan.
Minimum investment limitations generally applicable to other investors
do not apply to retirement plans, other than Individual Retirement Accounts, for
which there is a minimum initial purchase of $250 and a minimum subsequent
purchase of $25, regardless of which Class is selected. Retirement plans may be
subject to plan establishment fees, annual maintenance fees and/or other
administrative or trustee fees. Fees are based upon the number of participants
in the plan as well as the services selected. Additional information about fees
is included in retirement plan materials. Fees are quoted upon request. Annual
maintenance fees may be shared by Delaware Management Trust Company, the
Transfer Agent, other affiliates of the Manager and others that provide services
to such plans.
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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. These plans can be maintained as Section 401(k),
profit sharing or money purchase pension plan provisions. Contributions 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, for years prior to
1997, elects to be treated as having no compensation for the year. Investments
in each of the Fund Classes are permissible.
An individual can contribute up to $2,000 of his or her IRA each year.
Contributions may or may not be deductible depending upon the taxpayers adjusted
gross income and whether the taxpayer or his or her spouse is an active
participant in an employer-sponsored retirement plan. Even if a taxpayer (or his
or her spouse) is an active participant in an employer-sponsored retirement
plan, the full $2,000 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. No deductions are available 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 for years prior to 1997), 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.
Effective for tax years beginning after 1996, one-income couples can
contribute up to $2,000 to each spouse's IRA provided the combined compensation
of both spouses is at least equal to the total contributions for both spouses.
If the working spouse is an active participant in an employer-sponsored
retirement plan and earns over $40,000, the maximum deduction limit is reduced
in the same way that the limit is reduced for contributions to a non-spousal
IRA.
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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.
Effective January 1, 1997, the 10% premature distribution penalty will
not apply to distributions from an IRA that are used to pay medical expenses in
excess of 7.5% of adjusted gross income or to pay health insurance premiums by
an individual who has received unemployment compensation for 12 consecutive
weeks.
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")
New SAR/SEP plans may not be established after December 31, 1996. In
addition, employers must have 25 or fewer eligible employees to maintain an
existing SEP/IRA which permits salary deferral contributions. SAR/SEP plans may
only invest in Class A Shares and Class C Shares.
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 00.
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
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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 00.
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
00.
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DETERMINING OFFERING PRICE AND NET ASSET VALUE
Orders for purchases of Class A Shares are effected at the offering
price next calculated by the Fund in which shares are being purchased after
receipt of the order by the Fund or its agent. Orders for purchases of Class B
Shares, Class C Shares and Institutional Class shares are effected at the net
asset value per share next calculated by the Fund in which shares are being
purchased after receipt of the order by the Fund or its agent. Selling dealers
are responsible for transmitting orders promptly.
The offering price for Class A Shares consists of the net asset value
per share plus any applicable front-end sales charges. Offering price and net
asset value are computed as of the close of regular trading on the New York
Stock Exchange (ordinarily, 4 p.m., Eastern time) on days when the Exchange is
open. The New York Stock Exchange is scheduled to be open Monday through Friday
throughout the year except for New Year's Day, 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 that Fund represented by the value of shares
of that Class. All income earned and expenses incurred by a Fund will be borne
on a pro-rata basis by each outstanding share of a Class, based on each Class'
percentage in that Fund represented by the value of shares of such Classes,
except that the Institutional 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.
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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, subject to 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, in the case of the Fund Classes, 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.
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Payment for shares redeemed will ordinarily be mailed the next business
day, but in no case later than seven days, after receipt of a redemption request
in good order; 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 1940 Act pursuant to
which each Fund is obligated to redeem shares solely in cash up to the lesser of
$250,000 or 1% of the net asset value of such Fund during any 90-day period for
any one shareholder.
The value of a Fund's investments is subject to changing market prices.
Thus, a shareholder reselling shares to a Fund may sustain either a gain or
loss, depending upon the price paid and the price received for such shares.
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.
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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 from Class A Shares, Class B Shares and Class C Shares. 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.
If expedited payment under these procedures could adversely affect a
Fund, such Fund may take up to seven days to pay the shareholder.
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<PAGE>
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 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.
-58-
<PAGE>
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.
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<PAGE>
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 regulated investment companies 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
dividends from 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.
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<PAGE>
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, 44% and 59% of the dividends from net investment
income of 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>
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
managing in the aggregate more than $32 billion in assets in the various
institutional or separately managed (approximately $20,311,204,000) and
investment company (approximately $11,765,348,000) accounts.
The Investment Management Agreements for 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 February 24, 1997 and were approved by each
Fund's respective initial shareholder on February 24, 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 the Fund's proportionate share of all directors' fees paid to the
unaffiliated directors by Equity Funds II, Inc.
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 the Fund's
proportionate share of all directors' fees paid to the unaffiliated directors by
Equity Funds II, Inc.
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>
The Manager has elected voluntarily to waive that portion, if any, of
the annual management fees payable by Blue Chip Fund and Quantum Fund and to pay
certain expenses of a Fund to the extent necessary to ensure that the total
operating expenses of each Class of that Fund do not exceed 1.20% (exclusive of
taxes, interest, brokerage commissions, extraordinary expenses and 12b-1
expenses) during the commencement of the public offering of the Fund through
July 31, 1997.
Pursuant to the terms of the Sub-Advisory Agreements 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) 0.15% of the fee paid to the Manager
under Blue Chip Fund's Investment Management Agreement for the period February
24, 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) 0.20% of the fee paid to the Manager under
Quantum Fund's Investment Management Agreement for the period February 24, 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 in6 1979, it provides investment advice to pension plans,
endowments, insurance and commingled products and has assets under management,
as of January 31, 1997, in excess of $5 billion. The Sub-Adviser uses a
quantitative approach. It evaluates potential investments utilizing an
internally developed statistical model, based on securities financial
characteristics.
On November 30, 1996, the total net assets of Equity Funds II, Inc.
were $2,703,812,967, broken down as follows: Decatur Income Fund -
$1,925,884,668 and Decatur Total Return Fund - $777,928,299. Investment
management fees paid by Decatur Income Fund during the past three fiscal years
were $7,128,034 for 1994, $7,182,707 for 1995 and $8,397,639 for 1996.
Investment management fees paid by Decatur Total Return Fund during the past
three fiscal years were $2,542,011 for 1994, $2,859,001 for 1995 and $3,801,697
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 0.85% 1.11%
Class B Shares 1.69% 1.81%
Class C Shares 1.69% 1.81%
Institutional Class 0.69% 0.81%
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<PAGE>
The expense ratios for Class A Shares, Class B Shares and Class C
Shares reflect the impact of their 12b-1 Plans.
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 February 24, 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 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
February 24, 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.
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<PAGE>
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 January 31, 1997,
Equity Funds II, Inc.'s officers and directors owned less than 1% of the
outstanding shares of Decatur Income Fund Class A Shares, Decatur Income Fund
Class B Shares, Decatur Income Fund Class C Shares, Decatur Income Fund
Institutional Class Shares, Decatur Total Return Fund Class A Shares, Decatur
Total Return Fund Class B Shares, Decatur Total Return Fund Class C Shares and
Decatur Total Return Fund Institutional Class Shares.
As of February 6, 1997, management believes the following shareholders
held 5% or more of the outstanding shares of a Class:
<TABLE>
<CAPTION>
Class Name and Address of Account Share Amount Percentage
<S> <C> <C> <C>
Decatur Income B Class Merrill Lynch, Pierce, Fenner & Smith
For the Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, 3rd Floor
Jacksonville, FL 32246 335,366 9.03%
Decatur Total Return B Class Merrill Lynch, Pierce, Fenner & Smith
For the Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, 3rd Floor
Jacksonville, FL 32246 323,472 8.04%
Decatur Income C Class Merrill Lynch, Pierce, Fenner & Smith
For the Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, 3rd Floor
Jacksonville, FL 32246 96,284 28.25%
Decatur Total Return C Class Merrill Lynch, Pierce, Fenner & Smith
For the Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, 3rd Floor
Jacksonville, FL 32246 80,692 13.87%
Decatur Income The Northern Trust Company
Institutional Class Cust. J. Paul Getty Trust
401 Wilshire Blvd., Ste. 1000
Santa Monica, CA 90401 2,979,294 22.72%
Decatur Income Price Waterhouse LLP Savings Plan
Institutional Class 1410 North Westshore Blvd.
Tampa, FL 33630 2,527,773 19.28%
Decatur Income Brigham Young University
Institutional Class R.L. Ball & Associates
c/o Richard White
C-242 ASB
Provo, UT 84602 1,594,793 12.16%
Decatur Income Patterson & Company
Institutional Class PNB Personal Trust Accounting
P.O. Box 7829
Philadelphia, PA 19101 1,322,414 10.09%
</TABLE>
-65-
<PAGE>
<TABLE>
<CAPTION>
Class Name and Address of Account Share Amount Percentage
<S> <C> <C> <C>
Decatur Income Grace S. and W. Linton Nelson
Institutional Class Foundation, Inc.
c/o Fred Aldridge, Jr.
940 W. Valley Road, Suite 1601
Wayne, PA 19087 961,559 7.33%
Decatur Total Return First Trust NA
Institutional Class Trst Northern States Power
Employee Retirement Savings Plan
P.O. Box 64482
St. Paul, MN 55164 1,457,555 47.48%
Decatur Total Return Federated Life Insurance Company
Institutional Class Separate Sub-Account A
Attn: Tom Koch
121 E. Park Square
Owatonna, MN 55060 994,965 32.41%
</TABLE>
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<PAGE>
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. and Delaware Capital Management, 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. and Delaware Investment &
Retirement Services, Inc.
During the past five years, Mr. Stork has served in various executive
capacities at different times within the Delaware
organization.
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>
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)
Executive Vice 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 (58)
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.
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<PAGE>
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 (57)
Senior Vice President/Chief Administrative Officer/Chief Financial
Officer of Equity Funds II, Inc. and each of the other 17
investment companies in the Delaware Group
Executive Vice President/Chief Operating Officer/Chief Financial
Officer of Delaware Management Company, Inc.
Chairman and Director of Delaware Management Trust Company and Delaware
Investment and Retirement Services, Inc.
Executive Vice President/Chief Operating Officer/Chief Financial
Officer of Delaware Management Holdings, Inc.
Executive Vice President/Chief Operating Officer/Chief Financial
Officer and Director of DMH Corp., Delaware Distributors, Inc.
and Founders Holdings, Inc.
Senior Vice President/Chief Administrative Officer/Chief Financial
Officer of Delaware Distributors, L.P.
President/Chief Executive Officer/Chief Financial Officer and Director
of Delaware Service Company, Inc.
Executive Vice President/Chief Operating Officer/Chief Financial
Officer and Director of Delaware International Holdings Ltd.
Executive Vice President/Chief Financial Officer/Chief Operating
Officer of Delaware Capital Management, 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.
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<PAGE>
George M. Chamberlain, Jr. (50)
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 (47)
Senior Vice President/Corporate Controller and Treasurer of Delaware
Management Company, Inc., Delaware Management Holdings, Inc.
and DMH Corp.
Senior Vice President/Contoller of Founders Holdings, Inc.
Senior Vice President/Treasurer of Delaware Distributors, Inc.
Vice President/Corporate Controller of Equity Funds II, Inc., each
of the other 17 investment companies in the Delaware Group,
Delaware Distributors, L.P., Delaware Service Company, 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)
Senior Vice President/Treasurer of Delaware Distributors, Inc. and
Founders Holdings, Inc.
Senior Vice President of Delaware Management Company, Inc.
Vice President/Treasurer of Equity Funds II, Inc., each of the
other 17 investment companies in the Delaware Group,
Delaware Distributors, L.P. and Delaware Service Company, 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.
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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 18
from Equity Equity Funds II, Upon Delaware
Name Funds II, Inc. Inc. Expenses Retirement* Group Funds
<S> <C> <C> <C> <C>
W. Thacher Longstreth $6,589 None $30,000 $45,144
Ann R. Leven $7,905 None $30,000 $53,280
Walter P. Babich $7,367 None $30,000 $49,144
Anthony D. Knerr $7,710 None $30,000 $52,280
Charles E. Peck $6,932 None $30,000 $48,280
</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.
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<PAGE>
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. Each Fund may modify, terminate or suspend the exchange privilege
upon 60 days' notice to shareholders.
All exchanges involve a purchase of shares of the fund into which the
exchange is made. As with any purchase, an investor should obtain and carefully
read that fund's prospectus before buying shares in an exchange. The prospectus
contains more complete information about the fund, including charges and
expenses. A shareholder requesting an exchange will be sent a current prospectus
and an authorization form for any of the other mutual funds in the Delaware
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 frequency. The Transfer Agent and each Fund reserve the right
to record exchange instructions received by telephone and to reject exchange
requests at any time in the future.
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<PAGE>
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>
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.
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.
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<PAGE>
International Equity Fund seeks to achieve long-term growth without
undue risk to principal by investing primarily in international securities that
provide the potential for capital appreciation and income. Global Bond Fund
seeks to achieve current income consistent with the preservation of principal by
investing primarily in global fixed-income securities that may also provide the
potential for capital appreciation. Global Assets Fund seeks to achieve
long-term total return by investing in global securities which will provide
higher current income than a portfolio comprised exclusively of equity
securities, along with the potential for capital growth. Emerging Markets Fund
seeks long-term capital appreciation by investing primarily in equity securities
of issuers located or operating in emerging countries.
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, Inc. 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 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.
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<PAGE>
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).
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<PAGE>
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.
The Manager, or its affiliate Delaware International Advisers Ltd.,
also manages the investment options for Delaware Medallion (sm) III Variable
Annuity. Medallion is issued by Allmerica Financial Life Insurance and Annuity
Company (First Allmerica Financial Life Insurance Company in New York and
Hawaii). Delaware Medallion offers ten different investment series ranging from
domestic equity funds, international equity and bond funds and domestic fixed
income funds. Each investment series available through Medallion utilizes an
investment strategy and discipline the same as or similar to one of the Delaware
Group mutual funds as available outside the annuity. See Discipline Group
Premium Fund, Inc., above.
Access persons and advisory persons of the Delaware Group of funds, as
those terms are defined in SEC Rule 17j-1 under the 1940 Act, who provide
services to the Manager, Delaware International Advisers Ltd. or their
affiliates, are permitted to engage in personal securities transactions subject
to the exceptions set forth in Rule 17j-1 and the following general restrictions
and procedures: (1) certain blackout periods apply to personal securities
transactions of those persons; (2) transactions must receive advance clearance
and must be completed on the same day as the clearance is received; (3) certain
persons are prohibited from investing in initial public offerings of securities
and other restrictions apply to investments in private placements of securities;
(4) opening positions may only be closed-out at a profit after a 60-day holding
period has elapsed; and (5) the Compliance Officer must be informed periodically
of all securities transactions and duplicate copies of brokerage confirmations
and account statements must be supplied to the Compliance Officer.
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<PAGE>
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. The
Distributor ("DDLP") (for all periods after January 3, 1995) and, in its
capacity as such, DDI (prior to January 3, 1995) received net commissions from
each Fund on behalf of Class A Shares, after reallowances to dealers, as
follows:
Decatur Income Fund
Fiscal Total Amount Amounts Net
Year of Underwriting Reallowed Commission
Ended Commission to Dealers to DDLP/DDI
----- --------------- ---------- -----------
11/30/96 $2,178,120 $1,814,559 $363,561
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 $1,749,609 $1,457,509 $292,100
11/30/95 1,637,530 1,416,914 220,616
11/30/94 1,406,240 1,218,424 187,816
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<PAGE>
The Distributor and, in its capacity as such, DDI received Limited CDSC
payments with respect to Class A Shares of Decatur Income and Decatur Total
Return Funds as follows:
Limited CDSC Payments
Fiscal Decatur Income Decatur Total Return
Year Ended Fund A Class Fund A Class
---------- ------------ ------------
11/30/96 $3,249 $-0-
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 Class B Shares of Decatur Income and Decatur Total
Return Funds as follows:
CDSC Payments
Fiscal Decatur Income Decatur Total Return
Year Ended Fund B Class Fund B Class
---------- ------------ ------------
11/30/96 $60,751 $45,044
11/30/95 21,252 15,098
11/30/94* 10 -0-
*Commenced operations on September 6, 1994.
The Distributor received CDSC payments with respect to Class C Shares
of Decatur Income and Decatur Total Return Funds as follows:
CDSC Payments
Fiscal Decatur Income Decatur Total Return
Year Ended Fund C Class Fund C Class
---------- ------------ ------------
11/30/96 $1,439 $1,584
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.
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<PAGE>
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 each Fund. 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 each Fund, on an aggregate pro-rata
basis. The asset-based fee payable to the Transfer Agent is subject to a minimum
fee calculated by determining the total number of investment portfolios and
associated classes.
The Manager and its affiliates own the name "Delaware Group." 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 1940 Act has been passed upon for Equity Funds
II, Inc. by Stradley, Ronon, Stevens & Young, LLP, Philadelphia, Pennsylvania.
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<PAGE>
Capitalization
Equity Funds II, Inc. has a present authorized capitalization of one
billion 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 350 million
Decatur Income Fund A Class 200 million
Decatur Income Fund B Class 50 million
Decatur Income Fund C Class 50 million
Decatur Income Fund Institutional Class 50 million
Decatur Total Return Fund 250 million
Decatur Total Return Fund A Class 100 million
Decatur Total Return Fund B Class 50 million
Decatur Total Return Fund C Class 50 million
Decatur Total Return Fund Institutional Class 50 million
Blue Chip Fund 200 million
Blue Chip Fund A Class 100 million
Blue Chip Fund B Class 25 million
Blue Chip Fund C Class 25 million
Blue Chip Fund Institutional Class 50 million
Quantum Fund 200 million
Quantum Fund A Class 100 million
Quantum Fund B Class 25 million
Quantum Fund C Class 25 million
Quantum Fund Institutional Class 50 million
While shares of Equity Funds II, Inc. have equal voting rights on
matters affecting the Funds, each Fund would vote separately on any matter which
it is directly affected by, such as any change in its fundamental investment
policies and as otherwise prescribed by the 1940 Act. Shares of each Fund have a
priority in that Fund's assets, and in gains on and income from the portfolio of
that Fund.
All shares have no preemptive rights, are fully transferable and, when
issued, are fully paid and nonassessable and, except as described above, have
equal voting rights.
Shares of each Class of 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 Class A
Shares, Class B Shares and Class C Shares of a Fund may vote only on matters
affecting the 12b-1 Plan that relates to the Class of shares that they hold.
However, Class B Shares may vote on any proposal to increase materially the fees
to be paid by 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
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<PAGE>
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 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 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, 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, 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, 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,
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.
Effective as of the close of business February 21, 1997, the name
Delaware Group Decatur Fund, Inc. was changed to Delaware Group Equity Funds II,
Inc.
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.
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<PAGE>
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.
-83-
<PAGE>
APPENDIX B--IRA INFORMATION
An individual can contribute up to $2,000 to his or her IRA each year.
Contributions may or may not be deductible depending upon the taxpayer's
adjusted gross income and whether the taxpayer or his or her spouse is an active
participant in an employer-sponsored retirement plan. Even if a taxpayer (or his
or her spouse) is an active participant in an employer-sponsored retirement
plan, the full $2,000 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. No deductions are available 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 for years prior to 1997), 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.
Effective for tax years beginning after 1996, one-income couples can
contribute up to $2,000 to each spouse's IRA provided the combined compensation
of both spouses is at least equal to the total contributions for both spouses.
If the working spouse is an active participant in an employer-sponsored
retirement plan and earns over $40,000, the maximum deduction limit is reduced
in the same way that the limit is reduced for contributions to a non-spousal
IRA.
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.
-84-
<PAGE>
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
15% Tax Bracket Single -- $0 - $24,650
--------------------- Joint -- $0 - $41,200
<TABLE>
<CAPTION>
How Much You
End of Cumulative How Much You Have With Full
Year Investment Amount Have Without IRA IRA Deduction
<S> <C> <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%)]
28% Tax Bracket Single -- $24,651 - $59,750
--------------------- Joint -- $41,201 - $99,600
<TABLE>
<CAPTION>
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> <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%]
-85-
<PAGE>
31% Tax Bracket Single -- $59,751 - $124,650
--------------------- Joint -- $99,601 - $151,750
<TABLE>
<CAPTION>
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> <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%]
36% Tax Bracket* Single -- $124,651 - $271,050
--------------------- Joint -- $151,751 - $271,050
<TABLE>
<CAPTION>
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> <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%]
-86-
<PAGE>
39.6% Tax Bracket* Single -- over $271,050
----------------------- Joint -- over $271,050
<TABLE>
<CAPTION>
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> <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 $271,050. The above tables do not reflect the
personal exemption phaseout nor the limitations of itemized deductions that
may apply.
-87-
<PAGE>
<TABLE>
<CAPTION>
$2,000 SINGLE INVESTMENT AT A RETURN OF 10% COMPOUNDED QUARTERLY
TAXABLE - TAXABLE - TAXABLE - TAXABLE - TAXABLE - TAX
YEARS 39.6%* 36%* 31% 28% 15% DEFERRED
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <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>
<TABLE>
<CAPTION>
$2,000 INVESTED ANNUALLY AT A RETURN OF 10% COMPOUNDED QUARTERLY
TAXABLE - TAXABLE - TAXABLE - TAXABLE - TAXABLE - TAX
YEARS 39.6%* 36%* 31% 28% 15% DEFERRED
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <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 $271,050. The
above tables do not reflect the personal exemption phaseout nor the
limitations of itemized deductions that may apply.
-88-
<PAGE>
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 Fund performance for the Funds either in the past or
in the future.
-89-
<PAGE>
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.
-90-
<PAGE>
FINANCIAL STATEMENTS
Ernst & Young LLP serves as the independent auditors for Delaware Group
Equity Funds II, Inc. and, in its capacity as such, audits the annual financial
statements of the Funds. Decatur Income Fund's and 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 Delaware Group Equity Funds II, Inc. - Decatur Income Fund's and
Delaware Group Equity Funds II, Inc. - Decatur Total Return Fund's 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 February 24, 1997.
-91-
<PAGE>
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
Maximum Value Distributions year-end
offering -------------- ------------------------- with all
Year price at Begin- From From distribu-
ended begin- ning End invest- realized tions
Nov ning of of of ment securi- rein-
30 year(2) year year income ties profits vested
- ------ --------- ------ ------ ------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
1987 $20.28 $19.32 $15.86 $0.80 $2.00 $18.45
1988 16.65 15.86 16.89 0.73 1.75 23.10
1989 17.73 16.89 19.07 0.81 0.26 27.69
1990 20.02 19.07 14.53 1.05 1.49 24.36
1991 15.25 14.53 15.76 0.97 0.00 28.12
1992 16.55 15.76 17.20 0.81 0.00 32.21
1993 18.06 17.20 18.24 0.68 0.85 37.23
1994 19.15 18.24 15.57 0.86 1.75 37.11
1995 16.35 15.57 19.07 0.69 0.42 48.62
1996 20.02 19.07 21.32 0.69 1.34 60.51
---- ----
Total Distributions $8.09 $9.86
PERCENTAGE CHANGES DURING YEAR
- --------------------------------------------------------------------------------
Decatur Income Fund
- ----------------------------------
Maximum Offering Price Net Asset Value Standard & Dow Jones Consumer
to Net Asset Value to Net Asset Value Poor's 500(5) Industrial(5) Price Index(6)
- -------------------------------------------------------------------------------------------------
Annual Cumulative(3) Annual Cumulative(4) Annual Cumulative Annual Cumulative Annual Cumulative
- ------ ------------- ------ ------------- ------ ---------- ------ ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- - 9.0% -4.5% -4.5% -4.5% -4.7% -4.7% -1.1% -1.1% 4.5% 4.5%
19.3 19.6 25.2 19.6 23.3 17.5 19.8 18.4 4.2 8.9
14.1 43.3 19.8 43.3 30.8 53.7 33.4 57.9 4.7 14.0
- -16.2 26.1 -12.0 26.1 -3.5 48.3 -1.7 55.3 6.3 21.2
10.0 45.6 15.5 45.6 20.3 78.4 16.9 81.5 3.0 24.8
9.1 66.7 14.6 66.7 18.4 111.3 17.7 113.6 3.1 28.6
10.3 93.1 15.9 93.2 10.1 132.7 14.7 145.0 2.7 32.0
-5.3 92.0 -0.6 92.1 1.0 135.1 4.4 155.6 2.7 35.6
24.8 151.6 31.0 151.6 36.9 221.9 39.3 256.1 2.6 39.1
18.6 213.1 24.5 213.2 27.9 311.6 31.4 367.9 3.3 43.6
</TABLE>
- ----------------------------
(1) 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.
<PAGE>
APPENDIX C
Decatur Income Fund Performance Overview
The following table illustrates the total return on one share invested in
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
Maximum Value Distributions year-end
offering -------------- ------------------------- with all
Period price at Begin- From From distribu-
ended begin- ning End invest- realized tions
Nov ning of of of ment securi- rein-
30 year(2) year(2) year income ties profits vested
- ------ --------- ------ ------ ------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
1994 $16.59 $16.59 $15.55 $0.17 $0.00 $15.72
1995 15.55 15.55 19.03 0.55 0.42 20.40
1996 19.03 19.03 21.26 0.54 1.34 25.18
---- ----
Total Distributions $1.26 $1.76
PERCENTAGE CHANGES DURING YEAR
- --------------------------------------------------------------------------------
Decatur Income Fund
- -------------------------------------
Returns Excluding Returns Excluding Standard & Dow Jones Consumer
CDSC CDSC Poor's 500(3) Industrial(3) Price Index(4)
- -------------------------------------------------------------------------------------------------
Annual Cumulative(2) Annual Cumulative(2) Annual Cumulative Annual Cumulative Annual Cumulative
- ------ ------------- ------ ------------- ------ ---------- ------ ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
N/A N/A -5.3% -5.3% -3.0% -3.0% -3.1% -3.1% 0.5% 0.5%
25.9% 29.9% 23.0 23.0 36.9 32.8 39.3 35.0 2.6 -197.4
19.4 23.4 51.8 68.3 27.9 69.8 31.4 77.4 3.3 -196.7
</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>
APPENDIX C
Decatur Income Fund Performance Overview
The following table illustrates the total return on one share invested in
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
Maximum Value Distributions year-end
offering -------------- ------------------------- with all
Year price at Begin- From From distribu-
ended begin- ning End invest- realized tions
Nov ning of of of ment securi- rein-
30 year(2) year year income ties profits vested
- ------ --------- ------ ------ ------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
1987 $19.32 $19.32 $15.86 $0.80 $2.00 $18.45
1988 15.86 15.86 16.89 0.73 1.75 23.10
1989 16.89 16.89 19.07 0.81 0.26 27.69
1990 19.07 19.07 14.53 1.05 1.49 24.36
1991 14.53 14.53 15.76 0.97 0.00 28.12
1992 15.76 15.76 17.20 0.81 0.00 32.21
1993 17.20 17.20 18.24 0.68 0.85 37.23
1994 18.24 18.24 15.59 0.86 1.75 37.15
1995 15.59 15.59 19.06 0.74 0.42 48.72
1996 19.06 19.06 21.31 0.72 1.34 49.92
---- ----
Total Distributions $8.17 $9.86
PERCENTAGE CHANGES DURING YEAR
- --------------------------------------------------------------------------------
Decatur Income Fund
--------------------
Maximum Offering Price Net Asset Value Standard & Dow Jones Consumer
to Net Asset Value to Net Asset Value Poor's 500(3) Industrial(3) Price Index(4)
- -------------------------------------------------------------------------------------------------
Annual Cumulative(3) Annual Cumulative(4) Annual Cumulative Annual Cumulative Annual Cumulative
- ------ ------------- ------ ------------- ------ ---------- ------ ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -12.6% -12.6% -4.5% -4.5% -4.7% -4.7% -1.1% -1.1% 4.5% 4.5%
14.6 9.4 25.2 19.6 23.3 17.5 19.8 18.4 4.2 8.9
9.7 31.1 19.8 43.3 30.8 53.7 33.4 57.9 4.7 14.0
- -19.5 15.3 -12.0 26.1 -3.5 48.3 -1.7 55.3 6.3 21.2
5.6 33.2 15.5 45.6 20.3 78.4 16.9 81.5 3.0 24.8
4.8 52.6 14.6 66.7 18.4 111.3 17.7 113.6 3.1 28.6
6.0 76.7 15.9 93.2 10.1 132.7 14.7 145.0 2.7 32.0
-8.9 75.9 -0.5 92.3 1.0 135.1 4.4 155.6 2.7 35.6
20.0 130.9 31.1 151.2 36.9 221.9 39.3 256.1 2.6 39.1
-6.2 136.8 2.5 158.4 27.9 311.6 31.4 367.9 3.3 43.6
</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>
APPENDIX C
Decatur Income Fund Performance Overview
The following table illustrates the total return on one share invested in
Decatur Income Fund C Class during the period November 29, 1995 (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 C Class
<TABLE>
<CAPTION>
Cumula-
tive net
asset
Net Asset value at
Maximum Value Distributions year-end
offering -------------- ------------------------- with all
Period price at Begin- From From distribu-
ended begin- ning End invest- realized tions
Nov ning of of of ment securi- rein-
30 year(2) year(2) year income ties profits vested
- ------ --------- ------ ------ ------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
1995(1) $19.15 19.15 19.08 0.05 0.00 19.13
1996 19.08 19.08 21.33 0.55 1.34 23.63
---- ----
Total Distributions $0.60 $1.34
PERCENTAGE CHANGES DURING YEAR
- --------------------------------------------------------------------------------
Decatur Income Fund
- -------------------------------------
Returns Excluding Returns Excluding Standard & Dow Jones Consumer
CDSC CDSC Poor's 500(3) Industrial(3) Price Index(4)
- -------------------------------------------------------------------------------------------------
Annual Cumulative(2) Annual Cumulative(2) Annual Cumulative Annual Cumulative Annual Cumulative
- ------ ------------- ------ ------------- ------ ---------- ------ ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
N/A N/A -0.1% -0.1% -0.4% -0.4% -0.6% -0.6% N/A N/A
22.5 23.5 23.4 33.4 27.9 27.9 0.3 31.4 0.03 0.03
</TABLE>
- ----------------------------
(1) Total return provided for the period November 29, 1995 (date of initial
public offering) through November 30, 1995 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 $15.61 on November 29, 1995.
(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.
