<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
File No. 2-13017
File No. 811-750
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REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
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Pre-Effective Amendment No._____
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Post-Effective Amendment No. 107 X
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AND
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REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
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Amendment No. 107
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DELAWARE GROUP DECATUR FUND, INC.
(to be renamed Equity Funds II, Inc.)
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
1818 Market Street, Philadelphia, Pennsylvania 19103
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (215) 751-2923
--------------
George M. Chamberlain, Jr., 1818 Market Street, Philadelphia, PA 19103
- --------------------------------------------------------------------------------
(Name and Address of Agent for Service)
Approximate Date of Public Offering: February 24, 1997
-----------------
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b)
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X on February 24, 1997 pursuant to paragraph (b)
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60 days after filing pursuant to paragraph (a)(1)
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on (date) pursuant to paragraph (a)(1)
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75 days after filing pursuant to paragraph (a)(2)
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on (date) pursuant to paragraph (a)(2) of Rule 485
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Registrant has registered an indefinite amount of securities
under the Securities Act of 1933 pursuant to Section 24(f)
of the Investment Company Act of 1940. Registrant's 24f-2 Notice
for its most recent fiscal year was filed on January 29, 1997.
<PAGE>
--- C O N T E N T S ---
This Post-Effective Amendment No. 107 to
Registration File No. 2-13017 includes the following:
1. Facing Page
2. Contents Page
3. Cross-Reference Sheet
4. Part A - Prospectuses
5. Part B - Statement of Additional Information
6. Part C - Other Information
7. Signatures
<PAGE>
CROSS-REFERENCE SHEET*
PART A
<TABLE>
<CAPTION>
Location in
Item No. Description Prospectuses
- -------- ----------- ------------
Decatur Income Fund
Decatur Total Return
Fund
A Classes/
B Classes/ Institutional
C Classes Classes
<S> <C> <C> <C>
1 Cover Page............................................. Cover Cover
2 Synopsis............................................... Synopsis; Summary Synopsis; Summary
of Expenses of Expenses
3 Condensed Financial Information........................ Financial Financial
Highlights Highlights
4 General Description of Registrant ..................... Investment Objectives Investment
and Strategies; Objectives and
Shares Strategies; Shares
5 Management of the Fund ................................ Management of Management of
the Funds the Funds
6 Capital Stock and Other Securities .................... The Delaware Difference; Dividends and
Dividends and Distributions;
Distributions; Taxes; Taxes; Shares
Shares
7 Purchase of Securities Being Offered................... Cover; How to Cover; How to Buy
Buy Shares; Calculation Shares; Calculation
of Offering Price of Net Asset Value
and Net Asset Value Per Share;
Per Share; Management Management of
of the Funds the Funds
8 Redemption or Repurchase............................... How to Buy Shares; How to Buy Shares;
Redemption Redemption
and Exchange and Exchange
9 Legal Proceedings...................................... None None
</TABLE>
<PAGE>
CROSS-REFERENCE SHEET*
PART A
(continued)
<TABLE>
<CAPTION>
Location in
Item No. Description Prospectuses
- -------- ----------- ------------
Blue Chip Fund
Quantum Fund
A Classes/
B Classes/ Institutional
C Classes Classes
<S> <C> <C> <C>
1 Cover Page............................................. Cover Cover
2 Synopsis............................................... Synopsis; Summary Synopsis; Summary
of Expenses of Expenses
3 Condensed Financial Information........................ Financial Financial
Highlights Highlights
4 General Description of Registrant ..................... Investment Objectives Investment
and Strategies; Objectives and
Shares Strategies; Shares
5 Management of the Fund ................................ Management of Management of
the Funds the Funds
6 Capital Stock and Other Securities .................... The Delaware Difference; Dividends and
Dividends and Distributions;
Distributions; Taxes; Taxes; Shares
Shares
7 Purchase of Securities Being Offered................... Cover; How to Cover; How to Buy
Buy Shares; Calculation Shares; Calculation
of Offering Price of Net Asset Value
and Net Asset Value Per Share;
Per Share; Management Management of
of the Funds the Funds
8 Redemption or Repurchase............................... How to Buy Shares; How to Buy Shares;
Redemption Redemption
and Exchange and Exchange
9 Legal Proceedings...................................... None None
</TABLE>
* This filing relates to Registrant's Decatur Income Fund A Class, Decatur
Income Fund B Class, Decatur Income Fund C Class and Decatur Income Fund
Institutional Class of Decatur Income Fund, Decatur Total Return Fund A
Class, Decatur Total Return Fund B Class, Decatur Total Return Fund C Class
and Decatur Total Return Fund Institutional Class of Decatur Total Return
Fund, Blue Chip Fund A Class, Blue Chip Fund B Class, Blue Chip Fund C
Class and Blue Chip Fund Institutional Class of Blue Chip Fund and Quantum
Fund A Class, Quantum Fund B Class, Quantum Fund C Class and Quantum Fund
Institutional Class of Quantum Fund. Class A Shares, Class B Shares and
Class C Shares of Decatur Income Fund and Decatur Total Return Fund are
combined in one Prospectus, and the Institutional Class of such Funds is
combined in one Prospectus. Class A Shares, Class B Shares and Class C
Shares of Blue Chip Fund and Quantum Fund are combined in one Prospectus,
and the Institutional Class of such Funds is combined in one Prospectus.The
four Funds (and 16 classes) have a common Statement of Additional
Information and Part C.
<PAGE>
CROSS REFERENCE SHEET
PART B
<TABLE>
<CAPTION>
Location in Statement
Item No. Description of Additional Information
- -------- ----------- -------------------------
<S> <C> <C>
10 Cover Page...................................................... Cover
11 Table of Contents............................................... Table of Contents
12 General Information and History................................. General Information
13 Investment Objectives and Policies.............................. Investment Policies and
Portfolio Techniques
14 Management of the Registrant.................................... Officers and Directors
15 Control Persons and Principal Holders of
Securities..................................................... Officers and Directors
16 Investment Advisory and Other Services.......................... Plans Under Rule 12b-1
for the Fund Classes (under
Purchasing Shares); Investment
Management Agreements and Sub-
Advisory Agreements; Officers and
Directors; General Information;
Financial Statements
17 Brokerage Allocation............................................ Trading Practices
and Brokerage
18 Capital Stock and Other Securities.............................. Capitalization and
Noncumulative Voting
(under General Information)
19 Purchase, Redemption and Pricing of Securities
Being Offered................................................... Purchasing Shares; Determining
Offering Price and Net Asset
Value; Redemption and
Repurchase; Exchange Privilege
</TABLE>
<PAGE>
CROSS REFERENCE SHEET
PART B
(Continued)
<TABLE>
<CAPTION>
Location in Statement
Item No. Description of Additional Information
- -------- ----------- -------------------------
<S> <C> <C>
20 Tax Status...................................................... Accounting and Tax Issues;
Distributions and Taxes
21 Underwriters ................................................... Purchasing Shares
22 Calculation of Performance Data................................. Performance Information
23 Financial Statements............................................ Financial Statements
</TABLE>
<PAGE>
CROSS REFERENCE SHEET
PART C
<TABLE>
<CAPTION>
Location in
Part C
-----------
<S> <C> <C>
24 Financial Statements and Exhibits............................... Item 24
25 Persons Controlled by or under Common
Control with Registrant...................................... Item 25
26 Number of Holders of Securities................................. Item 26
27 Indemnification................................................. Item 27
28 Business and Other Connections of
Investment Adviser............................................. Item 28
29 Principal Underwriters.......................................... Item 29
30 Location of Accounts and Records................................ Item 30
31 Management Services............................................. Item 31
32 Undertakings.................................................... Item 32
</TABLE>
<PAGE>
The Delaware Group --------------------------------
includes funds with a wide range of
investment objectives. Stock funds,
income funds, tax-free funds, money DECATUR INCOME FUND
market funds, global and DECATUR TOTAL RETURN FUND
international funds and closed-end
equity funds give investors the --------------------------------
ability to create a portfolio that
fits their personal financial
goals. For more information, A CLASS
contact your financial adviser or --------------------------------
call Delaware Group at
800-523-4640. B CLASS
INVESTMENT MANAGER --------------------------------
Delaware Management Company, Inc.
One Commerce Square
Philadelphia, PA 19103 C CLASS
--------------------------------
NATIONAL DISTRIBUTOR
Delaware Distributors, L.P.
1818 Market Street
Philadelphia, PA 19103
P R O S P E C T U S
SHAREHOLDER SERVICING, --------------------------------
DIVIDEND DISBURSING,
ACCOUNTING SERVICES
AND TRANSFER AGENT
Delaware Service Company, Inc. FEBRUARY 24, 1997
1818 Market Street
Philadelphia, PA 19103
LEGAL COUNSEL
Stradley, Ronon, Stevens & Young, LLP
One Commerce Square
Philadelphia, PA 19103 DELAWARE
GROUP
---------
INDEPENDENT AUDITORS
Ernst & Young LLP
Two Commerce Square
Philadelphia, PA 19103
CUSTODIAN
Bankers Trust Company
One Bankers Trust Plaza
New York, NY 10006
<PAGE>
TABLE OF CONTENTS
Cover Page
Synopsis
Summary of Expenses
Financial Highlights
Investment Objectives and Strategies
Suitability
Investment Strategy
The Delaware Difference
Plans and Services
Retirement Planning
Classes of Shares
How to Buy Shares
Redemption and Exchange
Dividends and Distributions
Taxes
Calculation of Offering Price and Net Asset Value Per Share
Management of the Funds
Other Investment Policies and Risk Considerations
Appendix A - Investment Illustrations
Appendix B - Classes Offered
Appendix C - Ratings
-1-
<PAGE>
DECATUR INCOME FUND PROSPECTUS
DECATUR TOTAL RETURN FUND FEBRUARY 24, 1997
A CLASS SHARES
B CLASS SHARES
C CLASS SHARES
--------------------------------------------------
1818 Market Street, Philadelphia, PA 19103
For Prospectus and Performance: Nationwide 800-523-4640
Information on Existing Accounts: (SHAREHOLDERS ONLY)
Nationwide 800-523-1918
Dealer Services: (BROKER/DEALERS ONLY)
Nationwide 800-362-7500
Representatives of Financial Institutions:
Nationwide 800-659-2259
This Prospectus describes the shares of the Decatur Income Fund series
and the Decatur Total Return Fund series (individually, a "Fund" and
collectively, the "Funds") of Delaware Group Equity Funds II, Inc. ("Equity
Funds II, Inc.") (formerly, Delaware Group Decatur Fund, Inc.), a
professionally-managed mutual fund of the series type. Decatur Income Fund's
objective is to achieve the highest possible current income by investing
primarily in common stocks that provide the potential for income and capital
appreciation without undue risk to principal. Decatur Total Return Fund's
objective is to achieve long-term growth by investing primarily in securities
that provide the potential for income and capital appreciation without undue
risk to principal.
Decatur Income Fund offers Decatur Income Fund A Class ("Class A
Shares"), Decatur Income Fund B Class ("Class B Shares") and Decatur Income Fund
C Class ("Class C Shares"), and Decatur Total Return Fund offers Decatur Total
Return Fund A Class ("Class A Shares"), Decatur Total Return Fund B Class
("Class B Shares") and Decatur Total Return Fund C Class ("Class C Shares")
(individually, a "Class" and collectively, the "Classes").
This Prospectus relates only to the Classes listed above and sets forth
information that you should read and consider before you invest. Please retain
it for future reference. The Funds' Statement of Additional Information ("Part
B" of Equity Funds II, Inc.'s registration statement), dated February 24, 1997,
as it may be amended from time to time, contains additional information about
each Fund and has been filed with the Securities and Exchange Commission. Part B
is incorporated by reference into this Prospectus and is available, without
charge, by writing to Delaware Distributors, L.P. at the above address or by
calling the above numbers. The Funds' financial statements appear in their
Annual Report, which will accompany any response to requests for Part B.
-2-
<PAGE>
Decatur Income Fund also offers Decatur Income Fund Institutional
Class, and Decatur Total Return Fund also offers Decatur Total Return Fund
Institutional Class. Those classes are available for purchase only by certain
investors. A prospectus for Decatur Income Fund Institutional Class and Decatur
Total Return Fund Institutional Class can be obtained by writing to Delaware
Distributors, L.P. at the above address or by calling the above number.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
BE SURE TO CONSULT YOUR FINANCIAL ADVISER WHEN MAKING INVESTMENTS. MUTUAL FUNDS
CAN BE A VALUABLE PART OF YOUR FINANCIAL PLAN; HOWEVER, SHARES OF THE FUNDS ARE
NOT FDIC OR NCUSIF INSURED, ARE NOT GUARANTEED BY ANY BANK OR ANY CREDIT UNION,
ARE NOT OBLIGATIONS OF ANY BANK OR ANY CREDIT UNION, AND INVOLVE INVESTMENT
RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. SHARES OF THE FUNDS ARE NOT BANK
OR CREDIT UNION DEPOSITS.
-3-
<PAGE>
SYNOPSIS
Investment Objective
Decatur Income Fund - The investment objective of Decatur Income Fund
is to achieve the highest possible current income by investing primarily in
common stocks that provide the potential for income and capital appreciation
without undue risk to principal.
Decatur Total Return Fund - The investment objective of Decatur Total
Return Fund is to achieve long-term growth by investing primarily in securities
that provide the potential for income and capital appreciation without undue
risk to principal.
For further details, see Investment Objectives and Strategies and Other
Investment Policies and Risk Considerations.
Risk Factors and Special Considerations
Decatur Income Fund may invest up to 15% of its net assets in
high-yield securities (junk bonds) and, consequently, greater risks may be
involved with an investment in the Fund. See High Yield, High Risk Securities
under Other Investment Policies and Risk Considerations.
Each Fund may enter into options and futures transactions for hedging
purposes to counterbalance portfolio volatility. While the Funds do not engage
in options and futures for speculative purposes, there are risks that result
from use of these instruments by the Funds, and the investor should review the
descriptions of these risks in this Prospectus. See Futures Contracts and
Options under Other Investment Policies and Risk Considerations.
Investment Manager, Distributor and Service Agent
Delaware Management Company, Inc. (the "Manager") furnishes investment
management services to each Fund, subject to the supervision and direction of
Equity Funds II, Inc.'s Board of Directors. The Manager also provides investment
management services to certain of the other funds in the Delaware Group.
Delaware Distributors, L.P. (the "Distributor") is the national distributor for
each Fund and for all of the other mutual funds in the Delaware Group. Delaware
Service Company, Inc. (the "Transfer Agent") is the shareholder servicing,
dividend disbursing, accounting services and transfer agent for each Fund and
for all of the other mutual funds in the Delaware Group. See Summary of Expenses
and Management of the Funds for further information regarding the Manager and
the fees payable under each Fund's Investment Management Agreement.
Sales Charges
The price of each of the Class A Shares includes a maximum front-end
sales charge of 4.75% of the offering price, which, based on the net asset value
per share of the Class A Shares as of the end of Equity Funds II, Inc.'s most
recent fiscal year, is equivalent to 4.97% of the amount invested for Decatur
Income Fund A Class and 4.97% of the amount invested for Decatur Total Return
Fund A Class. The sales charge is reduced on certain transactions of at least
$100,000 but under $1,000,000. For purchases of $1,000,000 or more, the
front-end sales charge is eliminated. Class A Shares are subject to annual 12b-1
Plan expenses for the life of the investment.
-4-
<PAGE>
The price of each of the Class B Shares is equal to the net asset value
per share. Class B Shares are subject to a contingent deferred sales charge
("CDSC") of: (i) 4% if shares are redeemed within two years of purchase; (ii) 3%
if shares are redeemed during the third or fourth year following purchase; (iii)
2% if shares are redeemed during the fifth year following purchase; and (iv) 1%
if shares are redeemed during the sixth year following purchase. Class B Shares
are subject to annual 12b-1 Plan expenses for approximately eight years after
purchase. See Deferred Sales Charge Alternative - Class B Shares and Automatic
Conversion of Class B Shares under Classes of Shares.
The price of the Class C Shares is equal to the net asset value per
share. Class C Shares are subject to a CDSC of 1% if shares are redeemed within
12 months of purchase. Class C Shares are subject to annual 12b-1 Plan expenses
for the life of the investment.
See Classes of Shares and Distribution (12b-1) and Service under
Management of the Funds.
Purchase Amounts
Generally, the minimum initial investment in any Class is $1,000.
Subsequent investments generally must be at least $100.
Each purchase of Class B Shares is subject to a maximum purchase
limitation of $250,000. For Class C Shares, each purchase must be in an amount
that is less than $1,000,000. An investor may exceed these maximum purchase
limitations for Class B Shares and Class C Shares by making cumulative purchases
over a period of time. An investor should keep in mind, however, that reduced
front-end sales charges apply to investments of $100,000 or more in Class A
Shares, and that Class A Shares are subject to lower annual 12b-1 Plan expenses
than Class B and Class C Shares and generally are not subject to a CDSC. The
minimum and maximum purchase amounts for retirement plans may vary. See How to
Buy Shares.
Redemption and Exchange
Class A Shares of each Fund may be redeemed or exchanged at the net
asset value calculated after receipt of the redemption or exchange request.
Neither the Funds nor the Distributor assesses a charge for redemptions or
exchanges of Class A Shares, except for certain redemptions of shares purchased
at net asset value, which may be subject to a CDSC if a dealer's commission was
paid in connection with such purchases. See Front-End Sales Charge Alternative -
Class A Shares under Classes of Shares.
Class B Shares and Class C Shares may be redeemed or exchanged at the
net asset value calculated after receipt of the redemption or exchange request
subject, in the case of redemptions, to any applicable CDSC. Neither the Funds
nor the Distributor assesses any charges other than the CDSC for redemptions or
exchanges of Class B or Class C Shares. There are certain limitations on an
investor's ability to exchange shares between the various classes of shares that
are offered. See Redemption and Exchange.
Open-End Investment Company
Equity Funds II, Inc. is an open-end management investment company.
Each Fund's portfolio of assets is diversified as defined by the Investment
Company Act of 1940 (the "1940 Act"). Equity Funds II, Inc. was first organized
as a Delaware corporation in 1956 and was subsequently reorganized as a Maryland
corporation on March 4, 1983. See Shares under Management of the Funds.
-5-
<PAGE>
SUMMARY OF EXPENSES
A general comparison of the sales arrangements and other expenses
applicable to each Fund's Class A, Class B and Class C Shares follows:
<TABLE>
<CAPTION>
Decatur Income Fund Decatur Total Return Fund
Class A Class B Class C Class A Class B Class C
Shareholder Transaction Expenses Shares Shares Shares Shares Shares Shares
- -------------------------------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Maximum Sales Charge Imposed
on Purchases (as a percentage
of offering price)......................... 4.75% None None 4.75% None None
Maximum Sales Charge Imposed
on Reinvested Dividends (as a
percentage of offering price).............. None None None None None None
Maximum Contingent Deferred
Sales Charge (as a percentage
of original purchase price or
redemption proceeds, whichever
is lower).................................. None* 4.00%* 1.00%* None* 4.00%* 1.00%*
Redemption Fees............................ None** None** None** None** None** None**
</TABLE>
* Class A purchases of $1 million or more may be made at net asset value.
However, if in connection with any such purchase a dealer commission is
paid to the financial adviser through whom such purchase is effected, a
CDSC of 1% will be imposed on certain redemptions within 12 months of
purchase ("Limited CDSC"). 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; (iv) 1% if
shares are redeemed during the sixth year following purchase; and (v) 0%
thereafter. Class C Shares are subject to a CDSC of 1% if shares are
redeemed within 12 months of purchase. See Contingent Deferred Sales Charge
for Certain Redemptions of Class A Shares Purchased at Net Asset Value
under Redemption and Exchange; Deferred Sales Charge Alternative - Class B
Shares and Level Sales Charge Alternative - Class C Shares under Classes of
Shares.
** CoreStates Bank, N.A. currently charges $7.50 per redemption for
redemptions payable by wire.
Unless waived, investors utilizing the Delaware Group Asset Planner asset
allocation service will incur an annual maintenance fee of $35 per Strategy.
Investors who utilize the Asset Planner for an IRA will pay an annual IRA fee of
$15 per Social Security number. See How to Buy Shares - Delaware Group Asset
Planner.
-6-
<PAGE>
<TABLE>
<CAPTION>
Annual Operating Expenses Decatur Income Fund Decatur Total Return Fund
(as a percentage of average Class A Class B Class C Class A Class B Class C
daily net assets) Shares Shares Shares Shares Shares Shares
- -------------------------------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Management Fees............................. 0.49% 0.49% 0.49% 0.59% 0.59% 0.59%
12b-1 Plan Expenses
(including service fees).................... 0.16%***/+ 1.00%+ 1.00%+ 0.30%+ 1.00%+ 1.00%+
==== ==== ==== ===== ===== =====
Other Operating Expenses.................... 0.20% 0.20% 0.20% 0.22% 0.22% 0.22%
----- ----- ----- ----- ----- -----
Total Operating Expenses................. 0.85% 1.69% 1.69% 1.11% 1.81% 1.81%
===== ===== ===== ===== ===== =====
</TABLE>
*** The actual 12b-1 Plan expenses to be paid and, consequently, the Total
Operating Expenses of Decatur Income Fund A Class may vary because of the
formula adopted by the Board of Directors for use in calculating the 12b-1
Plan expenses for this Class beginning May 2, 1994, but the 12b-1 Plan
expenses will not be more than 0.30% nor less than 0.10%. See Distribution
(12b-1) and Service under Management of the Funds.
+ Class A Shares, Class B Shares and Class C Shares of each Fund are subject
to separate 12b-1 Plans. Long-term shareholders may pay more than the
economic equivalent of the maximum front-end sales charges permitted by
rules of the National Association of Securities Dealers, Inc. (the "NASD").
See Distribution (12b-1) and Service under Management of the Funds.
For expense information about Decatur Income Fund Institutional Class
and Decatur Total Return Fund Institutional Class, see the separate Prospectus
relating to those classes.
-7-
<PAGE>
The following example illustrates the expenses that an investor would
pay on a $1,000 investment over various time periods, assuming (1) a 5% annual
rate of return, (2) redemption at the end of each time period and (3) with
respect to Class B Shares and Class C shares, payment of a CDSC at the time of
redemption, if applicable.
DECATUR INCOME FUND
<TABLE>
<CAPTION>
Assuming Redemption Assuming No Redemption
1 Year 3 Years 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years
------ ------- ------- -------- ------ ------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A Shares $56(1) $73 $92 $147 $56 $73 $92 $147
Class B Shares $57 $83 $112 $200 $17 $53 $92 $200(2)
Class C Shares $27 $53 $92 $200 $17 $53 $92 $200
DECATUR TOTAL RETURN FUND
Assuming Redemption Assuming No Redemption
1 Year 3 Years 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years
------ ------- ------- -------- ------ ------- ------ ---------
Class A Shares $58(1) $81 $106 $176 $58 $81 $106 $176
Class B Shares $58 $87 $118 $213 $18 $57 $98 $213(2)
Class C Shares $28 $57 $98 $213 $18 $57 $98 $213
</TABLE>
(1) Generally, no redemption charge is assessed upon redemption of Class A
shares. Under certain circumstances, however, a Limited CDSC, which has not
been reflected in this calculation, may be imposed on certain redemptions
within 12 months of purchase. See Contingent Deferred Sales Charge for
Certain Redemptions of Class A Shares Purchased at Net Asset Value under
Redemption and Exchange.
(2) At the end of approximately eight years after purchase, Class B Shares of a
Fund will be automatically converted into Class A Shares of that Fund. The
example above assumes conversion of Class B Shares at the end of the eighth
year. However, the conversion may occur as late as three months after the
eighth anniversary of purchase, during which time the higher 12b-1 Plan
fees payable by Class B Shares will continue to be assessed. Information
for the ninth and tenth years reflects expenses of Class A Shares. See
Automatic Conversion of Class B Shares under Classes of Shares for a
description of the automatic conversion feature.
The purpose of the above tables is to assist the investor in
understanding the various costs and expenses that an investor in any of the
Classes will bear directly or indirectly.
This example should not be considered a representation of past or
future expenses or performance. Actual expenses may be greater or less than
those shown.
-8-
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The following financial highlights are derived from the financial statements of
Decatur Income Fund and Decatur Total Return Fund of Delaware Group Equity Funds
II, Inc. (formerly known as Delaware Group Decatur Fund, Inc.) and have been
audited by Ernst & Young LLP, independent auditors. The data should be read in
conjunction with the financial statements, related notes and the report of Ernst
& Young LLP covering such financial information and highlights, all of which are
incorporated by reference into Part B. Further information about each Fund's
performance is contained in the Annual Report to shareholders. A copy of the
Funds' Annual Report (including the report of Ernst & Young LLP) may be obtained
from Equity Funds II, Inc. upon request at no charge.
- --------------------------------------------------------------------------------
-9-
<PAGE>
<TABLE>
<CAPTION>
Decatur Income Fund
Class A Shares
-----------------------------------------------------------------------------
11/30/96 11/30/95 11/30/94 11/30/93(1) 11/30/92(1)
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period..................$19.07 $15.57 $18.24 $17.20 $15.76
Income From Investment Operations
Net Investment Income............................... 0.65 0.70 0.67 0.78 0.78
Net Gains (Losses) on Securities
(both realized and unrealized)................ 3.63 3.91 (0.73) 1.79 1.47
---- ---- ------ ---- ----
Total From Investment Operations.............. 4.28 4.61 (0.06) 2.57 2.25
---- ---- ------ ---- ----
Less Distributions
Dividends from Net Investment Income................ (0.69) (0.69) (0.86) (0.68) (0.81)
Distributions from Capital Gains.................... (1.34) (0.42) (1.75) (0.85) none
Returns of Capital.................................. none none none none none
---- ---- ---- ---- ----
Total Distributions........................... (2.03) (1.11) (2.61) (1.53) (0.81)
------ ------ ------ ------ ------
Net Asset Value, End of Period...................... $21.32 $19.07 $15.57 $18.24 $17.20
====== ====== ====== ====== ======
- ---------------------
Total Return(2)...................................... 24.47% 31.02% (0.57%) 15.85% 14.55%
- ---------------------
Ratios/Supplemental Data
Net Assets, End of Period (000's omitted)............$1,616,315 $1,382,693 $1,153,884 $1,512,194 $1,508,206
Ratio of Expenses to Average Daily Net Assets........ 0.85% 0.87% 0.81% 0.71% 0.72%
Ratio of Net Investment Income to Average Daily
Net Assets ......................................... 3.40% 4.03% 3.92% 4.34% 4.55%
Portfolio Turnover Rate.............................. 101% 74% 92% 80% 79%
Average Commission Rate Paid......................... $0.060 N/A N/A N/A N/A
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Decatur Income Fund
Class A Shares
-----------------------------------------------------------------------------
11/30/91(1) 11/30/90(1) 11/30/89(1) 11/30/88(1) 11/30/87(1)
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period................ $14.53 $19.07 $16.89 $15.86 $19.32
Income From Investment Operations
Net Investment Income............................... 0.83 0.93 1.00 0.76 0.77
Net Gains (Losses) on Securities
(both realized and unrealized)................ 1.37 (2.93) 2.25 2.75 (1.43)
---- ------ ---- ---- ------
Total From Investment Operations.............. 2.20 (2.00) 3.25 3.51 (0.66)
---- ------ ---- ---- ------
Less Distributions
Dividends from Net Investment Income................ (0.97) (1.05) (0.81) (0.73) (0.80)
Distributions from Capital Gains.................... none (1.49) (0.26) (1.75) (2.00)
Returns of Capital.................................. none none none none none
---- ---- ---- ---- ----
Total Distributions........................... (0.97) (2.54) (1.07) (2.48) (2.80)
------ ------ ------ ------ ------
Net Asset Value, End of Period...................... $15.76 $14.53 $19.07 $16.89 $15.86
====== ====== ====== ====== ======
Total Return(2)..................................... 15.46% (12.04%) 19.84% 25.20% (4.48%)
- ---------------------
Ratios/Supplemental Data
Net Assets, End of Period (000's omitted)............ $1,579,521 $1,560,641 $1,848,129 $1,517,445 $1,346,411
Ratio of Expenses to Average Daily Net Assets........ 0.70% 0.70% 0.67% 0.73% 0.69%
Ratio of Net Investment Income to Average Daily
Net Assets ......................................... 5.18% 5.78% 5.48% 4.80% 4.37%
Portfolio Turnover Rate.............................. 78% 44% 38% 39% 56%
Average Commission Rate Paid......................... N/A N/A N/A N/A N/A
</TABLE>
(1) The data appearing above do not reflect 12b-1 distribution expenses which
apply on and after May 2, 1994.
(2) Does not reflect maximum front-end sales charge that is or was in effect
nor the 1% Limited CDSC that would apply in the event of certain
redemptions within 12 months of purchase. See Contingent Deferred Sales
Charge for Certain Redemptions of Class A Shares Purchased At Net Asset
Value.
<PAGE>
<TABLE>
<CAPTION>
Decatur Income Fund
Class B Shares Class C Shares
---------------------------------- -------------------------
Period Period
9/6/94(1) Year 11/29/95(2)
Year Ended through Ended through
11/30/96 11/30/95 11/30/94 11/30/96 11/30/95
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period................. $19.03 $15.55 $16.59 $19.08 $19.15
Income From Investment Operations
Net Investment Income................................ 0.50 0.56 0.15 0.51 0.04
Net Gains (Losses) on Securities
(both realized and unrealized)................. 3.61 3.89 (1.02) 3.63 (0.06)
---- ---- ------ ---- ------
Total From Investment Operations............... 4.11 4.45 (0.87) 4.14 (0.02)
---- ---- ------ ---- ------
Less Distributions
Dividends from Net Investment Income................. (0.54) (0.55) (0.17) (0.55) (0.05)
Distributions from Capital Gains..................... (1.34) (0.42) none (1.34) none
Returns of Capital................................... none none none none none
---- ---- ---- ---- ----
Total Distributions............................ (1.88) (0.97) (0.17) (1.89) (0.05)
------ ------ ------ ------ ------
Net Asset Value, End of Period....................... $21.26 $19.03 $15.55 $21.33 $19.08
====== ====== ====== ====== ======
- ---------------------
Total Return......................................... 23.43%(3) 29.85%(3) (5.27%)(3) 23.47%(3) (4)
- ---------------------------------------------------------------
Ratios/Supplemental Data
Net Assets, End of Period (000's omitted)............ $60,689 $19,665 $2,765 $4,833 $5
Ratio of Expenses to Average Daily Net Assets........ 1.69% 1.74% 1.70% 1.69% (4)
Ratio of Net Investment Income to Average Daily
Net Assets ..................................... 2.56% 3.16% 3.03% 2.56% (4)
Portfolio Turnover Rate.............................. 101% 74% 92% 101% (4)
Average Commission Rate Paid......................... $0.060 N/A N/A $0.060 N/A
</TABLE>
(1) Date of initial public offering; ratios have been annualized but total
return has not been annualized.
(2) Date of initial public offering.
(3) Does not include any CDSC which varies from 1% - 4%, depending upon the
holding period for Decatur Income Fund B Class and 1% for Decatur Income
Fund C Class for 12 months from the date of purchase.
(4) The ratios of expenses and net investment income to average daily net
assets, portfolio turnover and total return have been omitted as management
believes that such ratios, portfolio turnover and total return for this
relatively short period are not meaningful.
<PAGE>
<TABLE>
<CAPTION>
Decatur Total Return Fund
Class A Shares
--------------------------------------------------------
Year Ended
11/30/96 11/30/95 11/30/94 11/30/93 11/30/92
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period................. $15.61 $12.32 $14.38 $13.98 $12.73
Income From Investment Operations
Net Investment Income................................ 0.34 0.37 0.37 0.45 0.47
Net Gains (Losses) on Securities
(both realized and unrealized)................. 3.21 3.70 (0.34) 1.45 1.30
---- ---- ------ ---- ----
Total From Investment Operations............... 3.55 4.07 0.03 1.90 1.77
---- ---- ---- ---- ----
Less Distributions
Dividends from Net Investment Income................. (0.35) (0.36) (0.43) (0.45) (0.52)
Distributions from Capital Gains..................... (1.29) (0.42) (1.66) (1.05) none
Returns of Capital................................... none none none none none
---- ---- ---- ---- ----
Total Distributions............................ (1.64) (0.78) (2.09) (1.50) (0.52)
------ ------ ------ ------ ------
Net Asset Value, End of Period....................... $17.52 $15.61 $12.32 $14.38 $13.98
====== ====== ====== ====== ======
- ---------------------
Total Return(1)...................................... 24.89% 34.68% (0.04%) 14.74% 14.12%
- ---------------------------------------------------------------
Ratios/Supplemental Data
Net Assets, End of Period (000's omitted)............ $670,912 $534,342 $402,849 $431,638 $408,986
Ratio of Expenses to Average Daily Net Assets........ 1.11% 1.19% 1.26% 1.22% 1.23%
Ratio of Net Investment Income to
Average Daily Net Assets...................... 2.21% 2.72% 2.88% 3.15% 3.44%
Portfolio Turnover Rate.............................. 87% 81% 74% 119% 98%
Average Commission Rate Paid......................... $0.060 N/A N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
<PAGE>
Decatur Total Return Fund
Class A Shares
----------------------------------------------------------------------------
Year Ended
11/30/91 11/30/90 11/30/89 11/30/88 11/30/87
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period................. $11.71 $13.64 $11.47 $9.04 $10.29
Income From Investment Operations
Net Investment Income................................ 0.53 0.58 0.54 0.50 0.31
Net Gains (Losses) on Securities
(both realized and unrealized)................. 1.07 (1.44) 2.12 2.30 (1.30)
---- ------ ---- ---- ------
Total From Investment Operations............... 1.60 (0.86) 2.66 2.80 (0.99)
---- ------ ---- ---- -----
Less Distributions
Dividends from Net Investment Income................. (0.58) (0.60) (0.49) (0.37) (0.26)
Distributions from Capital Gains..................... none (0.47) none none none
Returns of Capital................................... none none none none none
---- ---- ---- ---- ----
Total Distributions............................ (0.58) (1.07) (0.49) (0.37) (0.26)
------ ------ ------ ------ ------
Net Asset Value, End of Period....................... $12.73 $11.71 $13.64 $11.47 $9.04
====== ====== ====== ====== =====
- ---------------------
Total Return(1)...................................... 13.94% (6.84%) 23.73% 31.51% (10.08%)
- ------------------------------------------------------
Ratios/Supplemental Data
Net Assets, End of Period (000's omitted)............ $394,338 $357,139 $318,871 $200,085 $146,632
Ratio of Expenses to Average Daily Net Assets........ 1.23% 1.23% 1.24% 1.28% 1.27%(2)
Ratio of Net Investment Income to
Average Daily Net Assets...................... 4.20% 4.87% 4.60% 4.77 4.17%(2)
Portfolio Turnover Rate.............................. 67% 54% 60% 69% 39%
Average Commission Rate Paid......................... N/A N/A N/A N/A N/A
</TABLE>
(1) Does not reflect any maximum front-end sales charge that is or was in
effect nor the 1% Limited CDSC that would apply in the event of certain
redemptions within 12 months of purchase. See Contingent Deferred Sales
Charge for Certain Redemptions of Class A Shares Purchased At Net Asset
Value. Total return for 1987 reflects the expense limitation referenced in
Note 2.
(2) The Manager waived its management fee and assumed expenses to the extent
necessary to limit Decatur Total Return Fund's ratio of annual operating
expenses, exclusive of taxes, interest, brokerage commissions and
extraordinary expenses, to average daily net assets to 1% for a six-month
period after the initial public offering on August 26, 1986. Ratio of
expenses and net investment income to average daily net assets prior to
expense limitation was 1.41% and 4.03%, respectively.
<PAGE>
<TABLE>
<CAPTION>
Decatur Total Return Fund
Class B Shares Class C Shares
----------------------------------- -------------------------
Period Period
9/6/94(1) Year 11/29/95(2)
Year Ended through Ended through
11/30/96 11/30/95 11/30/94 11/30/96 11/30/95
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period................. $15.56 $12.31 $13.11 $15.61 $15.61
Income From Investment Operations
Net Investment Income................................ 0.23 0.30 0.12 0.33 none
Net Gains (Losses) on Securities
(both realized and unrealized)................. 3.20 3.67 (0.82) 3.10 none
---- ---- ------ ---- ----
Total From Investment Operations............... 3.43 3.97 (0.70) 3.43 none
---- ---- ------ ---- ----
Less Distributions
Dividends from Net Investment Income................. (0.24) (0.30) (0.10) (0.32) none
Distributions from Capital Gains..................... (1.29) (0.42) none (1.29) none
Returns of Capital................................... none none none none none
---- ---- ---- ---- ----
Total Distributions............................ (1.53) (0.72) (0.10) (1.61) none
------ ------ ------ ------ ----
Net Asset Value, End of Period....................... $17.46 $15.56 $12.31 $17.43 $15.61
====== ====== ====== ====== ======
Total Return......................................... 24.01%(3) 33.79%(3) (5.37%)(3) 24.04%(3) (4)
- -----------------------------------------------------
Ratios/Supplemental Data
Net Assets, End of Period (000's omitted)............ $53,467 $14,745 $1,738 $7,591 $5
Ratio of Expenses to Average Daily Net Assets........ 1.81% 1.89% 1.96% 1.81% (4)
Ratio of Net Investment Income to
Average Daily Net Assets....................... 1.53% 2.02% 2.18% 1.53% (4)
Portfolio Turnover Rate.............................. 87% 81% 74% 87% (4)
Average Commission Rate Paid......................... $0.060 N/A N/A $0.060 N/A
</TABLE>
- ----------
(1) Date of initial public offering; ratios have been annualized but total
return has not been annualized.
(2) Date of initial public offering.
(3) Does not include any CDSC which varies from 1% - 4%, depending upon the
holding period for Decatur Total Return Fund B Class and 1% for Decatur
Total Return Fund C Class for 12 months from the date of purchase.
(4) The ratios of expenses and net investment income to average daily net
assets, portfolio turnover and total return have been omitted as management
believes that such ratios, portfolio turnover and total return for this
relatively short period are not meaningful.
<PAGE>
INVESTMENT OBJECTIVES AND STRATEGIES
SUITABILITY
Decatur Income Fund - The Fund may be suitable for investors looking
for current income with the potential for capital appreciation. The Fund will
invest in common stocks and other income-producing securities, including high
yield, higher-risk fixed-income securities, and investors should be willing to
accept the risks associated with such investments.
Decatur Total Return Fund - The Fund may be suitable for the patient
investor interested in the long-term growth and current income potential offered
by dividend-paying common stocks. Investors should be willing to accept the
risks associated with investments in common stocks and income-producing
securities that are convertible into common stocks.
* * *
Naturally, the Funds cannot assure a specific rate of return or that
principal will be protected. The value of each Fund's shares can be expected to
move up and down depending upon market conditions. Consequently, appreciation
may be obtained in periods of generally rising markets, while in declining
markets, the value of its shares may, of course, decline. For this reason,
neither Fund is appropriate for short-term investors. However, through the
cautious selection and supervision of its portfolio, each Fund will strive to
achieve its objective set forth above.
Ownership of shares of each Fund reduces the bookkeeping and
administrative inconveniences that would be involved with direct purchases of
the securities held in each Fund's portfolio.
Investors should not consider a purchase of shares of either Fund as
equivalent to a complete investment program. The Delaware Group includes a
family of funds, generally available through registered investment dealers,
which may be used together to create a more complete investment program.
INVESTMENT STRATEGY
Decatur Income Fund - The objective of Decatur Income Fund is to earn
the highest possible current income by investing primarily in common stocks that
provide the potential for income and capital appreciation without undue risk to
principal. This is a fundamental policy and cannot be changed without
shareholder approval. The Fund primarily aims to earn and pay its shareholders
dependable current income. It seeks to accomplish this objective while
attempting to limit risk to principal through prudent investing. Although it is
not a fundamental policy, the Fund will normally invest at least 65% of its
total assets in income-producing securities. The Fund may invest up to 15% of
its net assets in high yield, higher risk fixed-income securities, which are
generally considered to be speculative. See High Yield, High Risk Securities
under Other Investment Policies and Risk Considerations.
The Manager carefully selects the Fund's diversified group of
securities for their high yields relative to risk involved.
The Fund generally invests in common stocks that the Manager believes
have better potential for income and appreciation than fixed-income securities.
It may, however, invest its assets in all classes of
-10-
<PAGE>
securities, including bonds, preferred stocks, and common stocks, in any
proportions deemed prudent for defensive purposes under existing market and
economic conditions. All available types of securities, including foreign
securities (which may include American or European Depository Receipts), are
under continuous study, and the management regularly transfers investments
between securities or types of securities in carrying out its investment policy.
It is the Fund's policy not to purchase and sell securities with a view
toward obtaining short-term profits. However, the Fund may hold securities for
any period of time.
Decatur Total Return Fund - Decatur Total Return Fund's investment
objective is to achieve long-term growth by investing primarily in securities
that provide the potential for income and capital appreciation without undue
risk to principal. The Fund generally invests in common stocks and
income-producing securities that are convertible into common stocks. The
portfolio manager looks for securities that have a better dividend yield than
the average dividend yield of the Standard & Poor's 500 Stock Index ("S&P 500"),
as well as capital gains potential.
All available types of appropriate securities are under continuous
study. While the Fund may invest in all classes of securities, including bonds
and preferred and common stocks, in any proportion deemed prudent under existing
market and economic conditions, the focus on fixed-income securities can be
expected to be less than that of Decatur Income Fund. The Fund may also invest
in foreign securities.
Income-producing convertible securities include preferred stock and
debentures that pay a stated interest rate or dividend and are convertible into
common stock at an established ratio. These securities, which are usually priced
at a premium to their conversion value, may allow the Fund to receive current
income while participating to some extent in any appreciation in the underlying
common stock. The value of a convertible security tends to be affected by
changes in interest rates as well as factors affecting the market value of the
underlying common stock.
It is the Fund's policy to purchase and sell securities with a view
toward obtaining long-term rather than short-term capital gains. However, the
Fund may hold securities for any period of time.
* * *
For additional information about each Fund's investment policies and
certain risks associated with investments in certain types of securities, see
Other Investment Policies and Risk Considerations.
-11-
<PAGE>
THE DELAWARE DIFFERENCE
PLANS AND SERVICES
The Delaware Difference is our commitment to provide you with superior
information and quality service on your investments in the Delaware Group of
funds.
SHAREHOLDER PHONE DIRECTORY
Investor Information Center
800-523-4640
Fund Information; Literature; Price, Yield and Performance
Figures
Shareholder Service Center
800-523-1918
Information on Existing Regular Investment Accounts and
Retirement Plan Accounts; Wire Investments; Wire Liquidations;
Telephone Liquidations and Telephone Exchanges
Delaphone
800-362-FUND
(800-362-3863)
Performance Information
You can call the Investor Information Center at any time for current
performance information. Current yield and total return information may also be
included in advertisements and information given to shareholders. Yields are
computed on an annualized basis over a 30-day period.
Shareholder Services
During business hours, you can call the Delaware Group's Shareholder
Service Center. Our representatives can answer any questions about your account,
the Funds, the various service features and other funds in the Delaware Group.
Delaphone Service
Delaphone is an account inquiry service for investors with
Touch-Tone(R) phone service. It enables you to get information on your account
faster than the mailed statements and confirmations. Delaphone also provides
current performance information on the Funds, as well as other funds in the
Delaware Group. Delaphone is available seven days a week, 24 hours a day.
Statements and Confirmations
You will receive quarterly statements of your account summarizing all
transactions during the period. A confirmation statement will be sent following
all transactions other than those involving a reinvestment of dividends. You
should examine statements and confirmations immediately and promptly report any
discrepancy by calling the Shareholder Service Center.
-12-
<PAGE>
Duplicate Confirmations
If your financial adviser or investment dealer is noted on your
investment application, we will send a duplicate confirmation to him or her.
This makes it easier for your adviser to help you manage your investments.
Tax Information
Each year, Equity Funds II, Inc. will mail to you information on the
tax status of your dividends and distributions.
Dividend Payments
Dividends, capital gains and other distributions are automatically
reinvested in your account, unless you elect to receive them in cash. You may
also elect to have the dividends earned in one fund automatically invested in
another Delaware Group fund with a different investment objective, subject to
certain exceptions and limitations.
For more information, see Additional Methods of Adding to Your
Investment - Dividend Reinvestment Plan under How to Buy Shares or call the
Shareholder Service Center.
MoneyLine Direct Deposit Service
If you elect to have your dividends and distributions paid in cash and
such dividends and distributions are in an amount of $25 or more, you may choose
the MoneyLine Direct Deposit Service and have such payments transferred from
your Fund account to your predesignated bank account. See Dividends and
Distributions. In addition, you may elect to have your Systematic Withdrawal
Plan payments transferred from your Fund account to your predesignated bank
account through this service. See Systematic Withdrawal Plans under Redemption
and Exchange. Your funds will normally be credited to your bank account two
business days after the payment date. There are no fees for this service. You
can initiate the MoneyLine Direct Deposit Service by completing an Authorization
Agreement. If the name and address on your designated bank account are not
identical to the name and address on your Fund account, you must have your
signature guaranteed. The MoneyLine Direct Deposit Service is not available for
certain retirement plans.
Right of Accumulation
With respect to Class A Shares, the Right of Accumulation feature
allows you to combine the value of your current holdings of Class A Shares,
Class B Shares and Class C Shares of a Fund with the dollar amount of new
purchases of Class A Shares of a Fund to qualify for a reduced front-end sales
charge on such purchases of Class A Shares. Under the Combined Purchases
Privilege, you may also include certain shares that you own in other funds in
the Delaware Group. See Classes of Shares.
Letter of Intention
The Letter of Intention feature permits you to obtain a reduced
front-end sales charge on purchases of Class A Shares by aggregating certain of
your purchases of Delaware Group fund shares over a 13-month period. See Classes
of Shares and Part B.
12-Month Reinvestment Privilege
The 12-Month Reinvestment Privilege permits you to reinvest proceeds
from a redemption of Class A Shares, within one year of the date of the
redemption, without paying a front-end sales charge. See Part B.
Exchange Privilege
-13-
<PAGE>
The Exchange Privilege permits you to exchange all or part of your
shares into shares of the other funds in the Delaware Group, subject to certain
exceptions and limitations. For additional information on exchanges, see
Investing by Exchange under How to Buy Shares and Redemption and Exchange.
Wealth Builder Option
You may elect to invest in the Funds through regular liquidations of
shares in your accounts in other funds in the Delaware Group. Investments under
this feature are exchanges and are therefore subject to the same conditions and
limitations as other exchanges of Fund shares. See Additional Methods of Adding
to Your Investment - Wealth Builder Option and Investing by Exchange under How
to Buy Shares and Redemption and Exchange.
Delaware Group Asset Planner
Delaware Group Asset Planner is an asset allocation service that gives
you, when working with a professional financial adviser, the ability to more
easily design and maintain investments in a diversified selection of Delaware
Group mutual funds. The Asset Planner service offers a choice of four
predesigned allocation strategies (each with a different risk/reward profile)
made up of separate investments in predetermined percentages of Delaware Group
funds. With the guidance of a financial adviser, you may also tailor an
allocation strategy that meets your personal needs and goals. See How to Buy
Shares under Classes of Shares.
Financial Information about the Funds
Each fiscal year, you will receive an audited annual report and an
unaudited semi-annual report. These reports provide detailed information about
each Fund's investments and performance. Equity Funds II, Inc.'s fiscal year
ends on November 30.
-14-
<PAGE>
RETIREMENT PLANNING
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.
Retirement plans may be subject to plan establishment fees, annual
maintenance fees and/or other administrative or trustee fees. Fees are based
upon the number of participants in the plan as well as the services selected.
Additional information about fees is included in retirement plan materials. Fees
are quoted upon request.
Certain shareholder investment services available to non-retirement
plan shareholders may not be available to retirement plan shareholders. Certain
retirement plans may qualify to purchase shares of Decatur Income Fund
Institutional Class or Decatur Total Return Fund Institutional Class. For
additional information on any of the plans and Delaware's retirement services,
call the Shareholder Service Center or see Part B.
Individual Retirement Account ("IRA")
Individuals, even if they participate in an employer-sponsored
retirement plan, may establish their own retirement program for investments in
each of the Classes. Contributions to an IRA may be tax-deductible and earnings
are tax-deferred. The tax deductibility of IRA contributions is restricted, and
in some cases eliminated, for individuals who participate in certain
employer-sponsored retirement plans and whose annual income exceeds certain
limits. Existing IRAs and future contributions up to the IRA maximums, whether
deductible or not, still earn on a tax-deferred basis.
Simplified Employee Pension Plan ("SEP/IRA")
A SEP/IRA may be established by an employer who wishes to sponsor a
tax-sheltered retirement program by making contributions on behalf of all
eligible employees. Each of the Classes is available for investment by a
SEP/IRA.
Salary Reduction Simplified Employee Pension Plan ("SAR/SEP")
New SAR/SEP plans may not be established after December 31, 1996.
Employers must have no more than 25 employees to maintain an existing SEP/IRA
that permits salary deferral contributions. An employer may also elect to make
additional contributions to this plan. Class B Shares are not available for
purchase by such plans.
403(b)(7) Deferred Compensation Plan
Permits employees of public school systems or of certain types of
non-profit organizations to enter into a deferred compensation arrangement for
the purchase of shares of each of the Classes.
457 Deferred Compensation Plan
Permits employees of state and local governments and certain other
entities to enter into a deferred compensation arrangement for the purchase of
shares of each of the Classes.
Prototype Profit Sharing or Money Purchase Pension Plan
-15-
<PAGE>
Offers self-employed individuals, partnerships and corporations a
tax-qualified plan which provides for the investment of contributions in Class A
Shares or Class C Shares. Class B Shares are not available for purchase by such
plans.
Prototype 401(k) Defined Contribution Plan
Permits employers to establish a tax-qualified plan based on salary
deferral contributions for investment in Class A Shares or Class C Shares. Class
B Shares are not available for purchase by such plans.
Allied Plans
Class A Shares are available for purchase by participants in certain
401(k) Defined Contribution Plans ("Allied Plans") which are made available
under a joint venture agreement between the Distributor and another institution
through which mutual funds are marketed and which allow investments in Class A
Shares of designated Delaware Group funds ("eligible Delaware Group fund
shares"), as well as shares of designated classes of non-Delaware Group funds
("eligible non-Delaware Group fund shares"). Class B Shares and Class C Shares
are not eligible for purchase by Allied Plans.
With respect to purchases made in connection with an Allied Plan, the
value of eligible Delaware Group and eligible non-Delaware Group fund shares
held by the Allied Plan may be combined with the dollar amount of new purchases
by that Allied Plan to obtain a reduced front-end sales charge on additional
purchases of eligible Delaware Group fund shares. See Front-End Sales Charge
Alternative - Class A Shares under Classes of Shares.
Participants in Allied Plans may exchange all or part of their eligible
Delaware Group fund shares for other eligible Delaware Group fund shares or for
eligible non-Delaware Group fund shares at net asset value without payment of a
front-end sales charge. However, exchanges of eligible fund shares, both
Delaware Group and non-Delaware Group, which were not subject to a front-end
sales charge, will be subject to the applicable sales charge if exchanged for
eligible Delaware Group fund shares to which a sales charge applies. No sales
charge will apply if the eligible fund shares were previously acquired through
the exchange of eligible shares on which a sales charge was already paid or
through the reinvestment of dividends. See Investing by Exchange.
A dealer's commission may be payable on purchases of eligible Delaware
Group fund shares under an Allied Plan. In determining a financial adviser's
eligibility for a dealer's commission on net asset value purchases of eligible
Delaware Group fund shares in connection with Allied Plans, all participant
holdings in the Allied Plan will be aggregated. See Front-End Sales Charge
Alternative - Class A Shares under Classes of Shares.
The Limited CDSC is applicable to redemptions of net asset value
purchases from an Allied Plan on which a dealer's commission has been paid.
Waivers of the Limited CDSC, as described under Waiver of Limited Contingent
Deferred Sales Charge - Class A Shares under Redemption and Exchange, apply to
redemptions by participants in Allied Plans except in the case of exchanges
between eligible Delaware Group and non-Delaware Group fund shares. When
eligible Delaware Group fund shares are exchanged into eligible non-Delaware
Group fund shares, the Limited CDSC will be imposed at the time of the exchange,
unless the joint venture agreement specifies that the amount of the Limited CDSC
will be paid by the financial adviser or selling dealer. See Contingent Deferred
Sales Charge for Certain Redemptions of Class A Shares Purchased at Net Asset
Value under Redemption and Exchange.
-16-
<PAGE>
CLASSES OF SHARES
Alternative Purchase Arrangements
Shares may be purchased at a price equal to the next determined net
asset value per share, subject to a sales charge which may be imposed, at the
election of the purchaser, at the time of the purchase for Class A Shares
("front-end sales charge alternative"), or on a contingent deferred basis for
Class B Shares ("deferred sales charge alternative") or Class C Shares ("level
sales charge alternative").
Class A Shares. An investor who elects the front-end sales charge
alternative acquires Class A Shares, which incur a sales charge when they are
purchased, but generally are not subject to any sales charge when they are
redeemed. Class A Shares are subject to annual 12b-1 Plan expenses of up to a
maximum of 0.30% of average daily net assets of such shares. Certain purchases
of Class A Shares qualify for reduced front-end sales charges. See Front-End
Sales Charge Alternative - Class A Shares, below. See also Contingent Deferred
Sales Charge for Certain Redemptions of Class A Shares Purchased at Net Asset
Value under Redemption and Exchange and Distribution (12b-1) and Service under
Management of the Fund.
Class B Shares. An investor who elects the deferred sales charge
alternative acquires Class B Shares, which do not incur a front-end sales charge
when they are purchased, but are subject to a contingent deferred sales charge
if they are redeemed within six years of purchase. Class B Shares are subject to
annual 12b-1 Plan expenses of up to a maximum of 1% (0.25% of which are service
fees to be paid to the Distributor, dealers or others for providing personal
service and/or maintaining shareholder accounts) of average daily net assets of
such shares for approximately eight years after purchase. Class B Shares permit
all of the investor's dollars to work from the time the investment is made. The
higher 12b-1 Plan expenses paid by Class B Shares will cause such shares to have
a higher expense ratio and to pay lower dividends than Class A Shares. At the
end of approximately eight years after purchase, the Class B Shares will
automatically be converted into Class A Shares, and, thereafter, for the
remainder of the life of the investment, the annual 12b-1 Plan fee of up to
0.30% for Class A Shares will apply. See Automatic Conversion of Class B
Shares, below.
Class C Shares. An investor who elects the level sales charge
alternative acquires Class C Shares, which do not incur a front-end sales charge
when they are purchased, but are subject to a contingent deferred sales charge
if they are redeemed within 12 months of purchase. Class C Shares are subject to
annual 12b-1 Plan expenses of up to a maximum of 1% (0.25% of which are service
fees to be paid to the Distributor, dealers or others for providing personal
service and/or maintaining shareholder accounts) of average daily net assets of
such shares for the life of the investment. The higher 12b-1 Plan expenses paid
by Class C Shares will cause such shares to have a higher expense ratio and to
pay lower dividends than Class A Shares. Unlike Class B Shares, Class C Shares
do not convert to another class.
The alternative purchase arrangements described above permit investors
to choose the method of purchasing shares that is most suitable given the amount
of their purchase, the length of time they expect to hold their shares and other
relevant circumstances. Investors should determine whether, given their
particular circumstances, it is more advantageous to purchase Class A Shares and
incur a front-end sales charge, purchase Class B Shares and have the entire
initial purchase amount invested in a Fund with their investment being subject
to a CDSC if they redeem shares within six years of purchase, or purchase Class
C Shares and have the entire initial purchase amount invested in a Fund with
their investment being subject to a CDSC if they redeem shares within 12 months
of purchase. In addition, investors should consider the level of annual 12b-1
Plan expenses applicable to each Class. The higher 12b-1 Plan expenses on Class
B Shares and Class C Shares will be offset to the extent a return is realized on
the additional money initially invested upon the purchase of
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<PAGE>
such shares. However, there can be no assurance as to the return, if any, that
will be realized on such additional money, and the effect of earning a return on
such additional money will diminish over time. In comparing Class B Shares to
Class C Shares, investors should also consider the desirability of an automatic
conversion feature, which is available only for Class B Shares.
Prospective investors should refer to Appendix A - Investment
Illustrations in this Prospectus for an illustration of the potential effect
that each of the purchase options may have on a long-term shareholder's
investment.
For the distribution and related services provided to, and the expenses
borne on behalf of, the Funds, the Distributor and others will be paid, in the
case of the Class A Shares, from the proceeds of the front-end sales charge and
12b-1 Plan fees and, in the case of the Class B Shares and the Class C Shares,
from the proceeds of the 12b-1 Plan fees and, if applicable, the CDSC incurred
upon redemption. Financial advisers may receive different compensation for
selling Class A, Class B and Class C Shares. Investors should understand that
the purpose and function of the respective 12b-1 Plans and the CDSCs applicable
to Class B and Class C Shares are the same as those of the 12b-1 Plan and the
front-end sales charge applicable to Class A Shares in that such fees and
charges are used to finance the distribution of the respective Classes. See
Distribution (12b-1) and Service under Management of the Funds.
Dividends paid on Class A, Class B and Class C Shares, to the extent
any dividends are paid, will be calculated in the same manner, at the same time,
on the same day and will be in the same amount, except that the additional
amount of 12b-1 Plan expenses relating to Class B Shares and Class C Shares will
be borne exclusively by such shares. See Calculation of Offering Price and Net
Asset Value Per Share.
The NASD has adopted certain rules relating to investment company sales
charges. Equity Funds II, Inc. and the Distributor intend to operate in
compliance with these rules.
Front-End Sales Charge Alternative - Class A Shares
Class A Shares may be purchased at the offering price, which reflects a
maximum front-end sales charge of 4.75%. See Calculation of Offering Price and
Net Asset Value Per Share.
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<PAGE>
Purchases of $100,000 or more carry a reduced front-end sales charge as
shown in the following table.
Decatur Income Fund A Class
Decatur Total Return Fund A Class
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Dealer's
Commission***
as % of
Front-End Sales Charge as % of Offering
Amount of Purchase Offering Price Amount Invested** Price
- --------------------------------------------------------------------------------------------------------------------------
Decatur
Decatur Total
Income Return
Fund Fund
<S> <C> <C> <C> <C>
Less than $100,000 4.75% 4.97% 4.97% 4.00%
$100,000 but under $250,000 3.75 3.89 3.88 3.00
$250,000 but under $500,000 2.50 2.58 2.57 2.00
$500,000 but under $1,000,000* 2.00 2.02 2.05 1.60
</TABLE>
* There is no front-end sales charge on purchases of Class A Shares of $1
million or more but, under certain limited circumstances, a 1% Limited CDSC
may apply upon redemption of such shares.
** Based on the net asset value per share of the respective Class A Shares as
of the end of Equity Funds II, Inc.'s most recent fiscal year.
*** 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 charge shown above. In addition,
certain dealers who enter into an agreement to provide extra
training and information on Delaware Group products and services
and who increase sales of Delaware Group funds may receive an
additional commission of up to 0.15% of the offering price. Dealers
who receive 90% or more of the sales charge may be deemed to be
underwriters under the Securities Act of 1933.
- --------------------------------------------------------------------------------
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<PAGE>
For initial purchases of Class A Shares of $1,000,000 or more, a
dealer's commission may be paid by the Distributor to financial advisers through
whom such purchases are made in accordance with the following schedule:
Dealer's Commission
(as a percentage of amount
Amount of Purchase purchased)
------------------ --------------------------
Up to $2 million 1.00%
Next $1 million up to $3 million 0.75
Next $2 million up to $5 million 0.50
Amount over $5 million 0.25
In determining a financial adviser's eligibility for the dealer's
commission, purchases of Class A Shares of other Delaware Group funds as to
which a Limited CDSC applies may be aggregated with those of the Class A Shares
of a Fund. Financial advisers also may be eligible for a dealer's commission in
connection with certain purchases made under a Letter of Intention or pursuant
to an investor's Right of Accumulation. Financial advisers should contact the
Distributor concerning the applicability and calculation of the dealer's
commission in the case of combined purchases.
An exchange from other Delaware Group funds will not qualify for
payment of the dealer's commission, unless a dealer's commission or similar
payment has not been previously paid on the assets being exchanged. The schedule
and program for payment of the dealer's commission are subject to change or
termination at any time by the Distributor at its discretion.
Redemptions of Class A Shares purchased at net asset value may
result in the imposition of a Limited CDSC if the dealer's commission described
above was paid in connection with the purchase of those shares. See Contingent
Deferred Sales Charge for Certain Redemptions of Class A Shares Purchased at Net
Asset Value under Redemption and Exchange.
Combined Purchases Privilege
By combining your holdings of Class A Shares with your holdings of
Class B Shares and/or Class C Shares of a Fund and shares of other funds in the
Delaware Group, except those noted below, you can reduce the front-end sales
charges on any additional purchases of Class A Shares. Shares of Delaware Group
Premium Fund, Inc. beneficially owned in connection with ownership of variable
insurance products may be combined with other Delaware Group fund holdings.
Shares of other funds that do not carry a front-end sales charge or CDSC may not
be included unless they were acquired through an exchange from a Delaware Group
fund that does carry a front-end sales charge or CDSC.
This privilege permits you to combine your purchases and holdings
with those of your spouse, your children under 21 and any trust, fiduciary or
retirement account for the benefit of such family members.
It also permits you to use these combinations under a Letter of
Intention. A Letter of Intention allows you to make purchases over a 13-month
period and qualify the entire purchase for a reduction in front-end sales
charges on Class A Shares.
-20-
<PAGE>
Combined purchases of $1,000,000 or more, including certain purchases
made at net asset value pursuant to a Right of Accumulation or under a Letter of
Intention, may result in the payment of a dealer's commission and the
applicability of a Limited CDSC. Investors should consult their financial
advisers or the Shareholder Service Center about the operation of these
features. See Front-End Sales Charge Alternative - Class A Shares, above.
Buying Class A Shares at Net Asset Value
Class A Shares of a Fund may be purchased at net asset value under
the Delaware Group Dividend Reinvestment Plan and, under certain circumstances,
the Exchange Privilege and the 12-Month Reinvestment Privilege. See The Delaware
Difference and Redemption and Exchange for additional information.
Purchases of Class A Shares may be made at net asset value by
current and former officers, directors and employees (and members of their
families) of the Manager, any affiliate, any of the funds in the Delaware Group,
certain of their agents and registered representatives and employees of
authorized investment dealers and by employee benefit plans for such entities.
Individual purchases, including those in retirement accounts, must be for
accounts in the name of the individual or a qualifying family member.
Purchases of Class A Shares may also be made by clients of
registered representatives of an authorized investment dealer at net asset value
within 12 months after the registered representative changes employment, if the
purchase is funded by proceeds from an investment where a front-end sales
charge, CDSC 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.
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.
A Fund must be notified in advance that an investment qualifies for
purchase at net asset value.
Group Investment Plans
Group Investment Plans (e.g., SEP/IRA, SAR/SEP, Prototype Profit
Sharing, Pension and 401(k) Defined Contribution Plans) may benefit from the
reduced front-end sales charges available on Class A Shares set forth in the
table on page 00, based on total plan assets. In addition, 403(b)(7) and 457
Retirement Plan Accounts may benefit from a reduced front-end sales charge on
Class A Shares based on the total amount invested by all participants in the
plan by satisfying the following criteria: (i) the employer for which the plan
was established has 250 or more eligible employees and the plan lists only one
broker of record, or (ii) the plan includes employer contributions and the plan
lists only one broker of record. If a company has more than one plan investing
in the Delaware Group of funds, then the total amount invested in all plans will
be aggregated to
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<PAGE>
determine the applicable front-end sales charge reduction on each purchase, both
initial and subsequent, if, at the time of each such purchase, the company
notifies the Fund in which it is investing that it qualifies for the reduction.
Employees participating in such Group Investment Plans may also combine the
investments held in their plan account to determine the front-end sales charge
applicable to purchases in non-retirement Delaware Group investment accounts if,
at the time of each such purchase, they notify the Fund in which they are
investing that they are eligible to combine purchase amounts held in their plan
account.
For additional information on retirement plans, including plan
forms, applications, minimum investments and any applicable account maintenance
fees, contact your investment dealer or the Distributor.
For other retirement plans and special services, see Retirement
Planning.
Deferred Sales Charge Alternative - Class B Shares
Class B Shares may be purchased at net asset value without a
front-end sales charge and, as a result, the full amount of the investor's
purchase payment will be invested in Fund shares. The Distributor currently
anticipates compensating dealers or brokers for selling Class B Shares at the
time of purchase from its own assets in an amount equal to no more than 4% of
the dollar amount purchased. In addition, from time to time, upon written notice
to all of its dealers, the Distributor may hold special promotions for specified
periods during which the Distributor may pay additional compensation to dealers
or brokers for selling Class B Shares at the time of purchase. As discussed
below, however, Class B Shares are subject to annual 12b-1 Plan expenses and, if
redeemed within six years of purchase, a CDSC.
Proceeds from the CDSC and the annual 12b-1 Plan fees are paid to
the Distributor and others for providing distribution and related services, and
bearing related expenses, in connection with the sale of Class B Shares. These
payments support the compensation paid to dealers or brokers for selling Class B
Shares. Payments to the Distributor and others under the Class B 12b-1 Plan may
be in an amount equal to no more than 1% annually. The combination of the CDSC
and the proceeds of the 12b-1 Plan fees makes it possible for the Funds to sell
Class B Shares without deducting a front-end sales charge at the time of
purchase.
Holders of Class B Shares who exercise the exchange privilege
described below will continue to be subject to the CDSC schedule for the Class B
Shares described in this Prospectus, even after the exchange. Such CDSC schedule
may be higher than the CDSC schedule for the Class B Shares acquired as a result
of the exchange.
See Redemption and Exchange.
Automatic Conversion of Class B Shares
Class B Shares, other than shares acquired through reinvestment of
dividends, held for eight years after purchase are eligible for automatic
conversion into Class A Shares. Conversions of Class B Shares into Class A
Shares will occur only four times in any calendar year, on the last business day
of the second full week of March, June, September and December (each, a
"Conversion Date"). If the eighth anniversary after a purchase of Class B Shares
falls on a Conversion Date, an investor's Class B Shares will be converted on
that date. If the eighth anniversary occurs between Conversion Dates, an
investor's Class B Shares will be converted on the next Conversion Date after
such anniversary. Consequently, if a shareholder's eighth anniversary falls on
the day after a Conversion Date, that shareholder will have to hold Class B
Shares for as long as three additional months after the eighth anniversary after
purchase before the shares will automatically convert into Class A Shares.
-22-
<PAGE>
Class B Shares of a fund acquired through reinvestment of dividends
will convert to the corresponding Class A Shares of that fund (or, in the case
of Delaware Group Cash Reserve, Inc., the Delaware Cash Reserve Consultant
Class) pro-rata with Class B Shares of that fund not acquired through dividend
reinvestment.
All such automatic conversions of Class B Shares will constitute
tax-free exchanges for federal income tax purposes. See Taxes.
Level Sales Charge Alternative - Class C Shares
Class C Shares may be purchased at net asset value without a
front-end sales charge and, as a result, the full amount of the investor's
purchase payment will be invested in Fund shares. The Distributor currently
anticipates compensating dealers or brokers for selling Class C Shares at the
time of purchase from its own assets in an amount equal to no more than 1% of
the dollar amount purchased. As discussed below, however, Class C Shares are
subject to annual 12b-1 Plan expenses and, if redeemed within 12 months of
purchase, a CDSC.
Proceeds from the CDSC and the annual 12b-1 Plan fees are paid to
the Distributor and others for providing distribution and related services, and
bearing related expenses, in connection with the sale of Class C Shares. These
payments support the compensation paid to dealers or brokers for selling Class C
Shares. Payments to the Distributor and others under the Class C 12b-1 Plan may
be in an amount equal to no more than 1% annually.
Holders of Class C Shares who exercise the exchange privilege
described below will continue to be subject to the CDSC schedule for the Class C
Shares as described in this Prospectus. See Redemption and Exchange.
Contingent Deferred Sales Charge - Class B Shares and Class C Shares
Class B Shares redeemed within six years of purchase may be subject
to a CDSC at the rates set forth below and Class C Shares redeemed within 12
months of purchase may be subject to a CDSC of 1%. CDSCs are charged as a
percentage of the dollar amount subject to the CDSC. The charge will be assessed
on an amount equal to the lesser of the net asset value at the time of purchase
of the shares being redeemed or the net asset value of those shares at the time
of redemption. No CDSC will be imposed on increases in net asset value above the
initial purchase price, nor will a CDSC be assessed on redemptions of shares
acquired through reinvestments of dividends or capital gains distributions. For
purposes of this formula, the "net asset value at the time of purchase" will be
the net asset value at purchase of Class B Shares or Class C Shares of a Fund
even if those shares are later exchanged for shares of another Delaware Group
fund. In the event of an exchange of the shares, the "net asset value of such
shares at the time of redemption" will be the net asset value of the shares that
were acquired in the exchange.
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<PAGE>
The following table sets forth the rates of the CDSC for the Class
B Shares of the Funds:
Contingent Deferred
Sales Charge (as a
Percentage of
Dollar Amount
Year After Purchase Made Subject to Charge)
------------------------ ------------------
0-2 4%
3-4 3%
5 2%
6 1%
7 and thereafter None
During the seventh year after purchase and, thereafter, until converted
automatically into Class A Shares, Class B Shares will still be subject to the
annual 12b-1 Plan expenses of up to 1% of average daily net assets of those
shares. See Automatic Conversion of Class B Shares, above. Investors are
reminded that the Class A Shares into which the Class B Shares will convert are
subject to ongoing annual 12b-1 Plan expenses of up to a maximum of 0.30% of
average daily net assets of such shares.
In determining whether a CDSC applies to a redemption of Class B
Shares, it will be assumed that shares held for more than six years are redeemed
first, followed by shares acquired through the reinvestment of dividends or
distributions, and finally by shares held longest during the six-year period.
With respect to Class C Shares, it will be assumed that shares held for more
than 12 months are redeemed first, followed by shares acquired through the
reinvestment of dividends or distributions, and finally by shares held for 12
months or less.
All investments made during a calendar month, regardless of what
day of the month the investment occurred, will age one month on the last day of
that month and each subsequent month.
The CDSC is waived on certain redemptions of Class B Shares and
Class C Shares. See Waiver of Contingent Deferred Sales Charge - Class B and
Class C Shares under Redemption and Exchange.
Other Payments to Dealers -- Class A, Class B and Class C Shares
From time to time at the discretion of the Distributor, all
registered broker/dealers whose aggregate sales of the Classes exceed certain
limits, as set by the Distributor, may receive from the Distributor an
additional payment of up to 0.25% of the dollar amount of such sales. The
Distributor may also provide additional promotional incentives or payments to
dealers that sell shares of the Delaware Group of funds. In some instances,
these incentives or payments may be offered only to certain dealers who
maintain, have sold or may sell certain amounts of shares.
Subject to pending amendments to the NASD's Rules of Fair Practice,
in connection with the promotion of Delaware Group fund shares, the Distributor
may, from time to time, pay to participate in dealer-sponsored seminars and
conferences, reimburse dealers for expenses incurred in connection with
preapproved seminars, conferences and advertising and may, from time to time,
pay or allow additional promotional incentives to dealers, which shall include
non-cash commissions, such as certain luxury merchandise or a trip to or
attendance at a business or investment seminar at a luxury resort, as part of
preapproved sales contests. Payment of non-cash compensation to dealers is
currently under review by the NASD and the Securities and
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<PAGE>
Exchange Commission. It is likely that the NASD's Rules of Fair Practice will be
amended such that the ability of the Distributor to pay non-cash compensation as
described above will be restricted in some fashion. The Distributor intends to
comply with the NASD's Rules of Fair Practice as they may be amended.
Institutional Classes
In addition to offering Class A, Class B and Class C Shares,
Decatur Income Fund also offers Decatur Income Fund Institutional Class shares
and Decatur Total Return Fund also offers Decatur Total Return Fund
Institutional Class, which are described in a separate prospectus and are
available for purchase only by certain investors. Decatur Income Fund
Institutional Class and Decatur Total Return Fund Institutional Class shares
generally are distributed directly by the Distributor and do not have a
front-end sales charge, a CDSC or a Limited CDSC, and are not subject to 12b-1
Plan distribution expenses. To obtain the prospectus that describes Decatur
Income Fund Institutional Class and Decatur Total Return Fund Institutional
Class, contact the Distributor by writing to the address or by calling the
telephone number listed on the cover of this Prospectus.
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<PAGE>
HOW TO BUY SHARES
Purchase Amounts
Generally, the minimum initial purchase is $1,000 for Class A
Shares, Class B Shares and Class C Shares. Subsequent purchases of shares of any
Class generally must be $100 or more. For purchases under the Uniform Gifts to
Minors Act or Uniform Transfers to Minors Act or through an Automatic Investing
Plan, there is a minimum initial purchase of $250 and a minimum subsequent
purchase of $25. Minimum purchase requirements do not apply to retirement plans
other than IRAs, for which there is a minimum initial purchase of $250 and a
minimum subsequent purchase of $25, regardless of which Class is selected.
There is a maximum purchase limitation of $250,000 on each purchase
of Class B Shares. For Class C Shares, each purchase must be in an amount that
is less than $1,000,000. An investor may exceed these maximum purchase
limitations by making cumulative purchases over a period of time. In doing so,
an investor should keep in mind that reduced front-end sales charges are
available on investments of $100,000 or more in Class A Shares, and that Class A
Shares (i) are subject to lower annual 12b-1 Plan expenses than Class B Shares
and Class C Shares and (ii) generally are not subject to a CDSC. For retirement
plans, the maximum purchase limitations apply only to the initial purchase of
Class B Shares or Class C Shares by the plan.
Investing through Your Investment Dealer
You can make a purchase of shares of the Funds through most
investment dealers who, as part of the service they provide, must transmit
orders promptly. They may charge for this service. If you want a dealer but do
not have one, the Delaware Group can refer you to one.
Investing by Mail
1. Initial Purchases--An Investment Application or, in the case of a retirement
account, an appropriate retirement plan application, must be completed, signed
and sent with a check payable to the specific Fund and Class selected, to
Delaware Group at 1818 Market Street, Philadelphia, PA 19103.
2. Subsequent Purchases--Additional purchases may be made at any time by mailing
a check payable to the specific Fund and Class selected. Your check should be
identified with your name(s) and account number. An investment slip (similar to
a deposit slip) is provided at the bottom of transaction confirmations and
dividend statements that you will receive from Equity Funds II, Inc. Use of this
investment slip can help expedite processing of your check when making
additional purchases. Your investment may be delayed if you send additional
purchases by certified mail.
Investing by Wire
You may purchase shares by requesting your bank to transmit funds
by wire to CoreStates Bank, N.A., ABA #031000011, account number 1412893401
(include your name(s) and your account number for the Class in which you are
investing).
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<PAGE>
1. Initial Purchases--Before you invest, telephone the Shareholder Service
Center to get an account number. If you do not call first, processing of your
investment may be delayed. In addition, you must promptly send your Investment
Application or, in the case of a retirement account, an appropriate retirement
plan application, for the specific Fund and Class selected, to Delaware Group at
1818 Market Street, Philadelphia, PA 19103.
2. Subsequent Purchases--You may make additional investments anytime by wiring
funds to CoreStates Bank, N.A., as described above. You should advise the
Shareholder Service Center by telephone of each wire you send.
If you want to wire investments to a retirement plan account, call
the Shareholder Service Center for special wiring instructions.
Investing by Exchange
If you have an investment in another mutual fund in the Delaware
Group, you may write and authorize an exchange of part or all of your investment
into shares of a Fund. If you wish to open an account by exchange, call the
Shareholder Service Center for more information. All exchanges are subject to
the eligibility and minimum purchase requirements set forth in each fund's
prospectus. See Redemption and Exchange for more complete information concerning
your exchange privileges.
Holders of Class A Shares of a Fund may exchange all or part of
their shares for certain of the shares of other funds in the Delaware Group,
including other Class A Shares, but may not exchange their Class A Shares for
Class B Shares or Class C Shares of the Fund or of any other fund in the
Delaware Group. Holders of Class B Shares of a Fund are permitted to exchange
all or part of their Class B Shares only into Class B Shares of other Delaware
Group funds. Similarly, holders of Class C Shares of a Fund are permitted to
exchange all or part of their Class C Shares only into Class C Shares of other
Delaware Group funds. See Appendix B - Classes Offered for a list of Delaware
Group funds and the classes they offer. Class B Shares of a Fund and Class C
Shares of a Fund acquired by exchange will continue to carry the CDSC and, in
the case of Class B Shares, the automatic conversion schedule of the fund from
which the exchange is made. The holding period of Class B Shares of a Fund
acquired by exchange will be added to that of the shares that were exchanged for
purposes of determining the time of the automatic conversion into Class A Shares
of that Fund.
Permissible exchanges into Class A Shares of a Fund will be made
without a front-end sales charge, except for exchanges of shares that were not
previously subject to a front-end sales charge (unless such shares were acquired
through the reinvestment of dividends). Permissible exchanges into Class B
Shares or Class C Shares of a Fund will be made without the imposition of a CDSC
by the fund from which the exchange is being made at the time of the exchange.
See Allied Plans under Retirement Planning for information on
exchanges by participants in an Allied Plan.
Additional Methods of Adding to Your Investment
Call the Shareholder Service Center for more information if you
wish to use the following services:
1. Automatic Investing Plan
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<PAGE>
The Automatic Investing Plan enables you to make regular monthly
investments without writing or mailing checks. You may authorize Equity Funds
II, Inc. to transfer a designated amount monthly from your checking account to
your Fund account. Many shareholders use this as an automatic savings plan.
Shareholders should allow a reasonable amount of time for initial purchases and
changes to these plans to become effective.
This option is not available to participants in the following
plans: SAR/SEP, SEP/IRA, Profit Sharing and Money Purchase Pension Plans, 401(k)
Defined Contribution Plans, 403(b)(7) Deferred Compensation Plans or 457
Deferred Compensation Plans.
2. Direct Deposit
You may have your employer or bank make regular investments
directly to your account for you (for example: payroll deduction, pay by phone,
annuity payments). Each Fund also accepts preauthorized recurring government and
private payments by Electronic Fund Transfer, which avoids mail time and check
clearing holds on payments such as social security, federal salaries, Railroad
Retirement benefits, etc.
* * *
Should investments through an automatic investment plan or by
direct deposit be reclaimed or returned for some reason, Equity Funds II, Inc.
has the right to liquidate your shares to reimburse the government or
transmitting bank. If there are insufficient funds in your account, you are
obligated to reimburse the Fund.
3. Wealth Builder Option
You can use our Wealth Builder Option to invest in a Fund through
regular liquidations of shares in your accounts in other funds in the Delaware
Group. You may also elect to invest in other mutual funds in the Delaware Group
through the Wealth Builder Option through regular liquidations of shares in your
Fund account.
Under this automatic exchange program, you can authorize regular
monthly amounts (minimum of $100 per fund) to be liquidated from your account in
one or more funds in the Delaware Group and invested automatically into any
other account in a Delaware Group mutual fund that you may specify. If in
connection with the election of the Wealth Builder Option, you wish to open a
new account to receive the automatic investment, such new account must meet the
minimum initial purchase requirements described in the prospectus of the fund
that you select. All investments under this option are exchanges and are
therefore subject to the same conditions and limitations as other exchanges
noted above. You can terminate your participation in Wealth Builder at any time
by giving written notice to the fund from which the exchanges are made. See
Redemption and Exchange.
This option is not available to participants in the following
plans: SAR/SEP, SEP/IRA, Profit Sharing and Money Purchase Pension Plans, 401(k)
Defined Contribution Plans, 403(b)(7) Deferred Compensation Plans or 457
Deferred Compensation Plans.
4. Dividend Reinvestment Plan
You can elect to have your distributions (capital gains and/or
dividend income) paid to you by check or reinvested in your account. Or, you may
invest your distributions in certain other funds in the Delaware
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Group, subject to the exceptions noted below as well as the eligibility and
minimum purchase requirements set forth in each fund's prospectus.
Reinvestments of distributions into Class A Shares of a Fund or of
other Delaware Group funds are made without a front-end sales charge.
Reinvestments of distributions into Class B Shares of a Fund or of other
Delaware Group funds or into Class C Shares of a Fund or of other Delaware Group
funds are also made without any sales charge and will not be subject to a CDSC
if later redeemed. See Automatic Conversion of Class B Shares under Classes of
Shares for information concerning the automatic conversion of Class B Shares
acquired by reinvesting dividends.
Holders of Class A Shares of a Fund may not reinvest their
distributions into Class B Shares or Class C Shares of any fund in the Delaware
Group, including the Funds. Holders of Class B Shares of a Fund may reinvest
their distributions only into Class B Shares of the funds in the Delaware Group
which offer that class of shares. Similarly, holders of Class C Shares of a Fund
may reinvest their distributions only into Class C Shares of the funds in the
Delaware Group which offer that class of shares. See Appendix B -- Classes
Offered for a list of the funds offering those classes of shares. For more
information about reinvestments, call the Shareholder Service Center.
Distributions for capital gains and/or dividends for participants
in the following retirement plans are automatically reinvested into the same
Delaware Group fund: SAR/SEP, SEP/IRA, Profit Sharing, Money Purchase Pension,
401(k), 403(b)(7), or 457 Plans.
Delaware Group Asset Planner
To invest in Delaware Group funds using the Delaware Group Asset
Planner asset allocation service, you should complete a Delaware Group Asset
Planner Account Registration Form, which is available only from a financial
adviser or investment dealer. As previously described, the Delaware Group Asset
Planner service offers a choice of four predesigned asset allocation strategies
(each with a different risk/reward profile) in predetermined percentages in
Delaware Group funds. Or, with the help of a financial adviser, you may design a
customized asset allocation strategy.
The sales charge on an investment through the Asset Planner service
is determined by the individual sales charges of the underlying funds and their
percentage allocation in the selected Strategy. Exchanges from existing Delaware
Group accounts into the Asset Planner service may be made at net asset value
under the circumstances described under Investing by Exchange, above. The
minimum initial investment per Strategy is $2,000; subsequent investments must
be at least $100. Individual fund minimums do not apply to investments made
using the Asset Planner service. Class A, Class B and Class C Shares are
available through the Asset Planner service. Generally, only shares within the
same class may be used within the same Strategy. However, Class A Shares of a
Fund and of other funds in the Delaware Group may be used in the same Strategy
with consultant class shares that are offered by certain other Delaware Group
funds. See Appendix B--Classes Offered for the funds in the Delaware Group that
offer consultant class shares.
An annual maintenance fee, currently $35 per Strategy, is typically
due at the time of initial investment and by September 30th of each subsequent
year. The fee, payable to Delaware Service Company, Inc. to defray extra costs
associated with administering the Asset Planner service, will be deducted
automatically from one of the funds within your Asset Planner account if not
paid by September 30th. However, effective November 1, 1996, the annual fee is
waived until further notice. Investors who utilize the
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Asset Planner for an IRA will continue to pay an annual IRA fee of $15 per
Social Security number. See Part B.
Investors will receive a customized quarterly Strategy Report
summarizing all Delaware Group Asset Planner investment performance and account
activity during the prior period. Confirmation statements will be sent following
all transactions other than those involving a reinvestment of distributions.
Certain shareholder services are not available to investors using the
Asset Planner service, due to its special design. These include Delaphone,
Checkwriting, Wealth Builder Option and Letter of Intention. Systematic
Withdrawal Plans are available after the account has been open for two years.
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Purchase Price and Effective Date
The offering price and net asset value of Class A, Class B and
Class C Shares are determined as of the close of regular trading on the New York
Stock Exchange (ordinarily, 4 p.m., Eastern time) on days when the Exchange is
open.
The effective date of a purchase made through an investment dealer
is the date the order is received by the Fund in which the shares are being
purchased. The effective date of a direct purchase is the day your wire,
electronic transfer or check is received, unless it is received after the time
the offering price or net asset value of shares is determined, as noted above.
Purchase orders received after such time will be effective the next business
day.
The Conditions of Your Purchase
Each Fund reserves the right to reject any purchase order. If a
purchase is canceled because your check is returned unpaid, you are responsible
for any loss incurred. A Fund can redeem shares from your account(s) to
reimburse itself for any loss, and you may be restricted from making future
purchases in any of the funds in the Delaware Group. Each Fund reserves the
right to reject purchase orders paid by third-party checks or checks that are
not drawn on a domestic branch of a United States financial institution. If a
check drawn on a foreign financial institution is accepted, you may be subject
to additional bank charges for clearance and currency conversion.
Each Fund also reserves the right, following shareholder
notification, to charge a service fee on non- retirement accounts that, as a
result of a redemption, have remained below the minimum stated account balance
for a period of three or more consecutive months. Holders of such accounts may
be notified of their insufficient account balance and advised that they have
until the end of the current calendar quarter to raise their balance to the
stated minimum. If the account has not reached the minimum balance requirement
by that time, the Fund in which the account is held will charge a $9 fee for
that quarter and each subsequent calendar quarter until the account is brought
up to the minimum balance. The service fee will be deducted from the account
during the first week of each calendar quarter for the previous quarter, and
will be used to help defray the cost of maintaining low-balance accounts. No
fees will be charged without proper notice, and no CDSC will apply to such
assessments.
Each Fund also reserves the right, upon 60 days' written notice, to
involuntarily redeem accounts that remain under the minimum initial purchase
amount as a result of redemptions. An investor making the minimum initial
investment may be subject to involuntary redemption without the imposition of a
CDSC or Limited CDSC if he or she redeems any portion of his or her account.
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REDEMPTION AND EXCHANGE
You can redeem or exchange your shares in a number of different
ways. The exchange service is useful if your investment requirements change and
you want an easy way to invest in other equity funds, tax-advantaged funds,
bond funds or money market funds. This service is also useful if you are
anticipating a major expenditure and want to move a portion of your investment
into a fund that has the checkwriting feature. Exchanges are subject to the
requirements of each fund and all exchanges of shares constitute taxable events.
See Taxes. Further, in order for an exchange to be processed, shares of the fund
being acquired must be registered in the state where the acquiring shareholder
resides. You may want to consult your financial adviser or investment dealer to
discuss which funds in the Delaware Group will best meet your changing
objectives and the consequences of any exchange transaction. You may also call
the Delaware Group directly for fund information.
All exchanges involve a purchase of shares of the fund into which
the exchange is made. As with any purchase, an investor should obtain and
carefully read that fund's prospectus before buying shares in an exchange. The
prospectus contains more complete information about the fund, including charges
and expenses.
Your shares will be redeemed or exchanged at a price based on the
net asset value next determined after a Fund receives your request in good
order, subject, in the case of a redemption, to any applicable CDSC or Limited
CDSC. For example, redemption or exchange requests received in good order after
the time the offering price and net asset value of shares are determined will
be processed on the next business day. See Purchase Price and Effective Date
under How to Buy Shares. A shareholder submitting a redemption request may
indicate that he or she wishes to receive redemption proceeds of a specific
dollar amount. In the case of such a request, and in the case of certain
redemptions from retirement plan accounts, a Fund will redeem the number of
shares necessary to deduct the applicable CDSC in the case of Class B and Class
C Shares, and, if applicable, the Limited CDSC in the case of Class A Shares and
tender to the shareholder the requested amount, assuming the shareholder holds
enough shares in his or her account for the redemption to be processed in this
manner. Otherwise, the amount tendered to the shareholder upon redemption will
be reduced by the amount of the applicable CDSC or Limited CDSC. Redemption
proceeds will be distributed promptly, as described below, but not later than
seven days after a receipt of a redemption request.
Except as noted below, for a redemption request to be in "good
order," you must provide your account number, account registration, and the
total number of shares or dollar amount of the transaction. For exchange
requests, you must also provide the name of the fund you want to receive the
proceeds. Exchange instructions and redemption requests must be signed by the
record owner(s) exactly as the shares are registered. You may request a
redemption or an exchange by calling the Shareholder Service Center at
800-523-1918. Each Fund may suspend, terminate, or amend the terms of the
exchange privilege upon 60 days' written notice to shareholders.
Each Fund will process written and telephone redemption requests to
the extent that the purchase orders for the shares being redeemed have already
settled. Each Fund will honor redemption requests as to shares for which a check
was tendered as payment, but a Fund will not mail or wire the proceeds until it
is reasonably satisfied that the purchase check has cleared, which may take up
to 15 days from the purchase date. You can avoid this potential delay if you
purchase shares by wiring Federal Funds. Each Fund reserves the right to reject
a written or telephone redemption request or delay payment of redemption
proceeds if there has been a recent change to the shareholder's address of
record.
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There is no front-end sales charge or fee for exchanges made between
shares of funds which both carry a front-end sales charge. Any applicable
front-end sales charge will apply to exchanges from shares of funds not subject
to a front-end sales charge, except for exchanges involving assets that were
previously invested in a fund with a front-end sales charge and/or exchanges
involving the reinvestment of dividends.
Holders of Class B Shares or Class C Shares that exchange their
shares ("Original Shares") for shares of other funds in the Delaware Group (in
each case, "New Shares") in a permitted exchange, will not be subject to a CDSC
that might otherwise be due upon redemption of the Original Shares. However,
such shareholders will continue to be subject to the CDSC and, in the case of
Class B Shares, the automatic conversion schedule of the Original Shares as
described in this Prospectus and any CDSC assessed upon redemption will be
charged by the fund from which the Original Shares were exchanged. In an
exchange of Class B Shares from a Fund, the Fund's CDSC schedule may be higher
than the CDSC schedule relating to the New Shares acquired as a result of the
exchange. For purposes of computing the CDSC that may be payable upon a
disposition of the New Shares, the period of time that an investor held the
Original Shares is added to the period of time that an investor held the New
Shares. With respect to Class B Shares, the automatic conversion schedule of the
Original Shares may be longer than that of the New Shares. Consequently, an
investment in the New Shares by exchange may subject an investor to the higher
12b-1 fees applicable to Class B Shares of a Fund for a longer period of time
than if the investment in the New Shares were made directly.
Various redemption and exchange methods are outlined below. Except
for the CDSC applicable to certain redemptions of Class B and Class C Shares and
the Limited CDSC applicable to certain redemptions of Class A Shares purchased
at net asset value, there is no fee charged by either Fund or the Distributor
for redeeming or exchanging your shares, but such fees could be charged in the
future. You may have your investment dealer arrange to have your shares redeemed
or exchanged. Your investment dealer may charge for this service.
All authorizations given by shareholders, including selection of
any of the features described below, shall continue in effect until such time as
a written revocation or modification has been received by the Fund to which the
authorization relates or its agent.
Written Redemption
You can write to each Fund at 1818 Market Street, Philadelphia, PA
19103 to redeem some or all of your shares. The request must be signed by all
owners of the account or your investment dealer of record. For redemptions of
more than $50,000, or when the proceeds are not sent to the shareholder(s) at
the address of record, the Funds require a signature by all owners of the
account and a signature guarantee for each owner. Each signature guarantee must
be supplied by an eligible guarantor institution. Each Fund reserves the right
to reject a signature guarantee supplied by an eligible institution based on its
creditworthiness. The Funds may require further documentation from corporations,
executors, retirement plans, administrators, trustees or guardians.
Payment is normally mailed the next business day after receipt of
your redemption request. If your Class A Shares are in certificate form, the
certificate must accompany your request and also be in good order. Certificates
are issued for Class A Shares only if a shareholder submits a specific request.
Certificates are not issued for Class B Shares or Class C Shares.
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Written Exchange
You may also write to each Fund (at 1818 Market Street,
Philadelphia, PA 19103) to request an exchange of any or all of your shares into
another mutual fund in the Delaware Group, subject to the same conditions and
limitations as other exchanges noted above.
Telephone Redemption and Exchange
To get the added convenience of the telephone redemption and
exchange methods, you must have the Transfer Agent hold your shares (without
charge) for you. If you choose to have your Class A Shares in certificate form,
you may redeem or exchange only by written request and you must return your
certificates.
The Telephone Redemption-Check to Your Address of Record service
and the Telephone Exchange service, both of which are described below, are
automatically provided unless you notify the Fund in which you have your account
in writing that you do not wish to have such services available with respect to
your account. Each Fund reserves the right to modify, terminate or suspend these
procedures upon 60 days' written notice to shareholders. It may be difficult to
reach the Funds by telephone during periods when market or economic conditions
lead to an unusually large volume of telephone requests.
Neither the Funds nor their Transfer Agent is responsible for any
shareholder loss incurred in acting upon written or telephone instructions for
redemption or exchange of Fund shares which are reasonably believed to be
genuine. With respect to such telephone transactions, each Fund will follow
reasonable procedures to confirm that instructions communicated by telephone are
genuine (including verification of a form of personal identification) as, if it
does not, such Fund or the Transfer Agent may be liable for any losses due to
unauthorized or fraudulent transactions. Instructions received by telephone are
generally tape recorded, and a written confirmation will be provided for all
purchase, exchange and redemption transactions initiated by telephone. By
exchanging shares by telephone, you are acknowledging prior receipt of a
prospectus for the fund into which your shares are being exchanged.
Telephone Redemption--Check to Your Address of Record
The Telephone Redemption feature is a quick and easy method to
redeem shares. You or your investment dealer of record can have redemption
proceeds of $50,000 or less mailed to you at your address of record. Checks will
be payable to the shareholder(s) of record. Payment is normally mailed the next
business day after receipt of the redemption request. This service is only
available to individual, joint and individual fiduciary-type accounts.
Telephone Redemption--Proceeds to Your Bank
Redemption proceeds of $1,000 or more can be transferred to your
predesignated bank account by wire or by check. You should authorize this
service when you open your account. If you change your predesignated bank
account, you must complete an Authorization Form and have your signature
guaranteed. For your protection, your authorization must be on file. If you
request a wire, your funds will normally be sent the next business day.
CoreStates Bank, N.A.'s fee (currently $7.50) will be deducted from your
redemption. If you ask for a check, it will normally be mailed the next business
day after receipt of your redemption request to your predesignated bank account.
There are no separate fees for this redemption method, but the mail time may
delay getting funds into your bank account. Simply call the Shareholder Service
Center prior to the time the offering price and net asset value are determined,
as noted above.
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Telephone Exchange
The Telephone Exchange feature is a convenient and efficient way to
adjust your investment holdings as your liquidity requirements and investment
objectives change. You or your investment dealer of record can exchange your
shares into other funds in the Delaware Group under the same registration,
subject to the same conditions and limitations as other exchanges noted above.
As with the written exchange service, telephone exchanges are subject to the
requirements of each fund, as described above. Telephone exchanges may be
subject to limitations as to amounts or frequency.
Systematic Withdrawal Plans
1. Regular Plans
This plan provides shareholders with a consistent monthly (or
quarterly) payment. This is particularly useful to shareholders living on fixed
incomes, since it can provide them with a stable supplemental amount. With
accounts of at least $5,000, you may elect monthly withdrawals of $25 (quarterly
$75) or more. The Funds do not recommend any particular monthly amount, as each
shareholder's situation and needs vary. Payments are normally made by check. In
the alternative, you may elect to have your payments transferred from your Fund
account to your predesignated bank account through the MoneyLine Direct Deposit
Service. Your funds will normally be credited to your bank account two business
days after the payment date. There are no separate fees for this redemption
method. See MoneyLine Direct Deposit Service under The Delaware Difference for
more information about this service.
2. Retirement Plans
For shareholders eligible under the applicable retirement plan to
receive benefits in periodic payments, the Systematic Withdrawal Plan provides
you with maximum flexibility. A number of formulas are available for calculating
your withdrawals depending upon whether the distributions are required or
optional. Withdrawals must be for $25 or more; however, no minimum account
balance is required. The MoneyLine Direct Deposit Service described above is not
available for certain retirement plans.
* * *
Shareholders should not purchase additional shares while
participating in a Systematic Withdrawal Plan.
Redemptions of Class A Shares via a Systematic Withdrawal Plan may
be subject to a Limited CDSC if the original purchase was made at net asset
value within the 12 months prior to the withdrawal and a dealer's commission was
paid on that purchase. See Contingent Deferred Sales Charge for Certain
Redemptions of Class A Shares Purchased at Net Asset Value, below.
The applicable CDSC for Class B Shares and Class C Shares redeemed
via a Systematic Withdrawal Plan will be waived if, on the date that the Plan is
established, the annual amount selected to be withdrawn is less than 12% of the
account balance. If the annual amount selected to be withdrawn exceeds 12% of
the account balance on the date that the Systematic Withdrawal Plan is
established, all redemptions under the Plan will be subject to the applicable
CDSC. Whether a waiver of the CDSC is available or not, the first shares to be
redeemed for each Systematic Withdrawal Plan payment will be those not subject
to a CDSC because they have either satisfied the required holding period or were
acquired through the reinvestment of distributions. The 12% annual limit will be
reset on the date that any Systematic Withdrawal Plan is modified (for example,
a change in the amount selected to be withdrawn or the frequency or date of
withdrawals), based
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on the balance in the account on that date. See Waiver of
Contingent Deferred Sales Charge -- Class B and Class C Shares, below.
For more information on Systematic Withdrawal Plans, call the
Shareholder Service Center.
Contingent Deferred Sales Charge for Certain Redemptions of Class A Shares
Purchased at Net Asset Value
A Limited CDSC will be imposed on certain redemptions of Class A
Shares (or shares into which such Class A Shares are exchanged) made within 12
months of purchase, if such purchases were made at net asset value and triggered
the payment by the Distributor of the dealer's commission previously described.
See Classes of Shares.
The Limited CDSC will be paid to the Distributor and will be equal
to the lesser of 1% of: (1) the net asset value at the time of purchase of the
Class A Shares being redeemed; or (2) the net asset value of such Class A Shares
at the time of redemption. For purposes of this formula, the "net asset value at
the time of purchase" will be the net asset value at purchase of the Class A
Shares even if those shares are later exchanged for shares of another Delaware
Group fund and, in the event of an exchange of Class A Shares, the "net asset
value of such shares at the time of redemption" will be the net asset value of
the shares acquired in the exchange.
Redemptions of such Class A Shares held for more than 12 months
will not be subjected to the Limited CDSC and an exchange of such Class A Shares
into another Delaware Group fund will not trigger the imposition of the Limited
CDSC at the time of such exchange. The period a shareholder owns shares into
which Class A Shares are exchanged will count towards satisfying the 12-month
holding period. The Limited CDSC is assessed if such 12-month period is not
satisfied irrespective of whether the redemption triggering its payment is of
Class A Shares of a Fund or Class A Shares acquired in the exchange.
In determining whether a Limited CDSC is payable, it will be
assumed that shares not subject to the Limited CDSC are the first redeemed
followed by other shares held for the longest period of time. The Limited CDSC
will not be imposed upon shares representing reinvested dividends or capital
gains distributions, or upon amounts representing share appreciation. All
investments made during a calendar month, regardless of what day of the month
the investment occurred, will age one month on the last day of that month and
each subsequent month.
Waiver of Limited Contingent Deferred Sales Charge--Class A Shares
The Limited CDSC for Class A Shares on which a dealer's commission
has been paid will be waived in the following instances: (i) redemptions that
result from a Fund's right to liquidate a shareholder's account if the aggregate
net asset value of the shares held in the account is less than the
then-effective minimum account size; (ii) distributions to participants from a
retirement plan qualified under section 401(a) or 401(k) of the Internal Revenue
Code of 1986, as amended ("the Code"), or due to death of a participant in such
a plan; (iii) redemptions pursuant to the direction of a participant or
beneficiary of a retirement plan qualified under section 401(a) or 401(k) of the
Code with respect to that retirement plan; (iv) distributions from a section
403(b)(7) Plan or an IRA due to death, disability, or attainment of age 59 1/2;
(v) returns of excess contributions to an IRA; (vi) distributions by other
employee benefit plans to pay benefits; (vii) distributions described in (ii),
(iv), and (vi) above pursuant to a systematic withdrawal plan; and (viii)
redemptions by the classes of shareholders who are permitted to purchase shares
at net asset value, regardless of the size of the purchase (see Buying Class A
Shares at Net Asset Value under Classes of Shares).
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Waiver of Contingent Deferred Sales Charge--Class B and Class C Shares
The CDSC is waived on certain redemptions of Class B Shares in
connection with the following redemptions: (i) redemptions that result from a
Fund's right to liquidate a shareholder's account if the aggregate net asset
value of the shares held in the account is less than the then-effective minimum
account size; (ii) returns of excess contributions to an IRA or 403(b)(7)
Deferred Compensation Plan; (iii) required minimum distributions from an IRA,
403(b)(7) Deferred Compensation Plan, or 457 Deferred Compensation Plan; and
(iv) distributions from an account if the redemption results from the death of
all registered owners of the account (in the case of accounts established under
the Uniform Gifts to Minors or Uniform Transfers to Minors Acts or trust
accounts, the waiver applies upon the death of all beneficial owners) or a total
and permanent disability (as defined in Section 72 of the Code) of all
registered owners occurring after the purchase of the shares being redeemed.
The CDSC on Class C Shares is waived in connection with the
following redemptions: (i) redemptions that result from a Fund's right to
liquidate a shareholder's account if the aggregate net asset value of the shares
held in the account is less than the then-effective minimum account size; (ii)
returns of excess contributions to an IRA, 403(b)(7) Deferred Compensation Plan,
Profit Sharing Plan, Money Purchase Pension Plan or 401(k) Defined Contribution
Plan; (iii) required minimum distributions from an IRA, 403(b)(7) Deferred
Compensation Plan, 457 Deferred Compensation Plan, Profit Sharing Plan, Money
Purchase Pension Plan or 401(k) Defined Contribution Plan; (iv) distributions
from a 403(b)(7) Deferred Compensation Plan, 457 Deferred Compensation Plan,
Profit Sharing Plan, or 401(k) Defined Contribution Plan, under hardship
provisions of the plan; (v) distributions from a 403(b)(7) Deferred Compensation
Plan, 457 Deferred Compensation Plan, Profit Sharing Plan, Money Purchase
Pension Plan or a 401(k) Defined Contribution Plan upon attainment of normal
retirement age under the plan or upon separation from service; (vi)
distributions from an IRA on or after attainment of age 59 1/2; and (vii)
distributions from an account if the redemption results from the death of all
registered owners of the account (in the case of accounts established under the
Uniform Gifts to Minors or Uniform Transfers to Minors Acts or trust accounts,
the waiver applies upon the death of all beneficial owners) or a total and
permanent disability (as defined in Section 72 of the Code) of all registered
owners occurring after the purchase of the shares being redeemed.
In addition, the CDSC will be waived on Class B and Class C Shares
redeemed in accordance with a Systematic Withdrawal Plan if the annual amount
selected to be withdrawn under the Plan does not exceed 12% of the value of the
account on the date that the Systematic Withdrawal Plan was established or
modified.
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DIVIDENDS AND DISTRIBUTIONS
Equity Funds II, Inc. currently intends to make monthly payments
from Decatur Income Fund's net investment income and quarterly payments from
Decatur Total Return Fund's net investment income. Payments from a Fund's net
realized securities profits, if any, will be made during the first quarter
following the end of a Fund's fiscal year.
Each Class of a Fund will share proportionately in the investment
income and expenses of that Fund, except that the per share dividends from net
investment income on Class A Shares, Class B Shares and Class C Shares will vary
due to the expenses under the 12b-1 Plan applicable to each Class. Generally,
the dividends per share on Class B Shares and Class C Shares can be expected to
be lower than the dividends per share on Class A Shares because the expenses
under the 12b-1 Plans relating to Class B and Class C Shares will be higher than
the expenses under the 12b-1 Plan relating to Class A Shares. See Distribution
(12b-1) and Service under Management of the Funds.
Both dividends and distributions, if any, are automatically
reinvested in your account at net asset value unless you elect otherwise. Any
check in payment of dividends or other distributions which cannot be delivered
by the United States Post Office or which remains uncashed for a period of more
than one year may be reinvested in your account at the then-current net asset
value and the dividend option may be changed from cash to reinvest. If you elect
to take your dividends and distributions in cash and such dividends and
distributions are in an amount of $25 or more, you may choose the MoneyLine
Direct Deposit Service and have such payments transferred from your Fund account
to your predesignated bank account. This service is not available for certain
retirement plans. See MoneyLine Direct Deposit Service under The Delaware
Difference for more information about this service.
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TAXES
The tax discussion set forth below is included for general
information only. Investors should consult their own tax advisers concerning the
federal, state, local or foreign tax consequences of an investment in a Fund.
Each Fund has qualified, and intends to continue to qualify, as a
regulated investment company under Subchapter M of the Code. As such, a Fund
will not be subject to federal income tax, or to any excise tax, to the extent
its earnings are distributed as provided in the Code.
Each Fund intends to distribute substantially all of its net
investment income and net capital gains, if any. Dividends from net investment
income or net short-term capital gains will be taxable to those investors who
are subject to income taxes as ordinary income, whether received in cash or in
additional shares. For corporate investors, dividends from net investment income
will generally qualify in part for the corporate dividends-received deduction.
The portion of dividends paid by a Fund that so qualifies will be designated
each year in a notice from Equity Funds II, Inc. to the Fund's shareholders. For
the fiscal year ended November 30, 1996, 44% and 59% of, respectively, Decatur
Income Fund's and Decatur Total Return Fund's dividends from net investment
income qualified for the corporate dividends-received deduction.
Distributions paid by a Fund from long-term capital gains, whether
received in cash or in additional shares, are taxable to those investors who are
subject to income taxes as long-term capital gains, regardless of the length of
time an investor has owned shares in that Fund. The Funds do not seek to realize
any particular amount of capital gains during a year; rather, realized gains are
a by-product of Fund management activities. Consequently, capital gains
distributions may be expected to vary considerably from year to year. Also, for
those investors subject to tax, if purchases of shares in a Fund are made
shortly before the record date for a dividend or capital gains distribution, a
portion of the investment will be returned as a taxable distribution.
Although dividends generally will be treated as distributed when
paid, dividends which are declared in October, November or December to
shareholders of record on a specified date in one of those months, but which,
for operational reasons, may not be paid to the shareholder until the following
January, will be treated for tax purposes as if paid by a Fund and received by
the shareholder on December 31 of the year declared.
The sale of shares of the Funds is a taxable event and may result
in a capital gain or loss to shareholders subject to tax. Capital gain or loss
may be realized from an ordinary redemption of shares or an exchange of shares
between the Funds and any other fund in the Delaware group. Any loss incurred on
a sale or exchange of Fund shares that had been held for six months or less will
be treated as a long-term capital loss to the extent of capital gains dividends
received with respect to such shares. All or a portion of the sales charge
incurred in acquiring a Fund's shares will be excluded from the federal tax
basis of any of such shares sold or exchanged within 90 days of their purchase
(for purposes of determining gain or loss upon sale of such shares) if the sale
proceeds are reinvested in that Fund or in another fund in the Delaware Group of
funds and a sales charge that would otherwise apply to the reinvestment is
reduced or eliminated. Any portion of such sales charge excluded from the tax
basis of the shares sold will be added to the tax basis of the shares acquired
in the reinvestment.
The automatic conversion of Class B Shares into Class A Shares at
the end of approximately eight years after purchase will be tax-free for federal
tax purposes. See Automatic Conversion of Class B Shares under Classes of
Shares.
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In addition to federal taxes, shareholders may be subject to state
and local taxes on distributions. Distributions of interest income and capital
gains realized from certain types of U.S. government securities may be exempt
from state personal income taxes. Shares of each Fund are exempt from
Pennsylvania county personal property taxes.
Each year, Equity Funds II, Inc. will mail to you information on
the tax status of the dividends and distributions paid by the Fund in which you
hold shares. Shareholders will also receive each year information as to the
portion of dividend income, if any, that is derived from U.S. government
securities that are exempt from state income tax. Of course, shareholders who
are not subject to tax on their income would not be required to pay tax on
amounts distributed to them by a Fund.
Equity Funds II, Inc. is required to withhold 31% of taxable
dividends, capital gains distributions, and redemptions paid to shareholders who
have not complied with IRS taxpayer identification regulations. You may avoid
this withholding requirement by certifying on your Investment Application your
proper Taxpayer Identification Number and by certifying that you are not subject
to backup withholding.
See Accounting and Tax Issues and Distributions and Taxes in Part B
for additional information on tax matters relating to each Fund and its
shareholders.
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CALCULATION OF OFFERING PRICE AND NET ASSET VALUE PER SHARE
The net asset value ("NAV") per share is computed by adding the
value of all securities and other assets in the portfolio, deducting any
liabilities (expenses and fees are accrued daily) and dividing by the number of
shares outstanding. Portfolio securities for which market quotations are
available are priced at market value. Short-term investments having a maturity
of less than 60 days are valued at amortized cost, which approximates market
value. All other securities are valued at their fair value as determined in good
faith and in a method approved by Equity Funds II, Inc.'s Board of Directors.
Class A Shares are purchased at the offering price per share, while
Class B Shares and Class C Shares are purchased at the NAV per share. The
offering price per share of Class A Shares consists of the NAV per share next
computed after the order is received, plus any applicable front-end sales
charges.
The offering price and NAV are computed as of the close of regular
trading on the New York Stock Exchange (ordinarily, 4 p.m., Eastern time) on
days when the Exchange is open.
The net asset values of all outstanding shares of each class of a
Fund will be computed on a pro-rata basis for each outstanding share based on
the proportionate participation in that Fund represented by the value of shares
of that class. All income earned and expenses incurred by a Fund will be borne
on a pro-rata basis by each outstanding share of a class, based on each class'
percentage in that Fund represented by the value of shares of such classes,
except that Decatur Income Fund Institutional Class and Decatur Total Return
Fund Institutional Class will not incur any of the expenses under Equity Funds
II, Inc.'s 12b-1 Plans and Class A, Class B and Class C Shares of each Fund
alone will bear the 12b-1 Plan expenses payable under their respective Plans.
Due to the specific distribution expenses and other costs that will be allocable
to each class, the NAV of each class of a Fund will vary.
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MANAGEMENT OF THE FUNDS
Directors
The business and affairs of Equity Funds II, Inc. are managed under
the direction of its Board of Directors. Part B contains additional information
regarding Equity Funds II, Inc.'s directors and officers.
Investment Manager
The Manager furnishes investment management services to each Fund.
The Manager and its predecessors have been managing the funds in
the Delaware Group since 1938. On November 30, 1996, the Manager and its
affiliates within the Delaware Group, including Delaware International Advisers
Ltd., were managing in the aggregate more than $32 billion in assets in the
various institutional or separately managed (approximately $20,311,204,000) and
investment company (approximately $11,765,348,000) accounts.
The Manager is an indirect, wholly owned subsidiary of Delaware
Management Holdings, Inc. ("DMH"). On April 3, 1995, a merger between DMH and a
wholly owned subsidiary of Lincoln National Corporation ("Lincoln National") was
completed. DMH and the Manager are now indirect, wholly owned subsidiaries, and
subject to the ultimate control, of Lincoln National. Lincoln National, with
headquarters in Fort Wayne, Indiana, is a diversified organization with
operations in many aspects of the financial services industry, including
insurance and investment management. In connection with the merger, new
Investment Management Agreements between Equity Funds II, Inc. on behalf of each
Fund and the Manager were executed following shareholder approval.
The Manager manages each Fund's portfolio and makes investment
decisions which are implemented by Equity Funds II, Inc.'s Trading Department.
The Manager also administers Equity Funds II, Inc.'s affairs and pays the
salaries of all the directors, officers and employees of Equity Funds II, Inc.
who are affiliated with the Manager. For these services, under the Investment
Management Agreement for Decatur Income Fund, the Manager is paid an annual fee
of 0.60% on the first $100 million of average daily net assets, 0.525% on the
next $150 million, 0.50% on the next $250 million and 0.475% on the average
daily net assets in excess of $500 million, less Decatur Income Fund's
proportionate share of all directors' fees paid to the unaffiliated directors by
Equity Funds II, Inc. For the fiscal year ended November 30, 1996, investment
management fees paid by Decatur Income Fund were 0.49% of its average daily net
assets.
For the services noted above, under the Investment Management
Agreement for Decatur Total Return Fund, the Manager is paid an annual fee of
0.60% on the first $500 million of average daily net assets of the Fund, 0.575%
on the next $250 million and 0.55% of the average daily net assets in excess of
$750 million, less Decatur Total Return Fund's proportionate share of directors'
fees paid to the unaffiliated directors by Equity Funds II, Inc. For the fiscal
year ended November 30, 1996, investment management fees paid by Decatur Total
Return Fund were 0.59% of its average daily net assets.
John B. Fields has primary responsibility for making day-to-day
investment decisions for each Fund. He has been the Senior Portfolio Manager for
Decatur Income Fund since 1993 and for Decatur Total Return Fund since 1992. Mr.
Fields, who has 26 years experience in investment management, earned a
bachelor's degree and an MBA from Ohio State University. Before joining the
Delaware Group in 1992, he was Director of Domestic Equity Risk Management at
DuPont. Prior to that, he was Director of Equity Research at Comerica Bank. Mr.
Fields is a member of the Financial Analysts Society of Wilmington, Delaware.
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In making investment decisions for each Fund, Mr. Fields works with
a team of 12 portfolio managers and analysts, each of whom specializes in a
different industry sector and makes recommendations accordingly. Mr. Fields also
regularly consults with Wayne A. Stork and Richard G. Unruh, Jr. Mr. Stork,
Chairman of the Manager's and of Equity Funds II, Inc.'s Board of Directors, is
a graduate of Brown University and attended New York University's Graduate
School of Business Administration. Mr. Stork joined the Delaware Group in 1962
and has served in various executive capacities at different times within the
Delaware organization. A graduate of Brown University, Mr. Unruh received his
MBA from the University of Pennsylvania's Wharton School and joined the Delaware
Group in 1982 after 19 years of investment management experience with Kidder,
Peabody & Co. Inc. Mr. Unruh was named an Executive Vice President of Equity
Funds II, Inc. in 1994. He is also a member of the Board of the Manager and was
named an Executive Vice President of the Manager in 1994.
Portfolio Trading Practices
Each Fund normally will not invest for short-term trading purposes.
However, a Fund may sell securities without regard to the length of time they
have been held. The degree of portfolio activity will affect brokerage costs of
a Fund and may affect taxes payable by such Fund's shareholders to the extent
that net capital gains are realized. Given each Fund's investment objective, its
annual portfolio turnover rate is not expected to exceed 100%. During the past
two fiscal years, portfolio turnover rates for each Fund were as follows:
November 30,
Fund 1996 1995
---- ---- ----
Decatur Income Fund 101% 74%
Decatur Total Return Fund 87% 81%
Each Fund uses its best efforts to obtain the best available price
and most favorable execution for portfolio transactions. Orders may be placed
with brokers or dealers who provide brokerage and research services to the
Manager or its advisory clients. These services may be used by the Manager in
servicing any of its accounts. Subject to best price and execution, each Fund
may consider a broker/dealer's sales of Fund shares in placing portfolio orders
and may place orders with broker/dealers that have agreed to defray certain Fund
expenses such as custodian fees.
Performance Information
From time to time, Decatur Income Fund and Decatur Total Return
Fund may quote yield or total return performance of their respective Classes in
advertising and other types of literature.
The current yield for a Class will be calculated by dividing the
annualized net investment income earned by that Class during a recent 30-day
period by the net asset value per share on the last day of the period. The yield
formula provides for semi-annual compounding which assumes that net investment
income is earned and reinvested at a constant rate and annualized at the end of
a six-month period.
Total return will be based on a hypothetical $1,000 investment,
reflecting the reinvestment of all distributions at net asset value and: (i) in
the case of Class A Shares, the impact of the maximum front-end sales charge at
the beginning of each specified period; and (ii) in the case of Class B Shares
and Class C Shares, the deduction of any applicable CDSC at the end of the
relevant period. Each presentation will include the average annual total return
for one-, five- and ten-year or life-of-fund periods, as relevant. Each Fund may
also
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advertise aggregate and average total return information concerning a Class over
additional periods of time. In addition, each Fund may present total return
information that does not reflect the deduction of the maximum front-end sales
charge or any applicable CDSC. In this case, such total return information would
be more favorable than total return information that includes deductions of the
maximum front-end sales charge or any applicable CDSC.
Because securities prices fluctuate, investment results of the
Classes will fluctuate over time. Past performance is not considered a guarantee
of future results.
Distribution (12b-1) and Service
The Distributor, Delaware Distributors, L.P., serves as the
national distributor of each Fund's shares under separate Distribution
Agreements with Equity Funds II, Inc. dated April 3, 1995, as amended on
November 29, 1995.
Equity Funds II, Inc. has adopted a separate distribution plan
under Rule 12b-1 for each of the Class A Shares, Class B Shares and Class C
Shares of the Funds (the "Plans"). Each Plan permits the Fund to which the Plan
relates to pay the Distributor from the assets of its respective Classes a
monthly fee for the Distributor's services and expenses in distributing and
promoting sales of shares.
These expenses include, among other things, preparing and
distributing advertisements, sales literature, and prospectuses and reports used
for sales purposes, compensating sales and marketing personnel, holding special
promotions for specified periods of time, and paying distribution and
maintenance fees to brokers, dealers and others. In connection with the
promotion of shares of the Classes, the Distributor may, from time to time, pay
to participate in dealer-sponsored seminars and conferences, and reimburse
dealers for expenses incurred in connection with preapproved seminars,
conferences and advertising. The Distributor may pay or allow additional
promotional incentives to dealers as part of preapproved sales contests and/or
to dealers who provide extra training and information concerning a Class and
increase sales of the Class. In addition, each Fund may make payments from the
12b-1 Plan fees of its respective Classes directly to others, such as banks, who
aid in the distribution of Class shares or provide services in respect of a
Class, pursuant to service agreements with Equity Funds II, Inc.
The 12b-1 Plan expenses relating to each of the Class B Shares and
Class C Shares of the Funds are also used to pay the Distributor for advancing
the commission costs to dealers with respect to the initial sale of such shares.
The aggregate fees paid by a Fund from the assets of the respective
Classes to the Distributor and others under the Plans may not exceed (i) 0.30%
of a Class A Shares' average daily net assets in any year, and (ii) 1% (0.25% of
which are service fees to be paid by the Fund to the Distributor, dealers and
others, for providing personal service and/or maintaining shareholder accounts)
of each Fund's Class B Shares' and the Class C Shares' average daily net assets
in any year. The actual 12b-1 Plan expenses assessed against Decatur Income Fund
A Class may be less than 0.30%, but may not be less than 0.10%, because of the
formula for calculating the fee adopted by Equity Funds II, Inc.'s Board of
Directors. See Part B. Each Fund's Class A, Class B and Class C Shares will not
incur any distribution expenses beyond these limits, which may not be increased
without shareholder approval.
While payments pursuant to the Plans may not exceed 0.30% annually
with respect to each Fund's Class A Shares, and 1% annually with respect to each
Fund's Class B Shares and Class C Shares, the Plans do
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not limit fees to amounts actually expended by the Distributor. It is therefore
possible that the Distributor may realize a profit in any particular year.
However, the Distributor currently expects that its distribution expenses will
likely equal or exceed payments to it under the Plans. The Distributor may,
however, incur such additional expenses and make additional payments to dealers
from its own resources to promote the distribution of shares of the Classes. The
monthly fees paid to the Distributor under the Plans are subject to the review
and approval of Equity Funds II, Inc.'s unaffiliated directors, who may reduce
the fees or terminate the Plans at any time.
The Plans do not apply to Decatur Income Fund Institutional Class
or Decatur Total Return Fund Institutional Class of shares. Those shares are not
included in calculating the Plans' fees, and the Plans are not used to assist in
the distribution and marketing of Decatur Income Fund Institutional Class or
Decatur Total Return Fund Institutional Class.
The Transfer Agent, Delaware Service Company, Inc., serves as the
shareholder servicing, dividend disbursing and transfer agent for each Fund
under an amended and restated agreement dated as of February 24, 1997. The
Transfer Agent also provides accounting services to each Fund pursuant to the
terms of a separate Fund Accounting Agreement. The directors of Equity Funds II,
Inc. annually review service fees paid to the Transfer Agent.
The Distributor and the Transfer Agent are also indirect, wholly
owned subsidiaries of DMH.
Expenses
Each Fund is responsible for all of its own expenses other than
those borne by the Manager under the Investment Management Agreements and those
borne by the Distributor under the Distribution Agreements. For the fiscal year
ended November 30, 1996, the ratios of expenses to average daily net assets for
each class were as follows:
Class A Class B Class C
Shares Shares Shares
------ ------ ------
Decatur Income Fund 0.85% 1.69% 1.69%
Decatur Total Return Fund 1.11% 1.81% 1.81%
The expense ratio of each Class reflects the impact of its 12b-1
Plan.
Shares
Equity Funds II, Inc. is an open-end management investment company.
Each Fund's portfolio of assets is diversified as defined by the 1940 Act.
Commonly known as a mutual fund, Equity Funds II, Inc. was organized as a
Maryland corporation on March 4, 1983 and was previously organized as a Delaware
corporation in 1956. Equity Funds II, Inc. currently offers four series of
shares - Decatur Income Fund series, Decatur Total Return Fund series, Blue Chip
Fund series and Quantum Fund series. Fund shares have a par value of $1.00,
equal voting rights, except as noted below, and are equal in all other respects.
Each Fund will vote separately on any matter which affects only that Fund.
Shares of each Fund have a priority over shares of any other fund of Equity
Funds II, Inc. in the assets and income of that Fund.
All of the shares have noncumulative voting rights which means that
the holders of more than 50% of Equity Funds II, Inc.'s shares voting for the
election of directors can elect 100% of the directors if they
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choose to do so. Under Maryland law, Equity Funds II, Inc. is not required, and
does not intend, to hold annual meetings of shareholders unless, under certain
circumstances, it is required to do so under the 1940 Act. Shareholders of 10%
or more of Equity Funds II, Inc.'s outstanding shares may request that a special
meeting be called to consider the removal of a director.
In addition to Class A Shares, Class B Shares and Class C Shares,
Decatur Income Fund and Decatur Total Return Fund offer Decatur Income Fund
Institutional Class and Decatur Total Return Fund Institutional Class,
respectively. Shares of each Class represent proportionate interests in the
assets of the respective Fund and have the same voting and other rights and
preferences as the other classes of that Fund, except that shares of Decatur
Income Fund Institutional Class and Decatur Total Return Fund Institutional
Class are not subject to, and may not vote on matters affecting, the
Distribution Plans under Rule 12b-1 relating to Class A, Class B and Class C
Shares. Similarly, as a general matter, the shareholders of Class A Shares,
Class B Shares and Class C Shares may vote only on matters affecting the 12b-1
Plan that relates to the class of shares that they hold. However, Class B Shares
of a Fund may vote on any proposal to increase materially the fees to be paid by
that Fund under the 12b-1 Plan relating to Class A Shares.
Effective as of the close of business February 21, 1997, the name
of Delaware Group Decatur Fund, Inc. was changed to Delaware Group Equity Funds
II, Inc.
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OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS
High Yield, High Risk Securities
Decatur Income Fund may invest up to 15% of its net assets in high
yield, high risk fixed-income securities. These securities are rated lower than
BBB by Standard & Poor's Ratings Group ("S&P"), Baa by Moody's Investors
Service, Inc. ("Moody's") and/or rated similarly by another rating agency, or,
if unrated, are considered by the Manager to be of equivalent quality. The Fund
will not invest in securities which are rated lower than C by S&P, Ca by Moody's
or similarly by another rating agency, or, if unrated, are considered by the
Manager to be of a quality that is lower than such ratings. See Appendix C to
this Prospectus for more rating information. Fixed-income securities of this
type are considered to be of poor standing and predominantly speculative. Such
securities are subject to a substantial degree of credit risk.
In the past, in the opinion of the Manager, the high yields from
these bonds have more than compensated for their higher default rates. There can
be no assurance, however, that yields will continue to offset default rates on
these bonds in the future. The Manager intends to maintain an adequately
diversified portfolio of these bonds. While diversification can help to reduce
the effect of an individual default on the Fund, there can be no assurance that
diversification will protect the Fund from widespread bond defaults brought
about by a sustained economic downturn.
Medium and low-grade bonds held by the Fund may be issued as a
consequence of corporate restructurings, such as leveraged buy-outs, mergers,
acquisitions, debt recapitalizations or similar events. Also these bonds are
often issued by smaller, less creditworthy companies or by highly leveraged
(indebted) firms, which are generally less able than more financially stable
firms to make scheduled payments of interest and principal. The risks posed by
bonds issued under such circumstances are substantial.
The economy and interest rates may affect these high yield, high
risk securities differently than other securities. Prices have been found to be
less sensitive to interest rate changes than higher rated investments, but more
sensitive to adverse economic changes or individual corporate developments.
Also, during an economic downturn or substantial period of rising interest
rates, highly leveraged issuers may experience financial stress which would
adversely affect their ability to service principal and interest payment
obligations, to meet projected business goals and to obtain additional
financing. Changes by recognized rating agencies in their rating of any security
and in the ability of an issuer to make payments of interest and principal will
also ordinarily have a more dramatic effect on the values of these investments
than on the values of higher-rated securities. Such changes in value will not
affect cash income derived from these securities, unless the issuers fail to pay
interest or dividends when due. Such changes will, however, affect the Fund's
net asset value per share.
Restricted and Illiquid Securities
Each Fund may invest in restricted securities, including securities
eligible for resale without registration pursuant to Rule 144A ("Rule 144A
Securities") under the Securities Act of 1933. Rule 144A permits many privately
placed and legally restricted securities to be freely traded among certain
institutional buyers such as the Funds. Each Fund may invest no more than 10% of
the value of its net assets in illiquid securities.
While maintaining oversight, the Board of Directors of Equity Funds
II, Inc. has delegated to the Manager the day-to-day function of determining
whether or not individual Rule 144A Securities are liquid for purposes of a
Fund's 10% limitation on investments in illiquid assets. The Board has
instructed the Manager to
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consider the following factors in determining the liquidity of a Rule 144A
Security: (i) the frequency of trades and trading volume for the security; (ii)
whether at least three dealers are willing to purchase or sell the security and
the number of potential purchasers; (iii) whether at least two dealers are
making a market in the security; and (iv) the nature of the security and the
nature of the marketplace trades (e.g., the time needed to dispose of the
security, the method of soliciting offers, and the mechanics of transfer).
If the Manager determines that a Rule 144A Security that was
previously determined to be liquid is no longer liquid and, as a result, a
Fund's holdings of illiquid securities exceed the Fund's 10% limit on
investments in such securities, the Manager will determine what action to take
to ensure that the Fund continues to adhere to such limitation.
Portfolio Loan Transactions
Each Fund may loan up to 25% of its assets to qualified
broker/dealers or institutional investors for their use relating to short sales
or other security transactions.
The major risk to which a Fund would be exposed on a loan
transaction is the risk that the borrower would go bankrupt at a time when the
value of the security goes up. Therefore, each Fund will only enter into loan
arrangements after a review of all pertinent facts by the Manager, subject to
overall supervision by the Board of Directors, including the creditworthiness of
the borrowing broker, dealer or institution and then only if the consideration
to be received from such loans would justify the risk. Creditworthiness will be
monitored on an ongoing basis by the Manager.
Futures Contracts
Each Fund may enter into futures contracts on stocks, stock
indices, interest rates and foreign currencies, and purchase or sell options on
such futures contracts. These activities will not be entered into for
speculative purposes, but rather for hedging purposes and to facilitate the
ability to quickly deploy into the stock market a Fund's positions in cash,
short-term debt securities and other money market instruments, at times when
such Fund's assets are not fully invested in equity securities. Such positions
will generally be eliminated when it becomes possible to invest in securities
that are appropriate for the Fund involved.
A futures contract is a bilateral agreement providing for the
purchase and sale of a specified type and amount of a financial instrument, or
for the making and acceptance of a cash settlement, at a stated time in the
future for a fixed price. By its terms, a futures contract provides for a
specified settlement date on which the securities underlying the contract are
delivered, or in the case of securities index futures contracts, the difference
between the price at which the contract was entered into and the contract's
closing value is settled between the purchaser and seller in cash. Futures
contracts differ from options in that they are bilateral agreements, with both
the purchaser and the seller equally obligated to complete the transaction. In
addition, futures contracts call for settlement only on the expiration date, and
cannot be "exercised" at any other time during their term.
The purchase or sale of a futures contract also differs from the
purchase or sale of a security or the purchase of an option in that no purchase
price is paid or received. Instead, an amount of cash or cash equivalents, which
varies but may be as low as 5% or less of the value of the contract, must be
deposited with the broker as "initial margin" as a good faith deposit. This
amount is generally maintained in a segregated account at the custodian bank.
Subsequent payments to and from the broker, referred to as "variation margin,"
are made on a daily basis as the value of the index or instrument underlying the
futures contract fluctuates, making positions in the futures contract more or
less valuable, a process known as "marking to the market."
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Purchases or sales of stock or bond index futures contracts are
used for hedging purposes to attempt to protect a Fund's current or intended
investments from broad fluctuations in stock or bond prices. For example, a Fund
may sell stock or bond index futures contracts in anticipation of or during a
market decline to attempt to offset the decrease in market value of the Fund's
securities portfolio that might otherwise result. If such decline occurs, the
loss in value of portfolio securities may be offset, in whole or part, by gains
on the futures position. When a Fund is not fully invested in the securities
market and anticipates a significant market advance, it may purchase stock or
bond index futures contracts in order to gain rapid market exposure that may, in
part or entirely, offset increases in the cost of securities that the Fund
intends to purchase. As such purchases are made, the corresponding positions in
stock or bond index futures contracts will be closed out.
Interest rate futures contracts are purchased or sold for hedging
purposes to attempt to protect against the effects of interest rate changes on a
Fund's current or intended investments in fixed-income securities. For example,
if a Fund owned long-term bonds and interest rates were expected to increase,
the Fund might sell interest rate futures contracts. Such a sale would have much
the same effect as selling some of the long-term bonds in the Fund's portfolio.
However, since the futures market is more liquid than the cash market, the use
of interest rate futures contracts as a hedging technique allows the Fund to
hedge its interest rate risk without having to sell its portfolio securities. If
interest rates did increase, the value of the debt securities in the portfolio
would decline, but the value of the Fund's interest rate futures contracts would
be expected to increase at approximately the same rate, thereby keeping the net
asset value of the Fund from declining as much as it otherwise would have. On
the other hand, if interest rates were expected to decline, interest rate
futures contracts could be purchased as a hedge in anticipation of subsequent
purchases of long-term bonds at higher prices. Because the fluctuations in the
value of the interest rate futures contracts should be similar to those of
long-term bonds, the Fund could protect itself against the effects of the
anticipated rise in the value of long-term bonds without actually buying them
until the necessary cash became available or the market had stabilized. At that
time, the interest rate futures contracts could be liquidated, and the Fund's
cash reserve could then be used to buy long-term bonds on the cash market.
Each Fund may purchase and sell foreign currency futures contracts
for hedging purposes to attempt to protect its current or intended investments
denominated in foreign currencies from fluctuations in currency exchange rates.
Such fluctuations could reduce the dollar value of portfolio securities
denominated in foreign currencies, or increase the cost of foreign-denominated
securities to be acquired, even if the value of such securities in the
currencies in which they are denominated remains constant. A Fund may sell
futures contracts on a foreign currency, for example, when it holds securities
denominated in such currency and it anticipates a decline in the value of such
currency relative to the dollar. In the event such decline occurs, the resulting
adverse effect on the value of foreign-denominated securities may be offset, in
whole or in part, by gains on the futures contracts. However, if the value of
the foreign currency increases relative to the dollar, the Fund's loss on the
foreign currency futures contract may or may not be offset by an increase in the
value of the securities because a decline in the price of the security stated in
terms of the foreign currency may be greater than the increase in value as a
result of the change in exchange rates. Conversely, a Fund could protect against
a rise in the dollar cost of foreign-denominated securities to be acquired by
purchasing futures contracts on the relevant currency, which could offset, in
whole or in part, the increased cost of such securities resulting from a rise in
the dollar value of the underlying currencies. When a Fund purchases futures
contracts under such circumstances, however, and the price of securities to be
acquired instead declines as a result of appreciation of the dollar, the Fund
will sustain losses on its futures position which could reduce or eliminate the
benefits of the reduced cost of portfolio securities to be acquired.
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Each Fund may also purchase and write options on the types of
futures contracts in which the Fund may invest, and enter into related closing
transactions. Options on futures are similar to options on securities, as
described below, except that options on futures give the purchaser the right, in
return for the premium paid, to assume a position in a futures contract, rather
than to actually purchase or sell the futures contract, at a specified exercise
price at any time during the period of the option. In the event that an option
written by the Fund is exercised, the Fund will be subject to all the risks
associated with the trading of futures contracts, such as payment of variation
margin deposits. In addition, the writer of an option on a futures contract,
unlike the holder, is subject to initial and variation margin requirements on
the option position.
At any time prior to the expiration of a futures contract, a trader
may elect to close out its position by taking an opposite position on the
contract market on which the position was entered into, subject to the
availability of a secondary market, which will operate to terminate the initial
position. Likewise, a position in an option on a futures contract may be
terminated by the purchaser or seller prior to expiration by effecting a closing
purchase or sale transaction, subject to availability of a secondary market,
which is the purchase or sale of an option of the same series (i.e., the same
exercise price and expiration date) as the option previously purchased or sold.
A Fund may realize a profit or a loss when closing out a futures contract or an
option on a futures contract.
To the extent that interest or exchange rates or securities prices
move in an unexpected direction, a Fund may not achieve the anticipated benefits
of investing in futures contracts and options thereon, or may realize a loss. To
the extent that a Fund purchases an option on a futures contract and fails to
exercise the option prior to the exercise date, it will suffer a loss of the
premium paid. Further, the possible lack of a secondary market could prevent the
Fund from closing out its positions relating to futures. See Part B for a
further discussion of this investment technique.
Options Each Fund may write covered call options on individual
issues. For the option to be considered to be covered, the Fund writing the
option must own the common stock underlying the option or securities convertible
into such common stock. In addition, each Fund may write call options on stock
indices. Each Fund may also purchase put options on individual issues and on
stock indices. The Manager will employ these techniques in an attempt to protect
appreciation attained, to offset capital losses and to take advantage of the
liquidity available in the option markets. The ability to hedge effectively
using options on stock indices will depend, in part, on the correlation between
the composition of the index and a Fund's portfolio as well as the price
movement of individual securities. The Funds do not currently intend to write or
purchase options on stock indices.
While there is no limit on the amount of a Fund's assets which may
be invested in covered call options, neither Fund will invest more than 2% of
its net assets in put options. The Funds will only use Exchange-traded options.
Call Options
Writing Covered Call Options--A covered call option obligates a
Fund to sell one of its securities for an agreed price up to an agreed date.
When a Fund writes a call, it receives a premium and agrees to sell the callable
securities to a purchaser of a corresponding call during the call period
(usually not more than nine months) at a fixed exercise price regardless of
market price changes during the call period. The advantage is that the Fund
receives premium income for the limited purpose of offsetting the costs of
purchasing put options
-50-
<PAGE>
or offsetting any capital loss or decline in market value of the security.
However, if the Manager's forecast is wrong, the Fund may not fully participate
in the market appreciation if the security's price rises.
Writing a Call Option on Stock Indices--Writing a call option on
stock indices is similar to the writing of a call option on an individual stock.
Stock indices used will include, but not be limited to, the S&P 500, the S&P 100
Index ("S&P 100") and the S&P Over-The-Counter ("OTC") 250.
Put Options
Purchasing a Put Option--A put option gives a Fund the right to
sell one of its securities for an agreed price up to an agreed date. The
advantage is that the Fund can be protected should the market value of the
security decline. However, the Fund must pay a premium for this right which
would be lost if the option is not exercised.
Purchasing a Put Option on Stock Indices--Purchasing a protective
put option on stock indices is similar to the purchase of protective puts on an
individual stock. Indices used will include, but not be limited to, the S&P 500,
the S&P 100 and the S&P OTC 250.
Closing Transactions--Closing transactions essentially let a Fund
offset a put option or covered call option prior to its exercise or expiration.
If the Fund cannot effect a closing transaction, it may have to hold a security
it would otherwise sell or deliver a security it might want to hold.
* * *
Borrowing
Although each Fund is permitted under certain circumstances to
borrow money, neither Fund normally do so. A Fund will not purchase new
securities while any borrowings are outstanding.
Repurchase Agreements
Each Fund may use repurchase agreements that are at least 100%
collateralized by securities in which the Fund can invest directly, including
securities issued or guaranteed by the U.S. government or its agencies or
instrumentalities. Repurchase agreements help a Fund to invest cash on a
temporary basis. Under a repurchase agreement, a Fund acquires ownership and
possession of a security, and the seller agrees to buy the security back at a
specified time and higher price. If the seller is unable to repurchase the
security, the Fund could experience delays in liquidating the securities. To
minimize this possibility, the Manager, pursuant to direction from Equity Funds
II, Inc.'s Board of Directors, considers the creditworthiness of the banks and
dealers with whom it enters into repurchase agreements.
* * *
Part B sets forth more specific investment restrictions, some of
which limit the percentage of assets that may be invested in certain types of
securities.
-51-
<PAGE>
APPENDIX C--RATINGS
Decatur Income Fund has the ability to invest up to 15% of its net
assets in high yield, high risk fixed-income securities. The table set forth
below shows asset composition, based on rating categories, of such securities
held by the Fund. Certain securities may not be rated because the rating
agencies were either not asked to provide ratings (e.g., many issuers of
privately placed bonds do not seek ratings) or because the rating agencies
declined to provide a rating for some reason, such as insufficient data. The
table below shows the percentage of Decatur Income Fund's high yield, high risk
securities which are not rated. The information contained in the table was
prepared based on a dollar weighted average of the Fund's portfolio composition
based on month end data for the fiscal year ended November 30, 1996. The
paragraphs following the table contain excerpts from Moody's and S&P's rating
descriptions. These credit ratings evaluate only the safety of principal and
interest and do not consider the market value risk associated with high yield
securities.
Rating Moody's Average Weighted
and/or Percentage of
S&P Portfolio
-------------- ----------------
Baa/BBB 0.15%
Ba/BB 2.47%
B/B 6.99%
Not Rated/Other 0.20%
General Rating Information
Bonds
Excerpts from Moody's description of its bond ratings: Aaa--judged
to be the best quality. They carry the smallest degree of investment risk;
Aa--judged to be of high quality by all standards; A--possess favorable
attributes and are considered "upper medium" grade obligations; Baa--considered
as medium grade obligations. Interest payments and principal security appear
adequate for the present but certain protective elements may be lacking or may
be characteristically unreliable over any great length of time; Ba--judged to
have speculative elements; their future cannot be considered as well assured.
Often the protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class; B--generally lack
characteristics of the desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over any long period
of time may be small; Caa--are of poor standing. Such issues may be in default
or there may be present elements of danger with respect to principal or
interest; Ca--represent obligations which are speculative in a high degree. Such
issues are often in default or have other marked shortcomings; C--the lowest
rated class of bonds and issues so rated can be regarded as having extremely
poor prospects of ever attaining any real investment standing.
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
-52-
<PAGE>
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.
-53-
<PAGE>
APPENDIX A - INVESTMENT ILLUSTRATIONS
Illustrations of Hypothetical Returns on Investments Based on Purchase Option
$10,000 Purchase
<TABLE>
<CAPTION>
Scenario 1 Scenario 2
No Redemption Redeem 1st Year
--------------------------------------- -------------------------------------
Year Class A Class B Class C Class A Class B Class C
---- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
0 9,525 10,000 10,000 9,525 10,000 10,000
1 10,478 10,930 10,930 10,478 10,530 10,830+
2 11,525 11,946 11,946
3 12,678 13,058 13,058
4 13,946 14,272 14,272
5 15,340 15,599 15,599
6 16,874 17,050 17,050
7 18,562 18,636 18,636
8 20,418+ 20,369 20,369
9 22,459 22,405* 22,263
10 24,705 24,646* 24,333
</TABLE>
<TABLE>
<CAPTION>
Scenario 3 Scenario 4
Redeem 3rd Year Redeem 5th Year
------------------------------------- ------------------------------------
Year Class A Class B Class C Class A Class B Class C
---- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
0 9,525 10,000 10,000 9,525 10,000 10,000
1 10,478 10,930 10,930 10,478 10,930 10,930
2 11,525 11,946 11,946 11,525 11,946 11,946
3 12,678 12,758 13,058+ 12,678 13,058 13,058
4 13,946 14,272 14,272
5 15,340 15,399 15,599+
6
7
8
9
10
</TABLE>
*This assumes that Class B Shares were converted to Class A Shares
at the end of the eighth year.
<PAGE>
$250,000 Purchase
<TABLE>
<CAPTION>
Scenario 1 Scenario 2
No Redemption Redeem 1st Year
--------------------------------------- -------------------------------------
Year Class A Class B Class C Class A Class B Class C
---- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
0 243,750 250,000 250,000 243,750 250,000 250,000
1 268,125 273,250 273,250 268,125 263,250 270,750+
2 294,938 298,662 298,662
3 324,431 326,438 326,438
4 356,874+ 356,797 356,797
5 392,562 389,979 389,979
6 431,818 426,247 426,247
7 475,000 465,888 465,888
8 522,500 509,215 509,215
9 574,750 560,137* 556,572
10 632,225 616,150* 608,333
</TABLE>
<TABLE>
<CAPTION>
Scenario 3 Scenario 4
Redeem 3rd Year Redeem 5th Year
------------------------------------- ------------------------------------
Year Class A Class B Class C Class A Class B Class C
---- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
0 243,750 250,000 250,000 243,750 250,000 250,000
1 268,125 273,250 273,250 268,125 273,250 273,250
2 294,938 298,662 298,662 294,938 298,662 298,662
3 324,431 318,938 326,438+ 324,431 326,438 326,438
4 356,874+ 356,797 356,797
5 392,562 384,979 389,979
6
7
8
9
10
</TABLE>
*This assumes that Class B Shares were converted to Class A Shares
at the end of the eighth year.
Assumes a hypothetical return for Class A of 10% per year, a hypothetical return
for Class B of 9.3% for years 1-8 and 10% for years 9-10, and a hypothetical
return for Class C of 9.3% per year. Hypothetical returns vary due to the
different expense structures for each Class and do not represent actual
performance.
Class A purchase subject to appropriate sales charge breakpoint (4.75% @
$10,000; 3.75% @ $100,000; 2.50% @ $250,000). Class B purchase assessed
appropriate CDSC upon redemption (4%-4%-3%-3%-2%-1% in years 1-2-3-4-5-6).
Class C purchase assessed 1% CDSC upon redemption in year 1.
Figures marked "+" identify which class offers the greater return potential
based on investment amount and holding period.
-54-
<PAGE>
<TABLE>
<CAPTION>
APPENDIX B--CLASSES OFFERED
<S> <C> <C> <C> <C>
Growth of Capital A Class B Class C Class Consultant Class
Trend Fund x x x -
Enterprise Fund x x x -
DelCap Fund x x x -
Value Fund x x x -
U.S. Growth Fund x x x -
Quantum Fund x x x -
Total Return
Devon Fund x x x -
Decatur Total Return Fund x x x -
Decatur Income Fund x x x -
Delaware Fund x x x -
Blue Chip Fund x x x -
International Diversification
Emerging Markets Fund x x x -
New Pacific Fund x x x -
International Equity Fund x x x -
World Growth Fund x x x -
Global Assets Fund x x x -
Global Bond Fund x x x -
Current Income
Delchester Fund x x x -
Strategic Income Fund x x x -
Corporate Income Fund x x x -
Federal Bond Fund x x x -
U.S. Government Fund x x x -
Limited-Term Government Fund x x x -
Tax-Free Current Income
Tax-Free Pennsylvania Fund x x x -
Tax-Free USA Fund x x x -
Tax-Free Insured Fund x x x -
Tax-Free USA Intermediate Fund x x x -
Money Market Funds
Delaware Cash Reserve x x x x
U.S. Government Money Fund x - - x
Tax-Free Money Fund x - - x
</TABLE>
-55-
<PAGE>
For more information contact the Delaware Group at 800-828-5052.
INVESTMENT MANAGER
Delaware Management Company, Inc.
One Commerce Square
Philadelphia, PA 19103
NATIONAL DISTRIBUTOR
Delaware Distributors, L.P.
1818 Market Street
Philadelphia, PA 19103
SHAREHOLDER SERVICING,
DIVIDEND DISBURSING,
ACCOUNTING SERVICES
AND TRANSFER AGENT
Delaware Service Company, Inc.
1818 Market Street
Philadelphia, PA 19103
LEGAL COUNSEL
Stradley, Ronon, Stevens & Young, LLP
One Commerce Square
Philadelphia, PA 19103
INDEPENDENT AUDITORS
Ernst & Young LLP
Two Commerce Square
Philadelphia, PA 19103
CUSTODIAN
Bankers Trust Company
One Bankers Trust Plaza
New York, NY 10006
- ---------------------------------------------------------
DECATUR INCOME FUND INSTITUTIONAL
- ---------------------------------------------------------
DECATUR TOTAL RETURN FUND
INSTITUTIONAL
- ---------------------------------------------------------
P R O S P E C T U S
- ---------------------------------------------------------
FEBRUARY 24, 1997
DELAWARE
GROUP
---------
<PAGE>
TABLE OF CONTENTS
Cover Page
Synopsis
Summary of Expenses
Financial Highlights
Investment Objectives and Strategies
Suitability
Investment Strategy
Classes of Shares
How to Buy Shares
Redemption and Exchange
Dividends and Distributions
Taxes
Calculation of Net Asset Value Per Share
Management of the Funds
Other Investment Policies and Risk Considerations
Appendix A-Ratings
-1-
<PAGE>
DECATUR INCOME FUND PROSPECTUS
DECATUR TOTAL RETURN FUND FEBRUARY 24, 1997
INSTITUTIONAL CLASS SHARES
---------------------------------------------------------------------
1818 Market Street, Philadelphia, PA 19103
For more information about the
Decatur Income Fund Institutional Class and
Decatur Total Return Fund Institutional Class
call the Delaware Group at 800-828-5052.
This Prospectus describes the shares of Decatur Income Fund series and
Decatur Total Return Fund series (individually, a "Fund" and collectively, the
"Funds") of Delaware Group Equity Funds II, Inc. ("Equity Funds II, Inc.")
(formerly, Delaware Group Decatur Fund, Inc.), a professionally-managed mutual
fund of the series type. Decatur Income Fund's objective is to achieve the
highest possible current income by investing primarily in common stocks that
provide the potential for income and capital appreciation without undue risk to
principal. Decatur Total Return Fund's objective is to achieve long-term growth
by investing primarily in securities that provide the potential for income and
capital appreciation without undue risk to principal.
Decatur Income Fund offers Decatur Income Fund Institutional Class and
Decatur Total Return Fund offers Decatur Total Return Fund Institutional Class
(individually, a "Class" and collectively, the "Classes").
Shares of each Class are available for purchase only by certain
enumerated investors and are offered at net asset value without the imposition
of a front-end or contingent deferred sales charge and without a 12b-1 charge.
See How to Buy Shares.
This Prospectus relates only to the Classes and sets forth information
that you should read and consider before you invest. Please retain it for future
reference. The Funds' Statement of Additional Information ("Part B" of Equity
Funds II, Inc.'s registration statement), dated February 24, 1997, as it may be
amended from time to time, contains additional information about the Funds and
has been filed with the Securities and Exchange Commission. Part B is
incorporated by reference into this Prospectus and is available, without charge,
by writing to Delaware Distributors, L.P. at the above address or by calling the
above number. The Funds' financial statements appear in its Annual Report, which
will accompany any response to requests for Part B.
-2-
<PAGE>
Decatur Income Fund also offers Decatur Income Fund A Class, Decatur
Income Fund B Class and Decatur Income Fund C Class. Decatur Total Return Fund
also offers Decatur Total Return Fund A Class, Decatur Total Return Fund B Class
and Decatur Total Return Fund C Class. Shares of these classes are subject to
sales charges and other expenses, which may affect their performance. A
prospectus for these classes can be obtained by writing to Delaware
Distributors, L.P. at the above address or by calling 800-523-4640.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
BE SURE TO CONSULT YOUR FINANCIAL ADVISER WHEN MAKING INVESTMENTS. MUTUAL FUNDS
CAN BE A VALUABLE PART OF YOUR FINANCIAL PLAN; HOWEVER, SHARES OF THE FUNDS ARE
NOT FDIC OR NCUSIF INSURED, ARE NOT GUARANTEED BY ANY BANK OR ANY CREDIT UNION,
ARE NOT OBLIGATIONS OF ANY BANK OR ANY CREDIT UNION, AND INVOLVE INVESTMENT
RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. SHARES OF THE FUNDS ARE NOT BANK
OR CREDIT UNION DEPOSITS.
-3-
<PAGE>
SYNOPSIS
Investment Objective
Decatur Income Fund - The investment objective of Decatur Income Fund
is to achieve the highest possible current income by investing primarily in
common stocks that provide the potential for income and capital appreciation
without undue risk to principal.
Decatur Total Return Fund - The investment objective of Decatur Total
Return Fund is to achieve long-term growth by investing primarily in securities
that provide the potential for income and capital appreciation without undue
risk to principal.
For further details, see Investment Objectives and Strategies and Other
Investment Policies and Risk Considerations.
Risk Factors and Special Considerations
Decatur Income Fund may invest up to 15% of its net assets in
high-yield securities (junk bonds) and, consequently, greater risks may be
involved with an investment in the Fund. See High Yield, High Risk Securities
under Other Investment Policies and Risk Considerations.
Each Fund may enter into options and futures transactions for hedging
purposes to counterbalance portfolio volatility. While the Funds do not engage
in options and futures for speculative purposes, there are risks that result
from use of these instruments, and the investor should review the descriptions
of these risks in this Prospectus. See Futures Contracts and Options under Other
Investment Policies and Risk Considerations.
Investment Manager, Distributor and Service Agent
Delaware Management Company, Inc. (the "Manager") furnishes investment
management services to each Fund, subject to the supervision and direction of
Equity Funds II, Inc.'s Board of Directors. The Manager also provides investment
management services to certain other funds in the Delaware Group. Delaware
Distributors, L.P. (the "Distributor") is the national distributor for each Fund
and for all of the other mutual funds in the Delaware Group. Delaware Service
Company, Inc. (the "Transfer Agent") is the shareholder servicing, dividend
disbursing, accounting services and transfer agent for each Fund and for all of
the other mutual funds in the Delaware Group. See Summary of Expenses and
Management of the Funds for further information regarding the Manager and the
fees payable under each Fund's Investment Management Agreement.
Purchase Price
Shares of each Class offered by this Prospectus are available at net
asset value, without a front-end or contingent deferred sales charge and are not
subject to distribution fees under a Rule 12b-1 distribution plan. See Classes
of Shares.
Redemption and Exchange
Shares of each Class are redeemed or exchanged at the net asset value
calculated after receipt of the redemption or exchange request. See Redemption
and Exchange.
-4-
<PAGE>
Open-End Investment Company
Equity Funds II, Inc. is an open-end management investment company.
Each Fund's portfolio of assets is diversified as defined by the Investment
Company Act of 1940 (the "1940 Act"). Equity Funds II, Inc. was first organized
as a Delaware corporation in 1956 and was subsequently reorganized as a Maryland
corporation on March 4, 1983. See Shares under Management of the Funds.
-5-
<PAGE>
SUMMARY OF EXPENSES
<TABLE>
<CAPTION>
Decatur Income Decatur Total Return
Shareholder Transaction Expenses Fund Institutional Class Fund Institutional Class
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price)............................. None None
Maximum Sales Charge Imposed on Reinvested
Dividends (as a percentage of offering price)................... None None
Exchange Fees................................................... None* None*
Annual Operating Expenses Decatur Income Decatur Total Return
(as a percentage of average daily net assets) Fund Institutional Class Fund Institutional Class
- ---------------------------------------------------------------------------------------------------------------------------------
Management Fees................................................. 0.49% 0.59%
12b-1 Fees...................................................... None None
Other Operating Expenses........................................ 0.20% 0.22%
----- -----
Total Operating Expenses......................... 0.69% 0.81%
===== =====
</TABLE>
*Exchanges are subject to the requirements of each fund and a front-end sales
charge may apply.
For expense information about Decatur Income Fund A Class, Decatur Income
Fund B Class, Decatur Income Fund C Class, Decatur Total Return Fund A Class,
Decatur Total Return Fund B Class and Decatur Total Return Fund C Class, see the
separate prospectus relating to those classes.
The following example illustrates the expenses that an investor would pay
on a $1,000 investment over various time periods, assuming (1) a 5% annual rate
of return, and (2) redemption at the end of each time period. As noted in the
tables above, Equity Funds II, Inc. charges no redemption fees.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Decatur Income Fund
Institutional Class $7 $22 $38 $86
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Decatur Total Return
Fund Institutional Class $8 $26 $45 $100
</TABLE>
The purpose of the above tables is to assist the investor in
understanding the various costs and expenses that an investor in either Class
will bear directly or indirectly.
This example should not be considered a representation of past or
future expenses or performance. Actual expenses may be greater or less than
those shown.
-6-
<PAGE>
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The following financial highlights are derived from the financial statements of
Decatur Income Fund and Decatur Total Return Fund of Delaware Group Equity Funds
II, Inc. (formerly known as Delaware Group Decatur Fund, Inc.) and have been
audited by Ernst & Young LLP, independent auditors. The data should be read in
conjunction with the financial statements, related notes and the report of Ernst
& Young LLP covering such financial information and highlights, all of which are
incorporated by reference into Part B. Further information about each Funds'
performance is contained in the Annual Report to shareholders. A copy of the
Funds' Annual Report (including the report of Ernst & Young LLP) may be obtained
from Equity Funds II, Inc. upon request at no charge.
- -------------------------------------------------------------------------------
-7-
<PAGE>
<TABLE>
<CAPTION>
Decatur Income Fund Institutional Class
--------------------------------------------------------------------------------------------
Period
1/13/94
Year Ended through Year Ended
11/30/96 11/30/95 11/30/94(2) 11/30/94(1) 11/30/93(1) 11/30/92(1) 11/30/91(1) 11/30/90(1)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $19.06 $15.59 $16.72 $18.24 $17.20 $15.76 $14.53 $19.07
Income From Investment Operations
Net Investment Income ............... 0.69 0.71 0.59 0.67 0.78 0.78 0.83 0.93
Net Gains (Losses) on Securities
(both realized and unrealized)...... 3.62 3.92 (1.10) (0.73) 1.79 1.47 1.37 (2.93)
------ ------ ------ ------ ------ ------ ------ ------
Total From Investment Operations 4.31 4.63 (0.51) (0.06) 2.57 2.25 2.20 (2.00)
------ ------ ------ ------ ------ ------ ------ ------
Less Distributions
Dividends (from net investment income) (0.72) (0.74) (0.62) (0.86) (0.68) (0.81) (0.97) (1.05)
Distributions (from capital gains)... (1.34) (0.42) none (1.75) (0.85) none none (1.49)
Returns of Capital................... none none none none none none none none
------ ------ ------ ------ ------ ------ ------ ------
Total Distributions............. (2.06) (1.16) (0.62) (2.61) (1.53) (0.81) (0.97) (2.54)
------ ------ ------ ------ ------ ------ ------ ------
Net Asset Value, End of Period....... $21.31 $19.06 $15.59 $15.57 $18.24 $17.20 $15.76 $14.53
====== ====== ====== ====== ====== ====== ====== ======
- -----------------------
Total Return......................... 24.65% 31.14% (0.45%) (0.57%)(3) 15.85%(3) 14.55%(3) 15.46%(3) (12.04%)(3)
- -----------------------
Ratios/Supplemental Data
Net Assets, End of Period
(000's omitted)..................... $244,048 $211,409 $182,105 $1,153,884 $1,512,194 $1,508,206 $1,579,521 $1,560,641
Ratio of Expenses to Average
Daily Net Assets.................... 0.69% 0.74% 0.70% 0.81% 0.71% 0.72% 0.70% 0.70%
Ratio of Net Investment Income to
Average Daily Net Assets............ 3.56% 4.16% 4.03% 3.92% 4.34% 4.55% 5.18% 5.78%
Portfolio Turnover Rate.............. 101% 74% 92% 92% 80% 79% 78% 44%
Average Commission Rate Paid......... $0.060 N/A N/A N/A N/A N/A N/A N/A
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
11/30/89(1) 11/30/88(1) 11/30/87(1)
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $16.89 $15.86 $19.32
Income From Investment Operations
Net Investment Income ............... 1.00 0.76 0.77
Net Gains (Losses) on Securities
(both realized and unrealized)...... 2.25 2.75 (1.43)
------ ------ ------
Total From Investment Operations 3.25 3.51 (0.66)
------ ------ ------
Less Distributions
Dividends (from net investment income) (0.81) (0.73) (0.80)
Distributions (from capital gains)... (0.26) (1.75) (2.00)
Returns of Capital................... none none none
------ ------ ------
Total Distributions............. (1.07) (2.48) (2.80)
------ ------ ------
Net Asset Value, End of Period....... $19.07 $16.89 $15.86
====== ====== ======
- -----------------------
Total Return......................... 19.84%(3) 25.20%(3) (4.48%)(3)
- -----------------------
Ratios/Supplemental Data
Net Assets, End of Period
(000's omitted)..................... $1,848,129 $1,517,445 $1,346,411
Ratio of Expenses to Average
Daily Net Assets.................... 0.67% 0.73% 0.69%
Ratio of Net Investment Income to
Average Daily Net Assets............ 5.48% 4.80% 4.37%
Portfolio Turnover Rate.............. 38% 39% 56%
Average Commission Rate Paid......... N/A N/A N/A
</TABLE>
- ----------
(1) Data for Decatur Income Fund Institutional Class are derived from data of
Decatur Income Fund A Class (formerly known as the Decatur Fund I class),
which prior to May 2, 1994 was not subject to Rule 12b-1 distribution
expenses.
(2) Data are derived from data for Decatur Income Fund Institutional Class
(formerly known as the Decatur Fund I (Institutional) class), which
commenced operations on January 13, 1994. Ratios and total return have been
annualized.
(3) Does not reflect current maximum sales charges that are or were in effect
applicable to Decatur Income Fund A Class.
<PAGE>
<TABLE>
<CAPTION>
Decatur Total Return Fund Institutional Class
--------------------------------------------------------------------------------------------
Period
7/26/93(2)
Year Ended through Year Ended
11/30/96 11/30/95 11/30/94 11/30/93 11/30/93(1) 11/30/92(1) 11/30/91(1) 11/30/90(1)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $15.65 $12.35 $14.40 $14.10 $13.98 $12.73 $11.71 $13.64
Income From Investment Operations
Net Investment Income ............... 0.37 0.47 0.43 0.15 0.45 0.47 0.53 0.58
Net Gains (Losses) on Securities
(both realized and unrealized)...... 3.23 3.65 (0.37) 0.25 1.45 1.30 1.07 (1.44)
------ ------ ------ ------ ------ ------ ------ ------
Total From Investment Operations 3.60 4.12 0.06 0.40 1.90 1.77 1.60 (0.86)
------ ------ ------ ------ ------ ------ ------ ------
Less Distributions
Dividends (from net investment income) (0.39) (0.40) (0.45) (0.10) (0.45) (0.52) (0.58) (0.60)
Distributions (from capital gains)... (1.29) (0.42) (1.66) none (1.05) none none (0.47)
Returns of Capital................... none none none none none none none none
------ ------ ------ ------ ------ ------ ------ ------
Total Distributions............. (1.68) (0.82) (2.11) (0.10) (1.50) (0.52) (0.58) (1.07)
------ ------ ------ ------ ------ ------ ------ ------
Net Asset Value, End of Period....... $17.57 $15.65 $12.35 $14.40 $14.38 $13.98 $12.73 $11.71
====== ====== ====== ====== ====== ====== ====== ======
- -----------------------
Total Return......................... 25.24% 35.13% 0.19% 14.89% 14.47%(4) 14.12%(4) 13.94%(4) (6.84%)(4)
- -----------------------
Ratios/Supplemental Data
Net Assets, End of Period
(000's omitted)..................... $45,958 $11,520 $1,376 $1,181 $43,638 $408,986 $394,338 $357,139
Ratio of Expenses to Average
Daily Net Assets.................... 0.81% 0.89% 0.96% 0.92% 1.22% 1.23% 1.23% 1.23%
Ratio of Net Investment Income to
Average Daily Net Assets............ 2.53% 3.02% 3.18% 3.45% 3.15% 3.44% 4.20% 4.87%
Portfolio Turnover Rate.............. 87% 81% 74% 119% 119% 98% 67% 54%
Average Commission Rate Paid......... $0.060 N/A N/A N/A N/A N/A N/A N/A
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
11/30/89(1) 11/30/88(1) 11/30/87(1)
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $11.47 $ 9.04 $10.29
Income From Investment Operations
Net Investment Income ............... 0.54 0.50 0.31
Net Gains (Losses) on Securities
(both realized and unrealized)...... 2.12 2.30 (1.30)
------ ------ ------
Total From Investment Operations 2.66 2.80 (0.99)
------ ------ ------
Less Distributions
Dividends (from net investment income) (0.49) (0.37) (0.26)
Distributions (from capital gains)... none none none
Returns of Capital................... none none none
------ ------ ------
Total Distributions............. (0.49) (0.37) (0.26)
------ ------ ------
Net Asset Value, End of Period....... $13.64 $11.47 $ 9.04
====== ====== ======
- -----------------------
Total Return......................... 23.73%(4) 31.51%(4) (10.08%)(4)
- -----------------------
Ratios/Supplemental Data
Net Assets, End of Period
(000's omitted)..................... $318,871 $200,085 $146,632
Ratio of Expenses to Average
Daily Net Assets.................... 1.24% 1.28% 1.27%(4)
Ratio of Net Investment Income to
Average Daily Net Assets............ 4.60% 4.77% 4.17%(4)
Portfolio Turnover Rate.............. 60% 69% 39%
Average Commission Rate Paid......... N/A N/A N/A
</TABLE>
- ----------
(1) Data are derived from data of Decatur Total Return Fund A Class (formerly
known as the Decatur Fund II class) and reflect the impact of Rule 12b-1
distribution expenses paid by Decatur Total Return Fund A Class. Decatur
Total Return Fund Institutional Class (formerly known as the Decatur Fund
II (Institutional) class) is not subject to Rule 12b-1 distribution
expenses and per share data for periods beginning on and after July 26,
1993 will not reflect the deduction of such expenses.
(2) Date of initial public offering of Decatur Total Return Fund Institutional
Class (formerly known as the Decatur Fund II (Institutional) class); ratios
and total return for this period have been annualized.
(3) Does not reflect any maximum sales charges that are or were in effect.
Total return for 1987 reflects expense limitation referenced in Note 4.
(4) The Manager undertook to waive its management fee and assume expenses to
the extent necessary to limit Decatur Total Return Fund's ratio of annual
operating expenses, exclusive of taxes, interest, brokerage commissions and
extraordinary expenses, to average daily net assets to 1% for a six-month
period after the initial public offering on August 26, 1986. Ratio of
expenses and net investment income to average daily net assets prior to
expense limitation was 1.41% and 4.03%, respectively.
<PAGE>
INVESTMENT OBJECTIVES AND STRATEGIES
SUITABILITY
Decatur Income Fund - The Fund may be suitable for investors looking
for current income with the potential for capital appreciation. The Fund will
invest in common stocks and other income-producing securities, including high
yield, higher risk fixed-income securities, and investors should be willing to
accept the risks associated with such investments.
Decatur Total Return Fund - The Fund may be suitable for the patient
investor interested in long-term growth and current income potential offered by
dividend-paying common stocks. Investors should be willing to accept the risks
associated with investments in common stocks and income-producing securities
that are convertible into common stocks. The Fund is suitable for investors who
want a current return with the possibility of capital appreciation.
* * *
Naturally, the Funds cannot assure a specific rate of return or that
principal will be protected. The value of each Fund's shares can be expected to
move up and down depending upon market conditions. Consequently, appreciation
may be obtained in periods of generally rising markets, while in declining
markets, the value of its shares may, of course, decline. For this reason,
neither Fund is appropriate for short-term investors. However, through the
cautious selection and supervision of its portfolio, each Fund will strive to
achieve its objective set forth above.
Ownership of shares of each Fund reduces the bookkeeping and
administrative inconveniences that would be involved with direct purchases of
the securities held in each Fund's portfolio.
Investors should not consider a purchase of shares of either Fund as
equivalent to a complete investment program. The Delaware Group includes a
family of funds, generally available through registered investment dealers,
which may be used together to create a more complete investment program.
INVESTMENT STRATEGY
Decatur Income Fund - The objective of Decatur Income Fund is to earn the
highest possible current income by investing primarily in common stocks that
provide the potential for income and capital appreciation without undue risk to
principal. This is a fundamental policy and cannot be changed without
shareholder approval. The Fund primarily aims to earn and pay its shareholders
dependable current income. It seeks to accomplish this objective while
attempting to limit risk to principal through prudent investing. Although it is
not a fundamental policy, the Fund will normally invest at least 65% of its
total assets in income-producing securities. The Fund may invest up to 15% of
its net assets in high yield, higher risk fixed-income securities, which are
generally considered to be speculative. See High Yield, High Risk Securities
under Other Investment Policies and Risk Considerations.
The Manager carefully selects the Fund's diversified group of
securities for their high yields relative to risk involved.
The Fund generally invests in common stocks that the Manager believes
have better potential for income and appreciation than fixed-income securities.
It may, however, invest its assets in all classes of securities, including
bonds, preferred stocks, and common stocks, in any proportions deemed prudent
for defensive purposes
-8-
<PAGE>
under existing market and economic conditions. All available types of
securities, including foreign securities (which may include American or European
Depository Receipts), are under continuous study, and the management regularly
transfers investments between securities or types of securities in carrying out
its investment policy. It is the Fund's policy not to purchase and sell
securities with a view toward obtaining short-term profits. However, the Fund
may hold securities for any period of time.
Decatur Total Return Fund - Decatur Total Return Fund's investment objective is
to achieve long-term growth by investing primarily in securities that provide
the potential for income and capital appreciation without undue risk to
principal. The Fund generally invests in common stocks and income-producing
securities that are convertible into common stocks. The portfolio manager looks
for securities that have a better dividend yield than the average dividend yield
of the Standard & Poor's 500 Stock Index ("S&P 500"), as well as capital gains
potential.
All available types of appropriate securities are under continuous
study. While the Fund may invest in all classes of securities, including bonds
and preferred and common stocks, in any proportion deemed prudent under existing
market and economic conditions, the focus on fixed-income securities can be
expected to be less than that of Decatur Income Fund. The Fund may also invest
in foreign securities.
Income-producing convertible securities include preferred stock and
debentures that pay a stated interest rate or dividend and are convertible into
common stock at an established ratio. These securities, which are usually priced
at a premium to their conversion value, may allow the Fund to receive current
income while participating to some extent in any appreciation in the underlying
common stock. The value of a convertible security tends to be affected by
changes in interest rates as well as factors affecting the market value of the
underlying common stock.
It is the Fund's policy to purchase and sell securities with a view
toward obtaining long-term rather than short-term capital gains. However, the
Fund may hold securities for any period of time.
* * *
For additional information about each Fund's investment policies and
certain risks associated with investments in certain types of securities, see
Other Investment Policies and Risk Considerations.
-9-
<PAGE>
CLASSES OF SHARES
The Distributor serves as the national distributor for each Fund.
Shares of each Class may be purchased directly by contacting a Fund or its agent
or through authorized investment dealers. All purchases of shares of each Class
are at net asset value. There is no front-end or contingent deferred sales
charge.
Investment instructions given on behalf of participants in an
employer-sponsored retirement plan are made in accordance with directions
provided by the employer. Employees considering purchasing shares of a Class as
part of their retirement program should contact their employer for details.
Shares of each Class are available for purchase only by: (a) retirement
plans introduced by persons not associated with brokers or dealers that are
primarily engaged in the retail securities business and rollover individual
retirement accounts from such plans; (b) tax-exempt employee benefit plans of
the Manager or its affiliates and securities dealer firms with a selling
agreement with the Distributor; (c) institutional advisory accounts of the
Manager, or its affiliates and those having client relationships with Delaware
Investment Advisers, a division of the Manager, or its affiliates and their
corporate sponsors, as well as subsidiaries and related employee benefit plans
and rollover individual retirement accounts from such institutional advisory
accounts; (d) a bank, trust company and similar financial institution investing
for its own account or for the account of its trust customers for whom such
financial institution is exercising investment discretion in purchasing shares
of the Class, except where the investment is part of a program that requires
payment to the financial institution of a Rule 12b-1 Plan fee; and (e)
registered investment advisers investing on behalf of clients that consist
solely of institutions and high net-worth individuals having at least $1,000,000
entrusted to the adviser for investment purposes, but only if the adviser is not
affiliated or associated with a broker or dealer and derives compensation for
its services exclusively from its clients for such advisory services.
Decatur Income Fund A Class, Decatur Income Fund B Class, Decatur Income Fund C
Class, Decatur Total Return Fund A Class, Decatur Total Return Fund B Class and
Decatur Total Return Fund C Class
In addition to offering Decatur Income Fund Institutional Class and
Decatur Total Return Fund Institutional Class, Decatur Income Fund also offers
Decatur Income Fund A Class, Decatur Income Fund B Class and Decatur Income Fund
C Class, and Decatur Total Return Fund also offers Decatur Total Return Fund A
Class, Decatur Total Return Fund B Class and Decatur Total Return Fund C Class,
which are described in a separate prospectus. Decatur Income Fund A Class and
Decatur Total Return Fund A Class carry a front-end sales charge and have annual
12b-1 expenses equal to a maximum of 0.30%. The maximum front-end sales charge
as a percentage of the offering price is 4.75% and is reduced on certain
transactions of $100,000 or more. Decatur Income Fund B Class, Decatur Income
Fund C Class, Decatur Total Return Fund B Class and Decatur Total Return Fund C
Class have no front-end sales charge but are subject to annual 12b-1 expenses
equal to a maximum of 1%. Shares of Decatur Income Fund B Class, Decatur Income
Fund C Class, Decatur Total Return Fund B Class and Decatur Total Return Fund C
Class and certain shares of Decatur Income Fund A Class and Decatur Total Return
Fund A Class may be subject to a contingent deferred sales charge upon
redemption. To obtain a prospectus relating to such classes contact the
Distributor by writing to the address or by calling the phone numbers listed on
the cover of this Prospectus.
-10-
<PAGE>
HOW TO BUY SHARES
Each Fund makes it easy to invest by mail, by wire, by exchange and by
arrangement with your investment dealer. In all instances, investors must
qualify to purchase shares of the Classes.
Investing Directly by Mail
1. Initial Purchases--An Investment Application or, in the case of a retirement
account, an appropriate retirement plan application, must be completed, signed
and sent with a check payable to the specific Fund and Class selected, to
Delaware Group at 1818 Market Street, Philadelphia, PA 19103.
2. Subsequent Purchases--Additional purchases may be made at any time by mailing
a check payable to the specific Fund and Class selected. Your check should be
identified with your name(s) and account number.
Investing Directly by Wire
You may purchase shares by requesting your bank to transmit funds by
wire to CoreStates Bank, N.A., ABA #031000011, account number 1412893401
(include your name(s) and your account number for the Fund and Class in which
you are investing).
1. Initial Purchases--Before you invest, telephone the Client Services
Department at 800-828-5052 to get an account number. If you do not call first,
it may delay processing your investment. In addition, you must promptly send
your Investment Application or, in the case of a retirement account, an
appropriate retirement plan application, for the specific Fund and Class
selected by you, to Delaware Group at 1818 Market Street, Philadelphia, PA
19103.
2. Subsequent Purchases--You may make additional investments anytime by wiring
funds to CoreStates Bank, N.A., as described above. You must advise your Client
Services Representative by telephone at 800-828-5052 prior to sending your
wire.
Investing by Exchange
If you have an investment in another mutual fund in the Delaware Group
and you qualify to purchase shares of the Classes, you may write and authorize
an exchange of part or all of your investment into the Funds. However, shares of
Decatur Income Fund B Class, Decatur Income Fund C Class, Decatur Total Return
Fund B Class and Decatur Total Return Fund C Class and Class B Shares and Class
C Shares of the other funds in the Delaware Group offering such a class of
shares may not be exchanged into the Classes. If you wish to open an account by
exchange, call your Client Services Representative at 800-828-5052 for more
information. See Redemption and Exchange for more complete information
concerning your exchange privileges.
Investing through Your Investment Dealer
You can make a purchase of Fund shares through most investment dealers
who, as part of the service they provide, must transmit orders promptly to the
Fund. They may charge for this service.
Purchase Price and Effective Date
The purchase price (net asset value) of each Class is determined as of
the close of regular trading on the New York Stock Exchange (ordinarily, 4 p.m.,
Eastern time) on days when the Exchange is open.
The effective date of a purchase made through an investment dealer is
the date the order is received by the Fund in which the shares are being
purchased. The effective date of a direct purchase is the day your wire,
electronic transfer or check is received, unless it is received after the time
the share price is determined, as noted above. Purchase orders received after
such time will be effective the next business day.
-11-
<PAGE>
The Conditions of Your Purchase
Each Fund reserves the right to reject any purchase order. If a
purchase is cancelled because your check is returned unpaid, you are responsible
for any loss incurred. A Fund can redeem shares from your account(s) to
reimburse itself for any loss, and you may be restricted from making future
purchases in any of the funds in the Delaware Group. Each Fund reserves the
right to reject purchases by third-party checks or checks that are not drawn on
a domestic branch of a United States financial institution. If a check drawn on
a foreign financial institution is accepted, you may be subject to additional
bank charges for clearance and currency conversion.
Each Fund also reserves the right, upon 60 days' written notice, to
involuntarily redeem accounts that remain under $250 as a result of redemptions.
-12-
<PAGE>
REDEMPTION AND EXCHANGE
Redemption and exchange requests made on behalf of participants in an
employer-sponsored retirement plan are made in accordance with directions
provided by the employer. Employees should therefore contact their employer for
details.
Your shares will be redeemed or exchanged at a price based on the net
asset value next determined after a Fund receives your request in good order.
For example, redemption and exchange requests received in good order after the
time the net asset value of shares is determined will be processed on the next
business day. See Purchase Price and Effective Date under How to Buy Shares.
Except as otherwise noted below, for a redemption request to be in "good order,"
you must provide your account number, account registration, and the total number
of shares or dollar amount of the transaction. With regard to exchanges, you
must also provide the name of the fund you want to receive the proceeds.
Exchange instructions and redemption requests must be signed by the record
owner(s) exactly as the shares are registered. You may request a redemption or
an exchange by calling a Fund 800-828-5052. Redemption proceeds will be
distributed promptly, as described below, but not later than seven days after
receipt of a redemption request.
All exchanges involve a purchase of shares of the fund into which the
exchange is made. As with any purchase, an investor should obtain and carefully
read that fund's prospectus before buying shares in an exchange. The prospectus
contains more complete information about the fund, including charges and
expenses.
Each Fund will process written and telephone redemption requests to the
extent that the purchase orders for the shares being redeemed have already
settled. Each Fund will honor written redemption requests as to shares for which
a check was rendered as payment, but neither Fund will mail or wire the proceeds
until it is reasonably satisfied that the check has cleared, which may take up
to 15 days from the purchase date. You can avoid this potential delay if you
purchase shares by wiring Federal Funds. Each Fund reserves the right to reject
a written or telephone redemption request or delay payment of redemption
proceeds if there has been a recent change to the shareholder's address of
record.
Shares of a Class may be exchanged into any other Delaware Group mutual
fund provided: (1) the investment satisfies the eligibility and other
requirements set forth in the prospectus of the fund being acquired, including
the payment of any applicable front-end sales charge; and (2) the shares of the
fund being acquired are in a state where that fund is registered. If exchanges
are made into other shares that are eligible for purchase only by those
permitted to purchase shares of a Class, such exchange will be exchanged at net
asset value. Shares of a Class may not be exchanged into Class B Shares or Class
C Shares of any of the funds in the Delaware Group. Each Fund may suspend,
terminate, or amend the terms of the exchange privilege upon 60 days' written
notice to shareholders.
Various redemption and exchange methods are outlined below. No fee is
charged by the Funds or the Distributor for redeeming or exchanging your shares.
You may also have your investment dealer arrange to have your shares redeemed or
exchanged. Your investment dealer may charge for this service.
All authorizations given by shareholders, including selection of any of
the features described below, shall continue in effect until such time as a
written revocation or modification has been received by the Fund to which the
authorization relates or its agent.
Written Redemption and Exchange
You can write to a Fund at 1818 Market Street, Philadelphia, PA 19103
to redeem some or all of your shares or to request an exchange of any or all
your shares into another mutual fund in the Delaware Group, subject
-13-
<PAGE>
to the same conditions and limitations as other exchanges noted above. The
request must be signed by all owners of the account or your investment dealer of
record.
For redemptions of more than $50,000, or when the proceeds are not sent
to the shareholder(s) at the address of record, each Fund requires a signature
by all owners of the account and may require a signature guarantee. Each
signature guarantee must be supplied by an eligible guarantor institution. Each
Fund reserves the right to reject a signature guarantee supplied by an eligible
institution based on its creditworthiness. A Fund may require further
documentation from corporations, executors, retirement plans, administrators,
trustees or guardians.
Payment is normally mailed the next business day after receipt of your
redemption request. Certificates are issued for shares only if you submit a
specific request. If your shares are in certificate form, the certificate must
accompany your request and also be in good order.
You also may submit your written request for redemption or exchange by
facsimile transmission at the following number: 215-255-8864.
Telephone Redemption and Exchange
To get the added convenience of the telephone redemption and exchange
methods, you must have the Transfer Agent hold your shares (without charge) for
you. If you choose to have your shares in certificate form, you may redeem or
exchange only by written request and you must return your certificates.
The Telephone Redemption - Check to Your Address of Record service and
the Telephone Exchange service, both of which are described below, are
automatically provided unless you notify the Fund in which you have your account
in writing that you do not wish to have such services available with respect to
your account. Each Fund reserves the right to modify, terminate or suspend these
procedures upon 60 days' written notice to shareholders. It may be difficult to
reach a Fund by telephone during periods when market or economic conditions lead
to an unusually large volume of telephone requests.
Neither the Funds nor their Transfer Agent is responsible for any
shareholder loss incurred in acting upon written or telephone instructions for
redemption or exchange of Fund shares which are reasonably believed to be
genuine. With respect to such telephone transactions, a Fund will follow
reasonable procedures to confirm that instructions communicated by telephone are
genuine (including verification of a form of personal identification) as, if it
does not, such Fund or the Transfer Agent may be liable for any losses due to
unauthorized or fraudulent transactions. A written confirmation will be provided
for all purchase, exchange and redemption transactions initiated by telephone.
By exchanging shares by telephone, you are acknowledging prior receipt of a
prospectus for the fund into which your shares are being exchanged.
Telephone Redemption-Check to Your Address of Record
You or your investment dealer of record can have redemption proceeds of
$50,000 or less mailed to you at your address of record. Checks will be payable
to the shareholder(s) of record. Payment is normally mailed the next business
day after receipt of the redemption request.
Telephone Redemption-Proceeds to Your Bank
Redemption proceeds of $1,000 or more can be transferred to your
predesignated bank account by wire or by check. You should authorize this
service when you open your account. If you change your predesignated bank
account, you must submit a written authorization and you may need to have your
signature guaranteed. For your protection, your authorization must be on file.
If you request a wire, your funds will normally be sent the next business day.
If you ask for a check, it will normally be mailed the next business day after
receipt of your
-14-
<PAGE>
redemption request to your predesignated bank account. There are no fees for
this redemption method, but the mail time may delay getting funds into your bank
account. Simply call your Client Services Representative prior to the time the
net asset value is determined, as noted above.
Telephone Exchange
You or your investment dealer of record can exchange shares into any
fund in the Delaware Group under the same registration. As with the written
exchange service, telephone exchanges are subject to the same conditions and
limitations as other exchanges noted above. Telephone exchanges may be subject
to limitations as to amounts or frequency.
-15-
<PAGE>
DIVIDENDS AND DISTRIBUTIONS
Equity Funds II, Inc. currently intends to make monthly payments from
Decatur Income Fund's net investment income and quarterly payments from Decatur
Total Return Fund's net investment income. Payments from net realized securities
profits of a Fund, if any, will be made in the quarter following the close of
the fiscal year. Both dividends and distributions, if any, are automatically
reinvested in your account at net asset value.
Each class of a Fund will share proportionately in the investment
income and expenses of that Fund, except that the Classes will not incur any
distribution fees under the 12b-1 Plans which apply to Decatur Income Fund A
Class, Decatur Income Fund B Class, Decatur Income Fund C Class, Decatur Total
Return Fund A Class, Decatur Total Return Fund B Class and Decatur Total Return
Fund C Class.
-16-
<PAGE>
TAXES
The tax discussion set forth below is included for general information
only. Investors should contact their own tax advisers concerning the federal,
state, local or foreign tax consequences of an investment in a fund.
Each Fund has qualified, and intends to continue to qualify, as a
regulated investment company under Subchapter M of the Internal Revenue Code
(the "Code"). As such, a Fund will not be subject to federal income tax, or to
any excise tax, to the extent its earnings are distributed as provided in the
Code.
Each Fund intends to distribute substantially all of its net investment
income and net capital gains, if any. Dividends from net investment income or
net short-term capital gains will be taxable to those investors who are subject
to income taxes as ordinary income, even though received in additional shares.
For corporate investors, dividends from net investment income will generally
qualify in part for the corporate dividends-received deduction. The portion of
dividends paid by a Fund that so qualifies will be designated each year in a
notice from Equity Funds II, Inc. to each Fund's shareholders. For the fiscal
year ended November 30, 1996, 44% and 59% of, respectively, Decatur Income
Fund's and Decatur Total Return Fund's dividends from net investment income
qualified for the corporate dividends-received deduction.
Distributions paid by a Fund from long-term capital gains, received in
additional shares, are taxable to those investors who are subject to income
taxes as long-term capital gains, regardless of the length of time an investor
has owned shares in the Fund. The Funds do not seek to realize any particular
amount of capital gains during a year; rather, realized gains are a by-product
of Fund management activities. Consequently, capital gains distributions may be
expected to vary considerably from year to year. Also, for those investors
subject to tax, if purchases of shares in a Fund are made shortly before the
record date for a dividend or capital gains distribution, a portion of the
investment will be returned as a taxable distribution.
Although dividends generally will be treated as distributed when paid,
dividends which are declared in October, November or December to shareholders of
record on a specified date in one of those months, but which, for operational
reasons, may not be paid to the shareholder until the following January, will be
treated for tax purposes as if paid by a Fund and received by the shareholder on
December 31 of the year declared.
The sale of shares of a Fund is a taxable event and may result in a
capital gain or loss to shareholders subject to tax. Capital gain or loss may be
realized from an ordinary redemption of shares or an exchange of shares between
a Fund and any other fund in the Delaware Group. Any loss incurred on a sale or
exchange of Fund shares that had been held for six months or less will be
treated as a long-term capital loss to the extent of capital gain dividends
received with respect to such shares.
In addition to federal taxes, shareholders may be subject to state and
local taxes on distributions. Distributions of interest income and capital gains
realized from certain types of U.S. government securities may be exempt from
state personal income taxes. Shares of each Fund are exempt from Pennsylvania
county personal property taxes.
Each year, Equity Funds II, Inc. will mail you information on the tax
status of each Fund's dividends and distributions paid by the Fund in which you
hold shares. Shareholders will also receive each year information as to the
portion of dividend income, if any, that is derived from U.S. government
securities that are exempt from state income tax. Of course, shareholders who
are not subject to tax on their income would not be required to pay tax on
amounts distributed to them by the Fund.
-17-
<PAGE>
Each Fund is required to withhold 31% of taxable dividends, capital
gains distributions, and redemptions paid to shareholders who have not complied
with IRS taxpayer identification regulations. You may avoid this withholding
requirement by certifying on your Investment Application your proper Taxpayer
Identification Number and by certifying that you are not subject to backup
withholding.
See Accounting and Tax Issues and Distributions and Taxes in Part B for
additional information on tax matters relating to each Fund and their
shareholders.
-18-
<PAGE>
CALCULATION OF NET ASSET VALUE PER SHARE
The purchase and redemption price of a Class is the net asset value
("NAV") per share of Class shares next computed after the order is received. The
NAV is computed as of the close of regular trading on the New York Stock
Exchange (ordinarily, 4 p.m., Eastern time) on days when the Exchange is open.
The NAV per share is computed by adding the value of all securities and
other assets in the portfolio, deducting any liabilities (expenses and fees are
accrued daily) and dividing by the number of shares outstanding. Portfolio
securities for which market quotations are available are priced at market value.
Short-term investments having a maturity of less than 60 days are valued at
amortized cost, which approximates market value. All other securities are valued
at their fair value as determined in good faith and in a method approved by
Equity Funds II, Inc.'s Board of Directors.
The net asset values of all outstanding shares of each class of a Fund
will be computed on a pro-rata basis for each outstanding share based on the
proportionate participation in that Fund represented by the value of shares of
that class. All income earned and expenses incurred by a Fund will be borne on a
pro-rata basis by each outstanding share of a class, based on each class'
percentage in the Fund represented by the value of shares of such classes,
except that the Classes will not incur any of the expenses under the Fund's
12b-1 Plans and Decatur Income Fund A, B and C Classes and Decatur Total Return
Fund A, B and C Classes alone will bear the 12b-1 Plan fees payable under their
respective Plans. Due to the specific distribution expenses and other costs that
will be allocable to each class, the net asset value of and dividends paid to
each class of a Fund will vary.
-19-
<PAGE>
MANAGEMENT OF THE FUNDS
Directors
The business and affairs of Equity Funds II, Inc. are managed under the
direction of its Board of Directors. Part B contains additional information
regarding Equity Funds II, Inc.'s directors and officers.
Investment Manager
The Manager furnishes investment management services to each Fund.
The Manager and its predecessors have been managing the funds in the
Delaware Group since 1938. On November 30, 1996, the Manager and its affiliates
within the Delaware Group, including Delaware International Advisers Ltd., were
managing in the aggregate more than $32 billion in assets in the various
institutional (approximately $20,311,204,000) and investment company
(approximately $11,765,348,000) accounts.
The Manager is an indirect, wholly owned subsidiary of Delaware
Management Holdings, Inc. ("DMH"). On April 3, 1995, a merger between DMH and a
wholly owned subsidiary of Lincoln National Corporation ("Lincoln National") was
completed. DMH and the Manager are now indirect, wholly owned subsidiaries, and
subject to the ultimate control, of Lincoln National. Lincoln National, with
headquarters in Fort Wayne, Indiana, is a diversified organization with
operations in many aspects of the financial services industry, including
insurance and investment management. In connection with the merger, new
Investment Management Agreements between Equity Funds II, Inc. on behalf of each
Fund and the Manager were executed following shareholder approval.
The Manager manages each Fund's portfolio and makes investment
decisions which are implemented by Equity Funds II, Inc.'s Trading Department.
The Manager also administers Equity Funds II, Inc.'s affairs and pays the
salaries of all the directors, officers and employees of Equity Funds II, Inc.
who are affiliated with the Manager. For these services, under the Investment
Management Agreement for Decatur Income Fund, the Manager is paid an annual fee
of 0.60% on the first $100 million of average daily net assets, 0.525% on the
next $150 million, 0.50% on the next $250 million and 0.475% on the average
daily net assets in excess of $500 million, less Decatur Income Fund's
proportionate share of all directors' fees paid to the unaffiliated directors by
Equity Funds II, Inc. For the fiscal year ended November 30, 1996, investment
management fees paid by Decatur Income Fund were 0.49% of its average daily net
assets.
For the services noted above, under the Investment Management Agreement
for Decatur Total Return Fund, the Manager is paid an annual fee of 0.60% on the
first $500 million of average daily net assets of the Fund, 0.575% on the next
$250 million and 0.55% of the average daily net assets in excess of $750
million, less Decatur Total Return Fund's proportionate share of all directors'
fees paid to the unaffiliated directors by Equity Funds II, Inc. For the fiscal
year ended November 30, 1996, investment management fees paid by Decatur Total
Return Fund were 0.59% of its average daily net assets.
John B. Fields has primary responsibility for making day-to-day
investment decisions for each Fund. He has been the Senior Portfolio Manager for
Decatur Income Fund since 1993 and for Decatur Total Return Fund since 1992. Mr.
Fields, who has 26 years experience in investment management, earned a
bachelor's degree and an MBA from Ohio State University. Before joining the
Delaware Group in 1992, he was Director of Domestic Equity Risk Management at
DuPont. Prior to that, he was Director of Equity Research at Comerica Bank. Mr.
Fields is a member of the Financial Analysts Society of Wilmington, Delaware.
In making investment decisions for each Fund, Mr. Fields works with a
team of 12 portfolio managers and analysts, each of whom specializes in a
different industry sector and makes recommendations accordingly. Mr.
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Fields also regularly consults with Wayne A. Stork and Richard G. Unruh, Jr. Mr.
Stork, Chairman of the Manager's and of Equity Funds II, Inc.'s Board of
Directors, is a graduate of Brown University and attended New York University's
Graduate School of Business Administration. Mr. Stork joined the Delaware Group
in 1962 and has served in various executive capacities at different times within
the Delaware organization. A graduate of Brown University, Mr. Unruh received
his MBA from the University of Pennsylvania's Wharton School and joined the
Delaware Group in 1982 after 19 years of investment management experience with
Kidder, Peabody & Co. Inc. Mr. Unruh was named an Executive Vice President of
Equity Funds II, Inc. in 1994. He is also a member of the Board of Directors of
the Manager and was named an executive vice president of the Manager in 1994.
Portfolio Trading Practices
Each Fund normally will not invest for short-term trading purposes.
However, each Fund may sell securities without regard to the length of time they
have been held. The degree of portfolio activity will affect brokerage costs of
each Fund and may affect taxes payable by such Fund's shareholders to the extent
that net capital gains are realized. Given each Fund's investment objective, its
annual portfolio turnover rate is not expected to exceed 100%. For the past two
fiscal years, each Fund's portfolio turnover rates were as follows:
November 30,
Fund 1996 1995
---- ---- ----
Decatur Income Fund 101% 74%
Decatur Total Return Fund 87% 81%
Each Fund uses its best efforts to obtain the best available price and
most favorable execution for portfolio transactions. Orders may be placed with
brokers or dealers who provide brokerage and research services to the Manager or
its advisory clients. These services may be used by the Manager in servicing any
of its accounts. Subject to best price and execution, each Fund may consider a
broker/dealer's sales of Fund shares in placing portfolio orders and may place
orders with broker/dealers that have agreed to defray certain Fund expenses such
as custodian fees.
Performance Information
From time to time, Decatur Income Fund and Decatur Total Return Fund
may quote yield or total return performance of their Classes in advertising and
other types of literature.
The current yield for a Class will be calculated by dividing the
annualized net investment income earned by that Class during a recent 30-day
period by the net asset value per share on the last day of the period. The yield
formula provides for semi-annual compounding which assumes that net investment
income is earned and reinvested at a constant rate and annualized at the end of
a six-month period.
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Total return will be based on a hypothetical $1,000 investment,
reflecting the reinvestment of all distributions at net asset value. Each
presentation will include the average annual total return for one-, five- and
ten year or life-of-fund periods, as relevant. Each Fund may also advertise
aggregate and average total return information concerning a Class over
additional periods of time.
Because securities prices fluctuate, investment results of a Class will
fluctuate over time and past performance should not be considered a guarantee of
future results.
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Statements and Confirmations
You will receive quarterly statements of your account summarizing all
transactions during the period. A confirmation statement will be sent following
all transactions other than those involving a reinvestment of distributions. You
should examine statements and confirmations immediately and promptly report any
discrepancy by calling your Client Services Representative.
Financial Information about the Funds
Each fiscal year, you will receive an audited annual report and an
unaudited semi-annual report. These reports provide detailed information about
each Fund's investments and performance. Equity Funds II, Inc.'s fiscal year
ends on November 30.
Distribution and Service
The Distributor, Delaware Distributors, L.P., serves as the national
distributor of each Fund's shares under separate Distribution Agreements with
Equity Funds II, Inc. dated April 3, 1995, as amended on November 29, 1995. The
Distributor bears all of the costs of promotion and distribution.
The Transfer Agent, Delaware Service Company, Inc., serves as the
shareholder servicing, dividend disbursing and transfer agent for each Fund
under an amended and restated agreement dated as of February 24, 1997. The
Transfer Agent also provides accounting services to the Funds pursuant to the
terms of separate Fund Accounting Agreement. The directors annually review
service fees paid to the Transfer Agent. Certain recordkeeping services and
other shareholder services that otherwise would be performed by the Transfer
Agent may be performed by certain other entities and the Transfer Agent may
elect to enter into an agreement to pay such other entities for those services.
In addition, participant account maintenance fees may be assessed for certain
recordkeeping services provided as part of retirement plan and administration
service packages. These fees are based on the number of participants in the plan
and the various services selected. Fees will be quoted upon request and are
subject to change.
The Distributor and the Transfer Agent are also indirect, wholly owned
subsidiaries of DMH.
Expenses
Each Fund is responsible for all of its own expenses other than those
borne by the Manager under the Investment Management Agreements and those borne
by the Distributor under the Distribution Agreements. For the fiscal year ended
November 30, 1996, the ratio of operating expenses to average daily net assets
for Decatur Income Fund Institutional Class was 0.69% and for Decatur Total
Return Fund Institutional Class was 0.81%.
Shares
Equity Funds II, Inc. is an open-end management investment company.
Each Fund's portfolio of assets is diversified as defined by the 1940 Act.
Commonly known as a mutual fund, Equity Funds II, Inc. was organized as a
Maryland corporation on March 4, 1983. Equity Funds II, Inc. was previously
organized as a Delaware corporation in 1956. Equity Funds II, Inc. currently
offers four series of shares - Decatur Income Fund series, Decatur Total Return
Fund series, Blue Chip Fund series and Quantum Fund series. Fund shares have a
par value of $1.00, equal voting rights, except as noted below, and are equal in
all other respects. Each Fund will vote separately on any matter which affects
only that Fund. Shares of each Fund have priority over shares of any other fund
of Equity Funds II, Inc.
Equity Funds II, Inc.'s shares have noncumulative voting rights which
means that the holders of more than 50% of Equity Funds II, Inc.'s shares voting
for the election of directors can elect 100% of the directors if they choose to
do so. Under Maryland law, Equity Funds II, Inc. is not required, and does not
intend, to hold annual
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meetings of shareholders unless, under certain circumstances, it is required to
do so under the 1940 Act. Shareholders of 10% or more of Equity Funds II, Inc.'s
shares may request that a special meeting be called to consider the removal of a
director.
In addition to the classes, Decatur Income Fund and Decatur Total
Return Fund also offer Decatur Income Fund A Class, Decatur Income Fund B Class,
Decatur Income Fund C Class, Decatur Total Return Fund A Class, Decatur Total
Return Fund B Class and Decatur Total Return Fund C Class. Shares of each class
represent proportionate interests in the assets of the respective Fund and have
the same voting and other rights and preferences as Decatur Income Fund
Institutional Class and Decatur Total Return Fund Institutional Class,
respectively, except that shares of the Classes are not subject to, and may not
vote on matters affecting, the Distribution Plans under Rule 12b-1 relating to
Decatur Income Fund A Class, Decatur Income Fund B Class, Decatur Income Fund C
Class, Decatur Total Return Fund A Class, Decatur Total Return Fund B Class and
Decatur Total Return Fund C Class.
Effective as of the close of business February 21, 1997, the name of
Delaware Group Decatur Fund, Inc. was changed to Delaware Group Equity Funds II,
Inc.
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OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS
High Yield, High Risk Securities
Decatur Income Fund may invest up to 15% of its net assets in high
yield, high risk fixed-income securities. These securities are rated lower than
BBB by Standard & Poor's Ratings Group ("S&P"), Baa by Moody's Investors
Service, Inc. ("Moody's") and/or rated similarly by another rating agency, or,
if unrated, are considered by the Manager to be of equivalent quality. The Fund
will not invest in securities which are rated lower than C by S&P, Ca by Moody's
or similarly by another rating agency, or, if unrated, are considered by the
Manager to be of a quality that is lower than such ratings. See Appendix A -
Ratings to this Prospectus for more rating information. Fixed- income securities
of this type are considered to be of poor standing and predominantly
speculative. Such securities are subject to a substantial degree of credit risk.
In the past, in the opinion of the Manager, the high yields from these
bonds have more than compensated for their higher default rates. There can be no
assurance, however, that yields will continue to offset default rates on these
bonds in the future. The Manager intends to maintain an adequately diversified
portfolio of these bonds. While diversification can help to reduce the effect of
an individual default on the Fund, there can be no assurance that
diversification will protect the Fund from widespread bond defaults brought
about by a sustained economic downturn.
Medium and low-grade bonds held by the Fund may be issued as a
consequence of corporate restructurings, such as leveraged buy-outs, mergers,
acquisitions, debt recapitalizations or similar events. Also these bonds are
often issued by smaller, less creditworthy companies or by highly leveraged
(indebted) firms, which are generally less able than more financially stable
firms to make scheduled payments of interest and principal. The risks posed by
bonds issued under such circumstances are substantial.
The economy and interest rates may affect these high yield, high risk
securities differently than other securities. Prices have been found to be less
sensitive to interest rate changes than higher rated investments, but more
sensitive to adverse economic changes or individual corporate developments.
Also, during an economic downturn or substantial period of rising interest
rates, highly leveraged issuers may experience financial stress which would
adversely affect their ability to service principal and interest payment
obligations, to meet projected business goals and to obtain additional
financing. Changes by recognized rating agencies in their rating of any security
and in the ability of an issuer to make payments of interest and principal will
also ordinarily have a more dramatic effect on the values of these investments
than on the values of higher-rated securities. Such changes in value will not
affect cash income derived from these securities, unless the issuers fail to pay
interest or dividends when due. Such changes will, however, affect the Fund's
net asset value per share.
Restricted and Illiquid Securities
Each Fund may invest in restricted securities, including securities
eligible for resale without registration pursuant to Rule 144A ("Rule 144A
Securities") under the Securities Act of 1933. Rule 144A permits many privately
placed and legally restricted securities to be freely traded among certain
institutional buyers such as the Funds. Each Fund may invest no more than 10% of
the value of its net assets in illiquid securities.
While maintaining oversight, the Board of Directors of Equity Funds II,
Inc. has delegated to the Manager the day-to-day function of determining whether
or not individual Rule 144A Securities are liquid for purposes of a Fund's 10%
limitation on investments in illiquid assets. The Board has instructed the
Manager to consider the following factors in determining the liquidity of a Rule
144A Security: (i) the frequency of trades and trading volume for the security;
(ii) whether at least three dealers are willing to purchase or sell the security
and the number of potential purchasers; (iii) whether at least two dealers are
making a market in the security; and (iv) the nature of
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the security and the nature of the marketplace trades (e.g., the time needed to
dispose of the security, the method of soliciting offers, and the mechanics of
transfer).
If the Manager determines that a Rule 144A Security that was previously
determined to be liquid is no longer liquid and, as a result, a Fund's holdings
of illiquid securities exceed the Fund's 10% limit on investments in such
securities, the Manager will determine what action to take to ensure that the
Fund continues to adhere to such limitation.
Portfolio Loan Transactions
Each Fund may loan up to 25% of its assets to qualified broker/dealers
or institutional investors for their use relating to short sales or other
security transactions.
The major risk to which a Fund would be exposed on a loan transaction
is the risk that the borrower would go bankrupt at a time when the value of the
security goes up. Therefore, each Fund will only enter into loan arrangements
after a review of all pertinent facts by the Manager, subject to overall
supervision by the Board of Directors, including the creditworthiness of the
borrowing broker, dealer or institution and then only if the consideration to be
received from such loans would justify the risk. Creditworthiness will be
monitored on an ongoing basis by the Manager.
Futures Contracts
Each Fund may enter into futures contracts on stocks, stock indices,
interest rates and foreign currencies, and purchase or sell options on such
futures contracts. These activities will not be entered into for speculative
purposes, but rather for hedging purposes and to facilitate the ability to
quickly deploy into the stock market a Fund's positions in cash, short-term debt
securities and other money market instruments, at times when such Fund's assets
are not fully invested in equity securities. Such positions will generally be
eliminated when it becomes possible to invest in securities that are appropriate
for the Fund involved.
A futures contract is a bilateral agreement providing for the purchase
and sale of a specified type and amount of a financial instrument, or for the
making and acceptance of a cash settlement, at a stated time in the future for a
fixed price. By its terms, a futures contract provides for a specified
settlement date on which the securities underlying the contract are delivered,
or in the case of securities index futures contracts, the difference between the
price at which the contract was entered into and the contract's closing value is
settled between the purchaser and seller in cash. Futures contracts differ from
options in that they are bilateral agreements, with both the purchaser and the
seller equally obligated to complete the transaction. In addition, futures
contracts call for settlement only on the expiration date, and cannot be
"exercised" at any other time during their term.
The purchase or sale of a futures contract also differs from the
purchase or sale of a security or the purchase of an option in that no purchase
price is paid or received. Instead, an amount of cash or cash equivalents, which
varies but may be as low as 5% or less of the value of the contract, must be
deposited with the broker as "initial margin" as a good faith deposit. This
amount is generally maintained in a segregated account at the custodian bank.
Subsequent payments to and from the broker, referred to as "variation margin,"
are made on a daily basis as the value of the index or instrument underlying the
futures contract fluctuates, making positions in the futures contract more or
less valuable, a process known as "marking to the market."
Purchases or sales of stock or bond index futures contracts are used
for hedging purposes to attempt to protect a Fund's current or intended
investments from broad fluctuations in stock or bond prices. For example, a Fund
may sell stock or bond index futures contracts in anticipation of or during a
market decline to attempt to offset the decrease in market value of the Fund's
securities portfolio that might otherwise result. If such decline occurs, the
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loss in value of portfolio securities may be offset, in whole or part, by gains
on the futures position. When a Fund is not fully invested in the securities
market and anticipates a significant market advance, it may purchase stock or
bond index futures contracts in order to gain rapid market exposure that may, in
part or entirely, offset increases in the cost of securities that the Fund
intends to purchase. As such purchases are made, the corresponding positions in
stock or bond index futures contracts will be closed out.
Interest rate futures contracts are purchased or sold for hedging
purposes to attempt to protect against the effects of interest rate changes on a
Fund's current or intended investments in fixed-income securities. For example,
if a Fund owned long-term bonds and interest rates were expected to increase,
the Fund might sell interest rate futures contracts. Such a sale would have much
the same effect as selling some of the long-term bonds in the Fund's portfolio.
However, since the futures market is more liquid than the cash market, the use
of interest rate futures contracts as a hedging technique allows the Fund to
hedge its interest rate risk without having to sell its portfolio securities. If
interest rates did increase, the value of the debt securities in the portfolio
would decline, but the value of the Fund's interest rate futures contracts would
be expected to increase at approximately the same rate, thereby keeping the net
asset value of the Fund from declining as much as it otherwise would have. On
the other hand, if interest rates were expected to decline, interest rate
futures contracts could be purchased as a hedge in anticipation of subsequent
purchases of long-term bonds at higher prices. Because the fluctuations in the
value of the interest rate futures contracts should be similar to those of
long-term bonds, the Fund could protect itself against the effects of the
anticipated rise in the value of long-term bonds without actually buying them
until the necessary cash became available or the market had stabilized. At that
time, the interest rate futures contracts could be liquidated, and the Fund's
cash reserve could then be used to buy long-term bonds on the cash market.
Each Fund may purchase and sell foreign currency futures contracts for
hedging purposes to attempt to protect its current or intended investments
denominated in foreign currencies from fluctuations in currency exchange rates.
Such fluctuations could reduce the dollar value of portfolio securities
denominated in foreign currencies, or increase the cost of foreign-denominated
securities to be acquired, even if the value of such securities in the
currencies in which they are denominated remains constant. A Fund may sell
futures contracts on a foreign currency, for example, when it holds securities
denominated in such currency and it anticipates a decline in the value of such
currency relative to the dollar. In the event such decline occurs, the resulting
adverse effect on the value of foreign-denominated securities may be offset, in
whole or in part, by gains on the futures contracts. However, if the value of
the foreign currency increases relative to the dollar, the Fund's loss on the
foreign currency futures contract may or may not be offset by an increase in the
value of the securities because a decline in the price of the security stated in
terms of the foreign currency may be greater than the increase in value as a
result of the change in exchange rates.
Conversely, a Fund could protect against a rise in the dollar cost of
foreign-denominated securities to be acquired by purchasing futures contracts on
the relevant currency, which could offset, in whole or in part, the increased
cost of such securities resulting from a rise in the dollar value of the
underlying currencies. When a Fund purchases futures contracts under such
circumstances, however, and the price of securities to be acquired instead
declines as a result of appreciation of the dollar, the Fund will sustain losses
on its futures position which could reduce or eliminate the benefits of the
reduced cost of portfolio securities to be acquired.
Each Fund may also purchase and write options on the types of futures
contracts in which the Fund may invest, and enter into related closing
transactions. Options on futures are similar to options on securities, as
described below, except that options on futures give the purchaser the right, in
return for the premium paid, to assume a position in a futures contract, rather
than to actually purchase or sell the futures contract, at a specified exercise
price at any time during the period of the option. In the event that an option
written by the Fund is exercised, the Fund will be subject to all the risks
associated with the trading of futures contracts, such as payment
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of variation margin deposits. In addition, the writer of an option on a futures
contract, unlike the holder, is subject to initial and variation margin
requirements on the option position.
At any time prior to the expiration of a futures contract, a trader may
elect to close out its position by taking an opposite position on the contract
market on which the position was entered into, subject to the availability of a
secondary market, which will operate to terminate the initial position.
Likewise, a position in an option on a futures contract may be terminated by the
purchaser or seller prior to expiration by effecting a closing purchase or sale
transaction, subject to availability of a secondary market, which is the
purchase or sale of an option of the same series (i.e., the same exercise price
and expiration date) as the option previously purchased or sold. A Fund may
realize a profit or a loss when closing out a futures contract or an option on a
futures contract.
To the extent that interest or exchange rates or securities prices move
in an unexpected direction, a Fund may not achieve the anticipated benefits of
investing in futures contracts and options thereon, or may realize a loss. To
the extent that a Fund purchases an option on a futures contract and fails to
exercise the option prior to the exercise date, it will suffer a loss of the
premium paid. Further, the possible lack of a secondary market could prevent the
Fund from closing out its positions relating to futures. See Part B for a
further discussion of this investment technique.
Options
Each Fund may write covered call options on individual issues. For the
option to be considered to be covered, the Fund writing the option must own the
common stock underlying the option or securities convertible into such common
stock. In addition, each Fund may write call options on stock indices. Each Fund
may also purchase put options on individual issues and on stock indices. The
Manager will employ these techniques in an attempt to protect appreciation
attained, to offset capital losses and to take advantage of the liquidity
available in the option markets. The ability to hedge effectively using options
on stock indices will depend, in part, on the correlation between the
composition of the index and a Fund's portfolio as well as the price movement of
individual securities. The Funds do not currently intend to write or purchase
options on stock indices.
While there is no limit on the amount of a Fund's assets which may be
invested in covered call options, neither Fund will invest more than 2% of its
net assets in put options. The Funds will only use Exchange-traded options.
Call Options
Writing Covered Call Options--A covered call option obligates a Fund to
sell one of its securities for an agreed price up to an agreed date. When a Fund
writes a call, it receives a premium and agrees to sell the callable securities
to a purchaser of a corresponding call during the call period (usually not more
than nine months) at a fixed exercise price regardless of market price changes
during the call period. The advantage is that the Fund receives premium income
for the limited purpose of offsetting the costs of purchasing put options
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or offsetting any capital loss or decline in market value of the security.
However, if the Manager's forecast is wrong, the Fund may not fully participate
in the market appreciation if the security's price rises.
Writing a Call Option on Stock Indices--Writing a call option on stock
indices is similar to the writing of a call option on an individual stock. Stock
indices used will include, but not be limited to, the S&P 500, the S&P 100 and
the S&P Over-The-Counter ("OTC") 250.
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Put Options
Purchasing a Put Option--A put option gives a Fund the right to sell
one of its securities for an agreed price up to an agreed date. The advantage is
that the Fund can be protected should the market value of the security decline.
However, the Fund must pay a premium for this right which would be lost if the
option is not exercised.
Purchasing a Put Option on Stock Indices--Purchasing a protective put
option on stock indices is similar to the purchase of protective puts on an
individual stock. Indices used will include, but not be limited to, the S&P 500,
the S&P 100 and the S&P OTC 250.
Closing Transactions--Closing transactions essentially let a Fund
offset a put option or covered call option prior to its exercise or expiration.
If the Fund cannot effect a closing transaction, it may have to hold a security
it would otherwise sell or deliver a security it might want to hold.
* * *
Borrowing
Although each Fund is permitted under certain circumstances to borrow
money, neither Fund normally do so. A Fund will not purchase new securities
while any borrowings are outstanding.
Repurchase Agreements
Each Fund may use repurchase agreements that are at least 100%
collateralized by securities in which the Fund can invest directly, including
securities issued or guaranteed by the U.S. government or its agencies or
instrumentalities. Repurchase agreements help a Fund to invest cash on a
temporary basis. Under a repurchase agreement, a Fund acquires ownership and
possession of a security, and the seller agrees to buy the security back at a
specified time and higher price. If the seller is unable to repurchase the
security, the Fund could experience delays in liquidating the securities. To
minimize this possibility, the Manager, pursuant to direction from Equity Funds,
II, Inc.'s Board of Directors, considers the creditworthiness of the banks and
dealers with whom it enters into repurchase agreements.
* * *
Part B sets forth more specific investment restrictions, some of which
limit the percentage of assets that may be invested in certain types of
securities.
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APPENDIX A--RATINGS
Decatur Income Fund has the ability to invest up to 15% of its net
assets in high yield, high risk fixed-income securities. The table set forth
below shows the assets composition, based on rating categories, of such
securities held by the Fund. Certain securities may not be rated because the
rating agencies were either not asked to provide ratings (e.g., many issuers of
privately placed bonds do not seek ratings) or because the rating agencies
declined to provide a rating for some reason, such as insufficient data. The
table below shows the percentage of Decatur Income Fund's high yield, high risk
securities which are not rated. The information contained in the table was
prepared based on a dollar weighted average of the Fund's portfolio composition
based on month end data for the fiscal year ended November 30, 1996. The
paragraphs following the table contain excerpts from Moody's and S&P's rating
descriptions. These credit ratings evaluate only the safety of principal and
interest and do not consider the market value risk associated with high yield
securities.
Rating Moody's Average Weighted
and/or Percentage of
S&P Portfolio
-------------- ----------------
Baa/BBB 0.15%
Ba/BB 2.47%
B/B 6.99%
Not Rated/Other 0.20%
General Rating Information
Bonds
Excerpts from Moody's description of its bond ratings: Aaa--judged to be
the best quality. They carry the smallest degree of investment risk; Aa--judged
to be of high quality by all standards; A--possess favorable attributes and are
considered "upper medium" grade obligations; Baa--considered as medium grade
obligations. Interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time; Ba--judged to have
speculative elements; their future cannot be considered as well assured. Often
the protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class; B--generally lack
characteristics of the desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over any long period
of time may be small; Caa--are of poor standing. Such issues may be in default
or there may be present elements of danger with respect to principal or
interest; Ca--represent obligations which are speculative in a high degree. Such
issues are often in default or have other marked shortcomings; C--the lowest
rated class of bonds and issues so rated can be regarded as having extremely
poor prospects of ever attaining any real investment standing.
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Excerpts from S&P's description of its bond ratings: AAA--highest grade
obligations. They possess the ultimate degree of protection as to principal and
interest; AA--also qualify as high grade obligations, and in the majority of
instances differ from AAA issues only in a small degree; A--strong ability to
pay interest and repay principal although more susceptible to changes in
circumstances; BBB--regarded as having an adequate capacity to pay interest and
repay principal; BB, B, CCC, CC--regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB indicates the lowest degree of
speculation and CC the highest degree of speculation. While such debt will
likely have some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions; C--reserved
for income bonds on which no interest is being paid; D--in default, and payment
of interest and/or repayment of principal is in arrears.
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The Delaware Group includes funds with a wide range of investment
objectives. Stock funds, income funds, tax-free funds, money market funds,
global and international funds and closed-end equity funds give investors the
ability to create a portfolio that fits their personal financial goals. For more
information, contact your financial adviser or call Delaware Group at
800-523-4640.
INVESTMENT MANAGER
Delaware Management Company, Inc.
One Commerce Square
Philadelphia, PA 19103
SUB-ADVISER
Vantage Global Advisors, Inc.
630 Fifth Avenue
New York, NY 10111
NATIONAL DISTRIBUTOR
Delaware Distributors, L.P.
1818 Market Street
Philadelphia, PA 19103
SHAREHOLDER SERVICING,
DIVIDEND DISBURSING,
ACCOUNTING SERVICES
AND TRANSFER AGENT
Delaware Service Company, Inc.
1818 Market Street
Philadelphia, PA 19103
LEGAL COUNSEL
Stradley, Ronon, Stevens & Young, LLP
One Commerce Square
Philadelphia, PA 19103
INDEPENDENT AUDITORS
Ernst & Young LLP
Two Commerce Square
Philadelphia, PA 19103
CUSTODIAN
The Chase Manhattan Bank
4 Chase Metrotech Center
Brooklyn, NY 11245
<PAGE>
- -------------------------------------
BLUE CHIP FUND
QUANTUM FUND
- -------------------------------------
A CLASS
B CLASS
C CLASS
- -------------------------------------
PROSPECTUS
- --------------------------------------
FEBRUARY 24, 1997
DELAWARE
GROUP
- --------
<PAGE>
BLUE CHIP FUND
QUANTUM FUND PROSPECTUS
A CLASS SHARES FEBRUARY 24, 1997
B CLASS SHARES
C CLASS SHARES
--------------------------------------------------------------------------
1818 Market Street, Philadelphia, PA 19103
For Prospectus and Performance:
Nationwide 800-523-4640
Information on Existing Accounts:
(SHAREHOLDERS ONLY)
Nationwide 800-523-1918
Dealer Services:
(BROKER/DEALERS ONLY)
Nationwide 800-362-7500
Representatives of Financial Institutions:
Nationwide 800-659-2259
This Prospectus describes two series, Blue Chip Fund and Quantum Fund
(individually a "Fund" and collectively the "Funds"), of Delaware Group Equity
Funds II, Inc. ("Equity Funds II, Inc."), a professionally-managed mutual fund
of the series type. Blue Chip Fund offers the Blue Chip Fund A Class, the Blue
Chip Fund B Class and the Blue Chip Fund C Class. Quantum Fund offers the
Quantum Fund A Class, the Quantum Fund B Class and the Quantum Fund C Class.
Each class is referred to individually as a "Class" and collectively as the
"Classes" or "Class A Shares," Class B Shares" or "Class C Shares."
The objective of Blue Chip Fund is to achieve long-term capital
appreciation. Current income is a secondary objective. It seeks to achieve these
objectives by investing primarily in equity securities and any securities that
are convertible into equity securities. The objective of Quantum Fund is to
achieve long-term capital appreciation. It seeks to achieve this objective by
investing primarily in equity securities of medium to large-sized companies
expected to grow over time that meet the Fund's "Social Criteria" strategy.
This Prospectus sets forth information that you should read and
consider before you invest. Please retain it for future reference. The Statement
of Additional Information ("Part B") of Equity Funds II, Inc.'s registration
statement, dated February 24, 1997, as it may be amended from time to time,
contains additional information about the Funds and has been filed with the
Securities and Exchange Commission. Part B is incorporated by reference into
this Prospectus and is available, without charge, by writing to Delaware
Distributors, L.P. at the above address or by calling the above telephone
numbers.
-1-
<PAGE>
Each Fund also offers an Institutional Class which is available for
purchase only by certain investors. A prospectus for the Funds' Institutional
Classes can be obtained by writing to Delaware Distributors, L.P. at the above
address or by calling the above telephone numbers.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
Cover Page How to Buy Shares
Synopsis Redemption and Exchange
Summary of Expenses Dividends and Distributions
Investment Objectives and Policies Taxes
Suitability Calculation of Offering Price and
Investment Strategy Net Asset Value Per Share
The Delaware Difference Management of the Funds
Plans and Services Other Investment Policies and
Retirement Planning Special Risk Considerations
Classes of Shares Appendix A--Investment Illustrations
Appendix B--Classes Offered
</TABLE>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
BE SURE TO CONSULT YOUR FINANCIAL ADVISER WHEN MAKING INVESTMENTS. MUTUAL FUNDS
CAN BE A VALUABLE PART OF YOUR FINANCIAL PLAN; HOWEVER, SHARES OF THE FUNDS ARE
NOT FDIC OR NCUSIF INSURED, ARE NOT GUARANTEED BY ANY BANK OR ANY CREDIT UNION,
ARE NOT OBLIGATIONS OF ANY BANK OR ANY CREDIT UNION, AND INVOLVE INVESTMENT
RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. SHARES OF THE FUNDS ARE NOT BANK
OR CREDIT UNION DEPOSITS.
-2-
<PAGE>
SYNOPSIS
Investment Objective
Blue Chip Fund - The objective of Blue Chip Fund is to achieve
long-term capital appreciation. Current income is a secondary objective. It
seeks to achieve these objectives by investing primarily in equity securities
and any securities that are convertible into equity securities.
Quantum Fund - The objective of Quantum Fund is to achieve long-term
capital appreciation. It seeks to achieve this objective by investing primarily
in equity securities of medium to large-sized companies expected to grow over
time that meet the Fund's "Social Criteria" strategy.
Risk Factors and Special Considerations
Each Fund has the ability to enter into options and futures
transactions for hedging purposes to attempt to counterbalance portfolio
volatility. There are risks that result from the use of options and futures and
the investor should review the description of these risks in this Prospectus.
See Futures Contracts and Options under Other Investment Policies and Risk
Considerations.
Each Fund may invest up to 20% of its total assets directly or
indirectly in securities of issuers domiciled in foreign countries. Such
investments involve certain risk and opportunity considerations not typically
associated with investing in United States companies. See Foreign Securities
under Other Investment Policies and Risk Considerations.
Investment Manager, Distributor and Service Agent
Delaware Management Company, Inc. (the "Manager") furnishes investment
management services to each Fund, subject to the supervision and direction of
Equity Funds II, Inc.'s Board of Directors. The Manager also provides investment
management services to certain of the other funds in the Delaware Group. The
Manager has selected Vantage Global Advisors, Inc. (the "Sub-Adviser") to serve
as sub-adviser to each Fund and to provide the day-to-day management to each
Fund. Delaware Distributors, L.P. (the "Distributor") is the national
distributor for the Fund and for all of the other mutual funds in the Delaware
Group. Delaware Service Company, Inc. (the "Transfer Agent") is the shareholder
servicing, dividend disbursing, accounting services and transfer agent for the
Fund and for all of the other mutual funds in the Delaware Group. See Summary of
Expenses and Management of the Funds for further information regarding the
Manager and the Sub-Adviser and the fees payable under each Fund's Investment
Management Agreement and Sub-Advisory Agreement.
Sales Charges
The price of Class A Shares of each Fund includes a maximum front-end
sales charge of 4.75% of the offering price, which is equivalent to 4.94% of the
amount invested, based on an initial net asset value of $8.50 per share. The
front-end sales charge is reduced on certain transactions of at least $100,000
but under $1,000,000. There is no front-end sales charge on purchases of
$1,000,000 or more. Class A Shares are subject to annual 12b-1 Plan expenses for
the life of the investment.
-3-
<PAGE>
The price of Class B Shares is equal to the net asset value per share.
Class B Shares are subject to a contingent deferred sales charge ("CDSC") of:
(i) 4% if shares are redeemed within two years of purchase; (ii) 3% if shares
are redeemed during the third or fourth year following purchase; (iii) 2% if
shares are redeemed during the fifth year following purchase; and (iv) 1% if
shares are redeemed during the sixth year following purchase. Class B Shares are
subject to annual 12b-1 Plan expenses for approximately eight years after
purchase. See Deferred Sales Charge Alternative - Class B Shares and Automatic
Conversion of Class B Shares under Classes of Shares.
The price of Class C Shares is equal to the net asset value per share.
Class C Shares are subject to a CDSC of 1% if shares are redeemed within 12
months of purchase. Class C Shares are subject to annual 12b-1 Plan expenses for
the life of the investment.
See Classes of Shares and Distribution (12b-1) and Service under
Management of the Funds.
Purchase Amounts
Generally, the minimum initial investment in any Class is $1,000.
Subsequent investments must generally be at least $100.
Each purchase of Class B Shares is subject to a maximum purchase
limitation of $250,000. For Class C Shares, each purchase must be in an amount
that is less than $1,000,000. An investor may exceed these maximum purchase
limitations for Class B Shares and Class C Shares by making cumulative purchases
over a period of time. An investor should keep in mind, however, that reduced
front-end sales charges apply to investments of $100,000 or more in Class A
Shares, and that Class A Shares are subject to lower annual 12b-1 Plan expenses
than Class B and Class C Shares and generally are not subject to a CDSC. The
minimum and maximum purchase amounts for retirement plans may vary. See How to
Buy Shares.
Redemption and Exchange
Class A Shares of each Fund may be redeemed or exchanged at the net
asset value calculated after receipt of the redemption or exchange request.
Neither the Funds nor the Distributor assesses a charge for redemptions or
exchanges of Class A Shares, except for certain redemptions of shares purchased
at net asset value, which may be subject to a CDSC if a dealer's commission was
paid in connection with such purchases. See Front-End Sales Charge Alternative -
Class A Shares under Classes of Shares.
Class B Shares and Class C Shares may be redeemed or exchanged at the
net asset value calculated after receipt of the redemption or exchange request
subject, in the case of redemptions, to any applicable CDSC. Neither the Funds
nor the Distributor assesses any charges other than the CDSC for redemptions or
exchanges of Class B or Class C Shares. There are certain limitations on an
investor's ability to exchange shares between the various classes of shares that
are offered. See Redemption and Exchange.
Open-End Investment Company
Equity Funds II, Inc., which was organized as a Maryland corporation in
1983, is an open-end management investment company. Each Fund's portfolio of
assets is diversified as defined by the Investment Company Act of 1940 (the
"1940 Act"). Equity Funds II, Inc. was previously organized as a Delaware
corporation in 1956. See Shares under Management of the Funds.
-4-
<PAGE>
SUMMARY OF EXPENSES
A general comparison of the sales arrangements and other expenses
applicable to Class A, Class B and Class C Shares follows:
<TABLE>
<CAPTION>
Blue Chip Fund Quantum Fund
Class A Class B Class C Class A Class B Class C
Shareholder Transaction Expenses Shares Shares Shares Shares Shares Shares
- -------------------------------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Maximum Sales Charge Imposed
on Purchases (as a percentage
of offering price) . . . . . . 4.75% None None 4.75% None None
Maximum Sales Charge Imposed
on Reinvested Dividends
(as a percentage of
offering price) . . . . . . . . None None None None None None
Maximum Contingent Deferred Sales
Charge (as a percentage of
original purchase price or
redemption proceeds,
whichever is lower). . . . . . None* 4.00%** 1.00%+ None* 4.00%** 1.00%+
Redemption Fees . . . . . . . . . None++ None++ None++ None++ None++ None++
</TABLE>
*Class A purchases of $1 million or more may be made at net asset value.
However, if in connection with any such purchase a dealer commission is paid to
the financial adviser through whom such purchase is effected, a CDSC of 1% will
be imposed on certain redemptions within 12 months of purchase ("Limited CDSC").
See Contingent Deferred Sales Charge for Certain Redemptions of Class A Shares
Purchased at Net Asset Value under Redemption and Exchange.
**Class B Shares of each Fund are subject to a CDSC of: (i) 4% if shares are
redeemed within two years of purchase; (ii) 3% if shares are redeemed during the
third or fourth year following purchase; (iii) 2% if shares are redeemed during
the fifth year following purchase; (iv) 1% if shares are redeemed during the
sixth year following purchase; and (v) 0% thereafter. See Deferred Sales Charge
Alternative - Class B Shares under Classes of Shares.
+Class C Shares of each Fund are subject to a CDSC of 1% if shares are redeemed
within 12 months of purchase. See Level Sales Charge Alternative--Class C Shares
under Classes of Shares.
++CoreStates Bank, N.A. currently charges $7.50 per redemption for redemptions
payable by wire.
-5-
<PAGE>
<TABLE>
<CAPTION>
Annual Operating Expenses Blue Chip Fund Quantum Fund
(as a percentage of Class A Class B Class C Class A Class B Class C
average daily net assets) Shares Shares Shares Shares Shares Shares
- ------------------------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Management Fees
(after voluntary waivers) . . . 0.30% 0.30% 0.30% 0.21% 0.21% 0.21%
12b-1 Plan Expenses
(including service fees). . . . 0.30%+ 1.00%+ 1.00%+ 0.30%+ 1.00%+ 1.00%+
Other Operating Expenses. . . . . 0.90%++ 0.90%++ 0.90%++ 0.99%++ 0.99%++ 0.99%++
------- ------ ------- ------- ------- -------
Total Operating Expenses
(after voluntary waivers). . 1.50%++ 2.20%++ 2.20%++ 1.50%++ 2.20%++ 2.20%++
======= ======= ======= ======= ======= =======
</TABLE>
+Class A Shares, Class B Shares and Class C Shares are subject to separate 12b-1
Plans. Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted by rules of the National Association
of Securities Dealers, Inc. (the "NASD"). See Distribution (12b-1) and Service
under Management of the Funds.
++"Total Operating Expenses" and "Other Operating Expenses" for the Class A
Shares, the Class B Shares and the Class C Shares are based on estimated amounts
for the first full fiscal year of the Classes, after giving effect to the
voluntary expense waiver. The Manager has elected voluntarily to waive that
portion, if any, of the annual management fees payable by each Fund and to pay
certain expenses of that Fund to the extent necessary to ensure that the Total
Operating Expenses of the Class A Shares, the Class B Shares and the Class C
Shares of a Fund, including each such Class' 12b-1 fees, do not exceed 1.50%,
2.20% and 2.20%, respectively, from the commencement of the public offering of
Classes through July 31, 1997. If the voluntary expense waivers were not in
effect, it is estimated that for the first full year, the Total Operating
Expenses, as a percentage of average daily net assets, would be 1.85%, 2.55% and
2.55%, respectively, for the Class A Shares, the Class B Shares and the Class C
Shares of Blue Chip Fund, reflecting management fees of 0.65%, and 2.04%, 2.74%
and 2.74%, respectively, for the Class A Shares, the Class B Shares and the
Class C Shares of Quantum Fund, reflecting management fees of 0.75%.
Unless waived, investors utilizing the Delaware Group Asset Planner
asset allocation service will incur an annual maintenance fee of $35 per
strategy. Investors who utilize the Asset Planner for an IRA will pay an IRA fee
of $15 per Social Security number. See Delaware Group Asset Planner under How to
Buy Shares.
For expense information about the Blue Chip Fund Institutional Class of
shares and Quantum Fund Institutional Class of shares, see the separate
prospectus relating to those classes.
-6-
<PAGE>
The following example illustrates the expenses that an investor would
pay on a $1,000 investment over various time periods, assuming (1) a 5% annual
rate of return, (2) redemption and no redemption at the end of each time period
and (3) for Class B Shares and Class C Shares, payment of a CDSC at the time of
redemption, if applicable. The following example assumes the voluntary waiver of
the management fee by the Manager as discussed in this Prospectus.
<TABLE>
<CAPTION>
Blue Chip Fund Assuming Redemption Assuming No Redemption
1 year 3 years 1 year 3 years
------ ------- ------ -------
<S> <C> <C> <C> <C>
Class A Shares $62(1) $93 $62 $93
Class B Shares(2) $62 $99 $22 $69
Class C Shares $32 $69 $22 $69
</TABLE>
<TABLE>
<CAPTION>
Quantum Fund Assuming Redemption Assuming No Redemption
1 year 3 years 1 year 3 years
------ ------- ------ -------
<S> <C> <C> <C> <C>
Class A Shares $62(1) $93 $62 $93
Class B Shares(2) $62 $99 $22 $69
Class C Shares $32 $69 $22 $69
</TABLE>
(1) Generally, no redemption charge is assessed upon redemption of Class A
Shares. Under certain circumstances, however, a Limited CDSC, which has
not been reflected in this calculation, may be imposed on certain
redemptions within 12 months of purchase. See Contingent Deferred Sales
Charge for Certain Redemptions of Class A Shares Purchased at Net Asset
Value under Redemption and Exchange.
(2) At the end of approximately eight years after purchase, Class B Shares
will be automatically converted into Class A Shares. The example above
does not assume conversion of Class B Shares since it reflects figures
only for one and three years. See Automatic Conversion of Class B
Shares under Classes of Shares for a description of the automatic
conversion feature.
The purpose of the above tables is to assist the investor in
understanding the various costs and expenses that an investor in any of the
Classes will bear directly or indirectly.
This example should not be considered a representation of past or future
expenses or performance. Actual expenses may be greater or less than those
shown.
-7-
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
Blue Chip Fund - The objective of Blue Chip Fund is to achieve
long-term capital appreciation. Current income is a secondary objective. It
seeks to achieve these objectives by investing primarily in equity securities
and any securities that are convertible into equity securities.
Quantum Fund - The objective of Quantum Fund is to achieve long-term
capital appreciation. It seeks to achieve this objective by investing primarily
in equity securities of medium to large-sized companies expected to grow over
time that meet the Fund's "Social Criteria" strategy.
SUITABILITY
Blue Chip Fund - The Fund may be suitable for the patient investor
interested in long-term capital appreciation with the potential for current
income. Investors should be willing to accept the risks associated with
investments in equity securities and securities convertible into equity
securities, issued by domestic and foreign issuers. Because current income is a
secondary objective of the Fund, the Fund is not suitable as an investment
vehicle for investors whose primary investment goal is current income.
Quantum Fund - The Fund may be suitable for the patient investor
interested in capital appreciation. Investors should be willing to accept the
risks associated with investments in equity securities issued by domestic and
foreign issuers. The Fund is designed for capital appreciation; providing
current income is not a goal of the Fund. Any income produced, therefore, is
expected to be minimal.
* * *
Naturally, the Funds cannot assure a specific rate of return or that
principal will be protected. The value of each Fund's shares can be expected to
move up and down depending upon market conditions. Consequently, appreciation
may be obtained in periods of generally rising markets, while in declining
markets, the value of its shares may, of course, decline. For this reason,
neither Fund is appropriate for short-term investors. However, through the
cautious selection and supervision of its portfolio, each Fund will strive to
achieve its objective set forth above.
Investors should not consider a purchase of shares of either Fund as
equivalent to a complete investment program. The Delaware Group includes a
family of funds, generally available through registered investment dealers,
which may be used together to create a more complete investment program.
INVESTMENT STRATEGY
Blue Chip Fund - The objective of Blue Chip Fund is to achieve
long-term capital appreciation. Current income is a secondary objective. It
seeks to achieve these objectives by investing in equity securities and any
securities that are convertible into equity securities. The Sub-Adviser will
invest in companies which it believes exhibit growth potential that
significantly exceeds the average anticipated growth rate of companies included
in the Standard and Poor's 500 Index ("S&P 500"). Under normal market
conditions, at least 65% of the total assets of the Fund will be in companies
determined by the Sub-Adviser to be "Blue Chip." Generally, the median market
capitalization of companies targeted for investment by the Fund will be greater
than $5 billion. For investment purposes, however, "Blue Chip" companies are
those whose market capitalization is greater than $2.5 billion at the time of
investment.
-8-
<PAGE>
The Sub-Adviser believes "Blue Chip" companies have characteristics
which are desirable in seeking to achieve the investment objectives of the Fund.
For example, such companies tend to have a lengthy history of profit growth and
dividend payment, and a reputation for quality management structure, products
and service. Securities of "Blue Chip" companies generally are considered to be
highly liquid, because compared to those of lesser capitalized companies, more
shares of these securities are outstanding in the marketplace and their trading
volume tends to be higher.
While it is anticipated that the Fund will invest principally in common
stock and securities that are convertible into common stock, the Fund may invest
in all available types of equity securities, including without limitation,
preferred stock and warrants. Investments in equity securities other than common
stock or securities that are convertible into common stock will be made when
such securities are more attractively priced relative to the underlying common
stock. Such investments may be made in any proportion deemed prudent under
existing market and economic conditions. Convertible securities include
preferred stock and debentures that pay a stated interest rate or dividend and
are convertible into common stock at an established ratio. These securities,
which are usually priced at a premium to their conversion value, may allow the
Fund to receive current income while participating to some extent in any
appreciation in the underlying common stock. The value of a convertible security
tends to be affected by changes in interest rates as well as factors affecting
the market value of the underlying common stock. See Other Investment Policies
and Risks Considerations.
Up to 20% of the Fund's total assets may be invested directly or
indirectly in securities of issuers domiciled in foreign countries, including
investments in American, European and Global Depositary Receipts. See Foreign
Investment Information under Other Investment Policies and Risk Considerations.
The Fund may enter into options and futures transactions for hedging
purposes to attempt to counterbalance portfolio volatility. See Futures
Contracts and Options under Other Investment Policies and Risk Considerations.
The Fund may hold cash or invest in short-term debt securities and
other money market instruments when, in the Sub-Adviser's opinion, such holdings
are prudent given then prevailing market conditions. The Fund may also invest in
such instruments pending investment by the Fund of proceeds from the sale of
portfolio securities or proceeds from new sales of Fund shares pending
investment in other types of securities for the Fund or to maintain sufficient
liquidity to meet redemptions. All such short-term investments will be of the
highest quality as determined by a nationally-recognized statistical rating
organization (e.g., AAA by Standard & Poor's Rating Group ("S&P") or Aaa by
Moody's Investors Service, Inc. ("Moody's")) or, if unrated, judged to be of
comparable quality as determined by the Sub-Adviser. See Short-Term Investments
under Other Investment Policies and Risk Considerations.
The Fund will constantly strive to achieve its objectives and, in
investing to do so, may hold securities for any period of time. To the extent
the Fund engages in short-term trading in attempting to achieve its objectives,
it may increase the turnover rate and incur larger brokerage commissions and
other expenses than might otherwise be the case.
Quantum Fund - The objective of Quantum Fund is to achieve long-term
capital appreciation. It seeks to achieve this objective by investing primarily
in equity securities of medium to large-sized companies expected to grow over
time. Medium to large-size companies generally are those having a market
capitalization of greater than $1 billion at the time of investment. The
Sub-Adviser will invest
-9-
<PAGE>
substantially all of the assets of the Fund in equity securities that it
believes exhibit growth potential that significantly exceeds the average
anticipated growth rate of companies included in the S&P 500 and meet the Fund's
"Social Criteria" strategy.
The Fund will adhere to a Social Criteria strategy, which can be
changed by action of Equity Funds II, Inc.'s Board of Directors. The Sub-Adviser
will utilize the Social Investment Database published by Kinder, Lydenberg,
Domini & Co. Inc. ("KLD") in determining whether a company is engaged in any
activity precluded by the Fund's Social Criteria. KLD specializes in providing
the financial community with social research on publicly traded U.S.
corporations. The Fund will not purchase securities of any company for which the
Social Investment Database indicates a concern or a major concern relating to
one or more of the Social Criteria. See Social Criteria under Other Investment
Policies and Risk Considerations.
Because of the Social Criteria strategy, the Fund may be underexposed
in certain sectors which may at times outperform the market.
While it is anticipated that the Fund, under normal market conditions,
will invest principally in common stock, the Fund may invest in all available
types of equity securities, including without limitation, preferred stock,
warrants and securities convertible into common stock. Such investments may be
made in any proportion deemed prudent under existing market and economic
conditions. See Other Investment Policies and Risk Considerations.
Up to 20% of the Fund's total assets may be invested directly or
indirectly in securities of issuers domiciled in foreign countries, including
investments in American, European or Global Depositary Receipts. See Foreign
Investment Information under Other Investment Policies and Risk Considerations.
The Fund may enter into options and futures transactions for hedging
purposes to counterbalance portfolio volatility. See Futures Contracts and
Options under Other Investment Policies and Risk Considerations.
The Fund may hold cash or invest in short-term debt securities and
other money market instruments when, in the Sub-Adviser's opinion, such holdings
are prudent given then prevailing market conditions. The Fund may also invest in
such instruments pending investment by the Fund of proceeds from the sale of
portfolio securities or proceeds from new sales of Fund shares pending
investment in other types of securities for the Fund as to maintain sufficient
liquidity to meet redemptions. All such short-term investments will be of the
highest quality as determined by a nationally-recognized statistical rating
organization (e.g., AAA by S&P or Aaa by Moody's) or, if unrated, judged to be
of comparable quality as determined by the Sub-Adviser. See Short-Term
Investments under Other Investment Policies and Risk Considerations.
The Fund will constantly strive to achieve its objective and, in
investing to do so, may hold securities for any period of time. To the extent
the Fund engages in short-term trading in attempting to achieve its objective,
it may increase the turnover rate and incur larger brokerage commissions and
other expenses than might otherwise be the case.
* * *
-10-
<PAGE>
For additional information on each Fund's investment policies and
certain risks associated with investments in certain types of securities, see
Other Investment Policies and Risk Considerations.
Although each Fund will constantly strive to attain its respective
objectives, there can be no assurance that they will be attained.
-11-
<PAGE>
THE DELAWARE DIFFERENCE
PLANS AND SERVICES
The Delaware Difference is our commitment to provide you with superior
information and quality service on your investments in the Delaware Group of
funds.
SHAREHOLDER PHONE DIRECTORY
Investor Information Center
800-523-4640
Fund Information; Literature Price; Yield and Performance Figures
Shareholder Service Center
800-523-1918
Information on Existing Regular Investment Accounts and Retirement Plan
Accounts; Wire Investments; Wire Liquidations; Telephone
Liquidations and Telephone Exchanges
Delaphone
800-362-FUND
(800-362-3863)
Performance Information
You can call the Investor Information Center at any time for current
performance information.
Shareholder Services
During business hours, you can call the Delaware Group's Shareholder
Service Center. Our representatives can answer any questions about your account,
the Funds, various service features and other funds in the Delaware Group.
Delaphone Service
Delaphone is an account inquiry service for investors with
Touch-Tone(R) phone service. It enables you to get information on your account
faster than the mailed statements and confirmations. Delaphone also provides
current performance information on the Funds, as well as other funds in the
Delaware Group. Delaphone is available seven days a week, 24 hours a day.
Dividend Payments
Dividends, capital gains and other distributions are automatically
reinvested in your account, unless you elect to receive them in cash. You may
also elect to have the dividends earned in one fund automatically invested in
another Delaware Group fund with a different investment objective, subject to
certain exceptions and limitations.
-12-
<PAGE>
For more information, see Additional Methods of Adding to Your
Investment - Dividend Reinvestment Plan under How to Buy Shares or call the
Shareholder Service Center.
MoneyLine Direct Deposit Service
If you elect to have your dividends and distributions paid in cash and
such dividends and distributions are in an amount of $25 or more, you may choose
the MoneyLine Direct Deposit Service and have such payments transferred from
your Fund account to your predesignated bank account. See Dividends and
Distributions. In addition, you may elect to have your Systematic Withdrawal
Plan payments transferred from your Fund account to your predesignated bank
account through this service. See Systematic Withdrawal Plans under Redemption
and Exchange. Your funds will normally be credited to your bank account two
business days after the payment date. There are no fees for this service. You
can initiate the MoneyLine Direct Deposit Service by completing an Authorization
Agreement. If your name and address are not identical to the name and address on
your Fund account, you must have your signature guaranteed. This service is not
available for certain retirement plans.
Statements and Confirmations
You will receive quarterly statements of your account summarizing all
transactions during the period. A confirmation statement will be sent following
all transactions other than those involving a reinvestment of dividends. You
should examine statements and confirmations immediately and promptly report any
discrepancy by calling the Shareholder Service Center.
Duplicate Confirmations
If your financial adviser or investment dealer is noted on your
investment application, we will send a duplicate confirmation to him or her.
This makes it easier for your adviser to help you manage your investments.
Tax Information
Each year, Equity Funds II, Inc. will mail to you information on the
tax status of your dividends and distributions.
Right of Accumulation
With respect to Class A Shares, the Right of Accumulation feature
allows you to combine the value of your current holdings of Class A Shares,
Class B Shares and Class C Shares of a Fund with the dollar amount of new
purchases of Class A Shares of that Fund to qualify for a reduced front-end
sales charge on such purchases of Class A Shares. Under the Combined Purchases
Privilege, you may also include certain shares that you own in other funds in
the Delaware Group. See Classes of Shares.
Letter of Intention
The Letter of Intention feature permits you to obtain a reduced
front-end sales charge on purchases of Class A Shares by aggregating certain of
your purchases of Delaware Group fund shares over a 13-month period. See Classes
of Shares and Part B.
12-Month Reinvestment Privilege
The 12-Month Reinvestment Privilege permits you to reinvest proceeds
from a redemption of Class A Shares, within one year of the date of the
redemption, without paying a front-end sales charge. See Part B.
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<PAGE>
Exchange Privilege
The Exchange Privilege permits shareholders to exchange all or part of
their shares into shares of the other funds in the Delaware Group, subject to
certain exceptions and limitations. For additional information on exchanges, see
Investing by Exchange under How to Buy Shares and Redemption and Exchange.
Wealth Builder Option
You may elect to invest in a Fund through regular liquidations of
shares in your accounts in other funds in the Delaware Group. Investments under
this feature are exchanges and are therefore subject to the same conditions and
limitations as other exchanges of Fund shares. See Additional Methods of Adding
to Your Investment - Wealth Builder Option and Investing by Exchange under How
to Buy Shares, and Redemption and Exchange.
Delaware Group Asset Planner
Delaware Group Asset Planner is an asset allocation service that gives
you, working with a professional financial adviser, the ability to more easily
design and maintain investments in a diversified selection of Delaware Group
mutual funds. The Asset Planner service offers a choice of four predesigned
allocation strategies (each with a different risk/reward profile) made up of
separate investments in predetermined percentages of Delaware Group funds. With
the guidance of a financial adviser, you may also tailor an allocation strategy
that meets your personal needs and goals. See How to Buy Shares.
Financial Information about the Funds
Each fiscal year, you will receive an audited annual report and an
unaudited semi-annual report. These reports provide detailed information about
each Fund's investments and performance. Equity Funds II, Inc.'s fiscal year
ends on November 30.
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<PAGE>
RETIREMENT PLANNING
An investment in either Fund may be suitable for tax-deferred
retirement plans. Among the retirement plans noted below, Class B Shares are
available for investment only by Individual Retirement Accounts, Simplified
Employee Pension Plans, 457 Deferred Compensation Plans and 403(b)(7) Deferred
Compensation Plans.
Retirement plans may be subject to plan establishment fees, annual
maintenance fees and/or other administrative or trustee fees. Fees are based
upon the number of participants in the plan as well as the services selected.
Additional information about fees is included in retirement plan materials. Fees
are quoted upon request. Certain shareholder investment services available to
non-retirement plan shareholders may not be available to retirement plan
shareholders. Certain retirement plans may qualify to purchase the Blue Chip
Fund Institutional Class and the Quantum Fund Institutional Class. For
additional information on any of the plans and Delaware's retirement services,
call the Shareholder Service Center or see Part B.
Individual Retirement Account ("IRA")
Individuals, even if they participate in an employer-sponsored
retirement plan, may establish their own retirement program for investments in
each of the Classes. Contributions to an IRA may be tax-deductible and earnings
are tax-deferred. The tax deductibility of IRA contributions is restricted, and
in some cases eliminated, for individuals who participate in certain
employer-sponsored retirement plans and whose annual income exceeds certain
limits. Existing IRAs and future contributions up to the IRA maximums, whether
deductible or not, still earn on a tax-deferred basis.
Simplified Employee Pension Plan ("SEP/IRA")
A SEP/IRA may be established by an employer who wishes to sponsor a
tax-sheltered retirement program by making contributions on behalf of all
eligible employees. Each of the Classes is available for investment by a
SEP/IRA.
Salary Reduction Simplified Employee Pension Plan ("SAR/SEP")
New SAR/SEP plans may not be established after December 31, 1996.
Employers must have no more than 25 employees to maintain an existing
SEP/IRA that permits salary deferral contributions. An employer may also elect
to make additional contributions to this plan. Class B Shares are not available
for purchase by such plans.
403(b)(7) Deferred Compensation Plan
Permits employees of public school systems or of certain types of
non-profit organizations to enter into a deferred compensation arrangement for
the purchase of shares of each of the Classes.
457 Deferred Compensation Plan
Permits employees of state and local governments and certain other
entities to enter into a deferred compensation arrangement for the purchase of
shares of each of the Classes.
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<PAGE>
Prototype Profit Sharing or Money Purchase Pension Plan
Offers self-employed individuals, partnerships and corporations a
tax-qualified plan which provides for the investment of contributions in Class A
Shares or Class C Shares. Class B Shares are not available for purchase by such
plans.
Prototype 401(k) Defined Contribution Plan
Permits employers to establish a tax-qualified plan based on salary
deferral contributions for investment in Class A or Class C Shares. Class B
Shares are not available for purchase by such plans.
Allied Plans
Class A Shares are available for purchase by participants in certain
401(k) Defined Contribution Plans ("Allied Plans") which are made available
under a joint venture agreement between the Distributor and another institution
through which mutual funds are marketed and which allow investments in Class A
Shares of designated Delaware Group funds ("eligible Delaware Group fund
shares"), as well as shares of designated classes of non-Delaware Group funds
("eligible non-Delaware Group fund shares"). Class B Shares and Class C Shares
are not eligible for purchase by Allied Plans.
With respect to purchases made in connection with an Allied Plan, the
value of eligible Delaware Group and eligible non-Delaware Group fund shares
held by the Allied Plan may be combined with the dollar amount of new purchases
by that Allied Plan to obtain a reduced front-end sales charge on additional
purchases of eligible Delaware Group fund shares. See Front-End Sales Charge
Alternative -- Class A Shares under Classes of Shares.
Participants in Allied Plans may exchange all or part of their eligible
Delaware Group fund shares for other eligible Delaware Group fund shares or for
eligible non-Delaware Group fund shares at net asset value without payment of a
front-end sales charge. However, exchanges of eligible fund shares, both
Delaware Group and non-Delaware Group, which were not subject to a front-end
sales charge, will be subject to the applicable sales charge if exchanged for
eligible Delaware Group fund shares to which a sales charge applies. No sales
charge will apply if the eligible fund shares were previously acquired through
the exchange of eligible shares on which a sales charge was already paid or
through the reinvestment of dividends. See Investing by Exchange.
A dealer's commission may be payable on purchases of eligible Delaware
Group fund shares under an Allied Plan. In determining a financial adviser's
eligibility for a dealer's commission on net asset value purchases of eligible
Delaware Group fund shares in connection with Allied Plans, all participant
holdings in the Allied Plan will be aggregated. See Front-End Sales Charge
Alternative -- Class A Shares under Classes of Shares.
The Limited CDSC is applicable to redemptions of net asset value
purchases from an Allied Plan on which a dealer's commission has been paid.
Waivers of the Limited CDSC, as described under Waiver of Limited Contingent
Deferred Sales Charge - Class A Shares under Redemption and Exchange, apply to
redemptions by participants in Allied Plans except in the case of exchanges
between eligible Delaware Group and non-Delaware Group fund shares. When
eligible Delaware Group fund shares are exchanged into eligible non-Delaware
Group fund shares, the Limited CDSC will be imposed at the time of the exchange,
unless the joint venture agreement specifies that the amount of the Limited CDSC
will be paid by the financial adviser or selling dealer. See Contingent Deferred
Sales Charge for Certain Redemptions of Class A Shares Purchased at Net Asset
Value under Redemption and Exchange.
-16-
<PAGE>
CLASSES OF SHARES
Alternative Purchase Arrangements
Shares may be purchased at a price equal to the next determined net
asset value per share, subject to a sales charge which may be imposed, at the
election of the purchaser, at the time of the purchase for Class A Shares
("front-end sales charge alternative"), or on a contingent deferred basis for
Class B Shares ("deferred sales charge alternative") or Class C Shares ("level
sales charge alternative").
Class A Shares. An investor who elects the front-end sales charge
alternative acquires Class A Shares, which incur a sales charge when they are
purchased, but generally are not subject to any sales charge when they are
redeemed. Class A Shares are subject to annual 12b-1 Plan expenses of up to a
maximum of 0.30% of average daily net assets of such shares. Certain purchases
of Class A Shares qualify for reduced front-end sales charges. See Front-End
Sales Charge Alternative - Class A Shares, below. See also Contingent Deferred
Sales Charge for Certain Redemptions of Class A Shares Purchased at Net Asset
Value under Redemption and Exchange and Distribution (12b-1) and Service under
Management of the Funds.
Class B Shares. An investor who elects the deferred sales charge
alternative acquires Class B Shares, which do not incur a front-end sales charge
when they are purchased, but are subject to a contingent deferred sales charge
if they are redeemed within six years of purchase. Class B Shares are subject to
annual 12b-1 Plan expenses of up to a maximum of 1% (0.25% of which are service
fees to be paid to the Distributor, dealers or others for providing personal
service and/or maintaining shareholder accounts) of average daily net assets of
such shares for approximately eight years after purchase. Class B Shares permit
all of the investor's dollars to work from the time the investment is made. The
higher 12b-1 Plan expenses paid by Class B Shares will cause such shares to have
a higher expense ratio and to pay lower dividends than Class A Shares. At the
end of approximately eight years after purchase, the Class B Shares will
automatically be converted into Class A Shares and, thereafter, for the
remainder of the life of the investment, the annual 0.30% 12b-1 Plan fee for the
Class A Shares will apply. See Automatic Conversion of Class B Shares, below.
Class C Shares. An investor who elects the level sales charge
alternative acquires Class C Shares, which do not incur a front-end sales charge
when they are purchased, but are subject to a contingent deferred sales charge
if they are redeemed within 12 months of purchase. Class C Shares are subject to
annual 12b-1 Plan expenses of up to a maximum of 1% (0.25% of which are service
fees to be paid to the Distributor, dealers or others for providing personal
service and/or maintaining shareholder accounts) of average daily net assets of
such shares for the life of the investment. The higher 12b-1 Plan expenses paid
by Class C Shares will cause such shares to have a higher expense ratio and to
pay lower dividends than Class A Shares. Unlike Class B Shares, Class C Shares
do not convert to another class.
-17-
<PAGE>
The alternative purchase arrangements described above permit investors
to choose the method of purchasing shares that is most suitable given the amount
of their purchase, the length of time they expect to hold their shares and other
relevant circumstances. Investors should determine whether, given their
particular circumstances, it is more advantageous to purchase Class A Shares and
incur a front-end sales charge, purchase Class B Shares and have the entire
initial purchase amount invested in a Fund with their investment being subject
to a CDSC if they redeem shares within six years of purchase, or purchase Class
C Shares and have the entire initial purchase amount invested in a Fund with
their investment being subject to a CDSC if they redeem shares within 12 months
of purchase. In addition, investors should consider the level of annual 12b-1
Plan expenses applicable to each Class. The higher 12b-1 Plan expenses on Class
B Shares and Class C Shares will be offset to the extent a return is realized on
the additional money initially invested upon the purchase of such shares.
However, there can be no assurance as to the return, if any, that will be
realized on such additional money. In comparing Class B Shares to Class C
Shares, investors should also consider the desirability of an automatic
conversion feature, which is available only for Class B Shares.
Prospective investors should refer to Appendix A--Investment
Illustrations in this Prospectus for an illustration of the potential effect
that each of the purchase options may have on a long-term shareholder's
investment.
For the distribution and related services provided to, and the expenses
borne on behalf of, a Fund, the Distributor and others will be paid, in the case
of the Class A Shares, from the proceeds of the front-end sales charge and 12b-1
Plan fees and, in the case of the Class B Shares and the Class C Shares, from
the proceeds of the 12b-1 Plan fees and, if applicable, the CDSC incurred upon
redemption. Financial advisers may receive different compensation for selling
Class A, Class B and Class C Shares. Investors should understand that the
purpose and function of the respective 12b-1 Plans and the CDSCs applicable to
Class B Shares and Class C Shares are the same as those of the 12b-1 Plan and
the front-end sales charge applicable to Class A Shares in that such fees and
charges are used to finance the distribution of the respective Classes. See
12b-1 Distribution Plans - Class A, Class B and Class C Shares.
Dividends paid on Class A, Class B and Class C Shares, to the extent
any dividends are paid, will be calculated in the same manner, at the same time,
on the same day and will be in the same amount, except that, when assessed, the
additional amount of 12b-1 Plan expenses relating to Class B Shares and Class C
Shares will be borne exclusively by such shares. See Calculation of Offering
Price and Net Asset Value Per Share.
The NASD has adopted certain rules relating to investment company sales
charges. Equity Funds II, Inc. and the Distributor intend to operate in
compliance with these rules.
Front-End Sales Charge Alternative - Class A Shares
Class A Shares may be purchased at the offering price, which reflects a
maximum front-end sales charge of 4.75%. See Calculation of Offering Price and
Net Asset Value Per Share.
Purchases of $100,000 or more carry a reduced front-end sales charge as
shown in the following table.
-18-
<PAGE>
<TABLE>
<CAPTION>
Blue Chip Fund A Class
Quantum Fund A Class
- --------------------------------------------------------------------------------------------------------------------------
Dealer's
Front-End Sales Charge Commission***
as % of as % of
Offering Amount Offering
Amount of Purchase Price Invested** Price
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Blue
Chip Quantum
Fund Fund
Less than $100,000 4.75% 4.94% 4.94% 4.00%
$100,000 but
under $250,000 3.75 3.88 3.88 3.00
$250,000 but
under $500,000 2.50 2.59 2.59 2.00
$500,000 but
under $1,000,000* 2.00 2.00 2.00 1.60
</TABLE>
* There is no front-end sales charge on purchases of Class A Shares of $1
million or more but, under certain limited circumstances, a 1% Limited
CDSC may apply upon redemption of such shares.
** Based upon the initial net asset value of $8.50 per share of Class A
Shares of each Fund.
*** Financial institutions or their affiliated brokers may receive an
agency transaction fee in the percentages set forth above.
- --------------------------------------------------------------------------------
Blue Chip Fund or Quantum Fund, as appropriate, must be notified when a
sale takes place which would qualify for the reduced front-end sales
charge on the basis of previous or current purchases. The reduced
front-end sales charge will be granted upon confirmation of the
shareholder's holdings by such Fund. Such reduced front-end sales
charges are not retroactive.
From time to time, upon written notice to all of its dealers, the
Distributor may hold special promotions for specified periods during
which the Distributor may reallow to dealers up to the full amount of
the front-end sales charge shown above. In addition, certain dealers
who enter into an agreement to provide extra training and information
on Delaware Group products and services and who increase sales of
Delaware Group funds may receive an additional commission of up to
0.15% of the offering price. Dealers who receive 90% or more of the
sales charge may be deemed to be underwriters under the Securities Act
of 1933.
- --------------------------------------------------------------------------------
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<PAGE>
For initial purchases of Class A Shares of $1,000,000 or more, a
dealer's commission may be paid by the Distributor to financial advisers through
whom such purchases are made in accordance with the following schedule:
Dealer's Commission
-------------------
(as a percentage of
Amount of Purchase amount purchased)
------------------
Up to $2 million 1.00%
Next $1 million up to $3 million 0.75
Next $2 million up to $5 million 0.50
Amount over $5 million 0.25
In determining a financial adviser's eligibility for the dealer's
commission, purchases of Class A Shares of other Delaware Group funds as to
which a Limited CDSC applies may be aggregated with those of the Class A Shares
of a Fund. Financial advisers also may be eligible for a dealer's commission in
connection with certain purchases made under a Letter of Intention or pursuant
to an investor's Right of Accumulation. Financial advisers should contact the
Distributor concerning the applicability and calculation of the dealer's
commission in the case of combined purchases.
An exchange from other Delaware Group funds will not qualify for
payment of the dealer's commission, unless a dealer's commission or similar
payment has not been previously paid on the assets being exchanged. The schedule
and program for payment of the dealer's commission are subject to change or
termination at any time by the Distributor at its discretion.
Redemptions of Class A Shares purchased at net asset value may result
in the imposition of a Limited CDSC if the dealer's commission described above
was paid in connection with the purchase of those shares. See Contingent
Deferred Sales Charge for Certain Redemptions of Class A Shares Purchased at Net
Asset Value under Redemption and Exchange.
Combined Purchases Privilege
By combining your holdings of Class A Shares with your holdings of
Class B Shares and/or Class C Shares of a Fund and shares of the other funds in
the Delaware Group, except those noted below, you can reduce the front-end sales
charges on any additional purchases of Class A Shares. Shares of Delaware Group
Premium Fund, Inc. beneficially owned in connection with ownership of variable
insurance products may be combined with other Delaware Group fund holdings.
Shares of other funds that do not carry a front-end sales charge or CDSC may not
be included unless they were acquired through an exchange from a Delaware Group
fund that does carry a front-end sales charge or CDSC.
This privilege permits you to combine your purchases and holdings with
those of your spouse, your children under 21 and any trust, fiduciary or
retirement account for the benefit of such family members.
It also permits you to use these combinations under a Letter of
Intention. A Letter of Intention allows you to make purchases over a 13-month
period and qualify the entire purchase for a reduction in front-end sales
charges on Class A Shares.
-20-
<PAGE>
Combined purchases of $1,000,000 or more, including certain purchases
made at net asset value pursuant to a Right of Accumulation or under a Letter of
Intention, may result in the payment of a dealer's commission and the
applicability of a Limited CDSC. Investors should consult their financial
advisers or the Shareholder Service Center about the operation of these
features. See Front-End Sales Charge Alternative - Class A Shares, above.
Buying Class A Shares at Net Asset Value
Class A Shares may be purchased at net asset value under the Delaware
Group Dividend Reinvestment Plan and, under certain circumstances, the Exchange
Privilege and the 12-Month Reinvestment Privilege. See The Delaware Difference
and Redemption and Exchange for additional information.
Purchases of Class A Shares may be made at net asset value by current
and former officers, directors and employees (and members of their families) of
the Manager, any affiliate, any of the funds in the Delaware Group, certain of
their agents and registered representatives and employees of authorized
investment dealers and by employee benefit plans for such entities. Individual
purchases, including those in retirement accounts, must be for accounts in the
name of the individual or a qualifying family member.
Purchases of Class A Shares may also be made by clients of registered
representatives of an authorized investment dealer at net asset value within 12
months after the registered representative changes employment, if the purchase
is funded by proceeds from an investment where a front-end sales charge,
contingent deferred sales charge or other sales charge has been assessed.
Purchases of Class A Shares may also be made at net asset value by bank
employees who provide services in connection with agreements between the bank
and unaffiliated brokers or dealers concerning sales of shares of Delaware Group
funds. 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.
Investments in Class A Shares made by plan level and/or participant
retirement accounts that are for the purpose of repaying a loan taken from such
accounts will be made at net asset value. Loan repayments made to a Delaware
Group account in connection with loans originated from accounts previously
maintained by another investment firm will also be invested at net asset value.
Blue Chip Fund or Quantum Fund, as appropriate, must be notified in
advance that an investment qualifies for purchase at net asset value.
Group Investment Plans
Group Investment Plans (e.g., SEP/IRA, SAR/SEP, Prototype Profit
Sharing, Pension and 401(k) Defined Contribution Plans) may benefit from the
reduced front-end sales charges available on the Class A Shares set forth in the
table on page , based on total plan assets. In addition, 403(b)(7) and 457
Retirement Plan Accounts may benefit from a reduced front-end sales charge on
Class A Shares based on
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<PAGE>
the total amount invested by all participants in the plan by satisfying the
following criteria: (i) the employer for which the plan was established has 250
or more eligible employees and the plan lists only one broker of record, or (ii)
the plan includes employer contributions and the plan lists only one broker of
record. If a company has more than one plan investing in the Delaware Group of
funds, then the total amount invested in all plans will be aggregated to
determine the applicable front-end sales charge reduction on each purchase, both
initial and subsequent, if, at the time of each such purchase, the company
notifies the Fund in which it is investing that it qualifies for the reduction.
Employees participating in such Group Investment Plans may also combine the
investments held in their plan account to determine the front-end sales charge
applicable to purchases in non-retirement Delaware Group investment accounts if,
at the time of each such purchase, they notify the Fund in which they are
investing that they are eligible to combine purchase amounts held in their plan
account.
For additional information on retirement plans, including plan forms,
applications, minimum investments and any applicable account maintenance fees,
contact your investment dealer or the Distributor.
For other retirement plans and special services, see Retirement
Planning.
Deferred Sales Charge Alternative - Class B Shares
Class B Shares may be purchased at net asset value without a front-end
sales charge and, as a result, the full amount of the investor's purchase
payment will be invested in Fund shares. The Distributor currently anticipates
compensating dealers or brokers for selling Class B Shares at the time of
purchase from its own assets in an amount equal to no more than 4% of the dollar
amount purchased. In addition, from time to time, upon written notice to all of
its dealers, the Distributor may hold special promotions for specified periods
during which the Distributor may pay additional compensation to dealers or
brokers for selling Class B Shares at the time of purchase. As discussed below,
however, Class B Shares are subject to annual 12b-1 Plan expenses and, if
redeemed within six years of purchase, a CDSC.
Proceeds from the CDSC and the annual 12b-1 Plan fees, if any, are paid
to the Distributor and others for providing distribution and related services,
and bearing related expenses, in connection with the sale of Class B Shares.
These payments support the compensation paid to dealers or brokers for selling
Class B Shares. Payments to the Distributor and others under the Class B 12b-1
Plan may be in an amount equal to no more than 1% annually. The combination of
the CDSC and the proceeds of the 12b-1 Plan fees makes it possible for the Funds
to sell Class B Shares without deducting a front-end sales charge at the time of
purchase.
Holders of Class B Shares who exercise the exchange privilege described
below will continue to be subject to the CDSC schedule for the Class B Shares
described in this Prospectus, even after the exchange. Such CDSC schedule may be
higher than the CDSC schedule for the Class B Shares acquired as a result of the
exchange. See Redemption and Exchange.
Automatic Conversion of Class B Shares
Class B Shares, other than shares acquired through reinvestment of
dividends, held for eight years after purchase are eligible for automatic
conversion into Class A Shares. Conversions of Class B Shares into Class A
Shares will occur only four times in any calendar year, on the last business day
of the second
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<PAGE>
full week of March, June, September and December (each, a "Conversion Date"). If
the eighth anniversary after a purchase of Class B Shares falls on a Conversion
Date, an investor's Class B Shares will be converted on that date. If the eighth
anniversary occurs between Conversion Dates, an investor's Class B Shares will
be converted on the next Conversion Date after such anniversary. Consequently,
if a shareholder's eighth anniversary falls on the day after a Conversion Date,
that shareholder will have to hold Class B Shares for as long as three
additional months after the eighth anniversary of purchase before the shares
will automatically convert into Class A Shares.
Class B Shares of a fund acquired through a reinvestment of dividends
will convert to the corresponding Class A Shares of that fund (or, in the case
of Delaware Group Cash Reserve, Inc., the Delaware Cash Reserve Consultant
Class) pro-rata with Class B Shares of that fund not acquired through dividend
reinvestment.
All such automatic conversions of Class B Shares will constitute
tax-free exchanges for federal income tax purposes. See Taxes.
Level Sales Charge Alternative - Class C Shares
Class C Shares may be purchased at net asset value without a front-end
sales charge and, as a result, the full amount of the investor's purchase
payment will be invested in Fund shares. The Distributor currently anticipates
compensating dealers or brokers for selling Class C Shares at the time of
purchase from its own assets in an amount equal to no more than 1% of the dollar
amount purchased. As discussed below, however, Class C Shares are subject to
annual 12b-1 Plan expenses and, if redeemed within 12 months of purchase, a
CDSC.
Proceeds from the CDSC and the annual 12b-1 Plan fees, if any, are paid
to the Distributor and others for providing distribution and related services,
and bearing related expenses, in connection with the sale of Class C Shares.
These payments support the compensation paid to dealers or brokers for selling
Class C Shares. Payments to the Distributor and others under the Class C 12b-1
Plan may be in an amount equal to no more than 1% annually.
Holders of Class C Shares who exercise the exchange privilege described
below will continue to be subject to the CDSC schedule for the Class C Shares as
described in this Prospectus. See Redemption and Exchange.
Contingent Deferred Sales Charge - Class B Shares and Class C Shares
Class B Shares redeemed within six years of purchase may be subject to
a CDSC at the rates set forth below and Class C Shares redeemed within 12 months
of purchase may be subject to a CDSC of 1%. CDSCs are charged as a percentage of
the dollar amount subject to the CDSC. The charge will be assessed on an amount
equal to the lesser of the net asset value at the time of purchase of the shares
being redeemed or the net asset value of those shares at the time of redemption.
No CDSC will be imposed on increases in net asset value above the initial
purchase price, nor will a CDSC be assessed on redemptions of shares acquired
through reinvestments of dividends or capital gains distributions. For purposes
of this formula, the "net asset value at the time of purchase" will be the net
asset value at purchase of the Class B Shares or the Class C Shares of Blue Chip
Fund or Quantum Fund, as the case may be, even if those shares are later
exchanged for shares of another Delaware Group fund. In the event of an exchange
of the shares, the "net asset value of such shares at the time of redemption"
will be the net asset value of the shares that were acquired in the exchange.
-23-
<PAGE>
The following table sets forth the rates of the CDSC for the Class B
Shares of the Funds:
Contingent Deferred
Sales Charge (as a
Percentage of
Dollar Amount
Year After Purchase Made Subject to Charge)
------------------------ -----------------
0-2 4%
3-4 3%
5 2%
6 1%
7 and thereafter None
During the seventh year after purchase and, thereafter, until converted
automatically into Class A Shares, Class B Shares will still be subject to the
annual 12b-1 Plan expenses of up to 1% of average daily net assets of those
shares. See Automatic Conversion of Class B Shares, above. Investors are
reminded that the Class A Shares into which the Class B Shares will convert are
subject to ongoing annual 12b-1 Plan expenses of up to a maximum of 0.30% of
average daily net assets of such shares.
In determining whether a CDSC applies to a redemption of Class B
Shares, it will be assumed that shares held for more than six years are redeemed
first, followed by shares acquired through the reinvestment of dividends or
distributions, and finally by shares held longest during the six-year period.
With respect to Class C Shares, it will be assumed that shares held for more
than 12 months are redeemed first followed by shares acquired through the
reinvestment of dividends or distributions, and finally by shares held for 12
months or less.
All investments made during a calendar month, regardless of what day of
the month the investment occurred, will age one month on the last day of that
month and each subsequent month.
The CDSC is waived on certain redemptions of Class B Shares and Class C
Shares. See Waiver of Contingent Deferred Sales Charge - Class B and Class C
Shares under Redemption and Exchange.
Other Payments to Dealers -- Class A, Class B and Class C Shares
From time to time at the discretion of the Distributor, all registered
broker/dealers whose aggregate sales of the Classes exceed certain limits, as
set by the Distributor, may receive from the Distributor an additional payment
of up to 0.25% of the dollar amount of such sales. The Distributor may also
provide additional promotional incentives or payments to dealers that sell
shares of the Delaware Group of funds. In some instances, these incentives or
payments may be offered only to certain dealers who maintain, have sold or may
sell certain amounts of shares. From time to time at the discretion of the
Distributor, the Distributor may pay LNC Equity Sales Representatives 100% of
the sales charge on purchases of Class A Shares and an additional 0.80% on
purchases of Class B Shares.
Subject to pending amendments to the NASD's Rules of Fair Practice, in
connection with the promotion of Delaware Group fund shares, the Distributor
may, from time to time, pay to participate in dealer-sponsored seminars and
conferences, reimburse dealers for expenses incurred in connection with
preapproved seminars, conferences and advertising and may, from time to time,
pay or allow additional
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promotional incentives to dealers, which shall include non-cash concessions,
such as certain luxury merchandise or a trip to or attendance at a business or
investment seminar at a luxury resort, as part of preapproved sales contests.
Payment of non-cash compensation to dealers is currently under review by the
NASD and the Securities and Exchange Commission. It is likely that the NASD's
Rules of Fair Practice will be amended such that the ability of the Distributor
to pay non-cash compensation as described above will be restricted in some
fashion. The Distributor intends to comply with the NASD's Rules of Fair
Practice as they may be amended.
Blue Chip Fund Institutional Class and Quantum Fund Institutional Class
In addition to offering the Class A, Class B and Class C Shares, Blue
Chip Fund also offers the Blue Chip Fund Institutional Class and Quantum Fund
also offers the Quantum Fund Institutional Class, which are described in a
separate prospectus and is available for purchase only by certain investors.
Blue Chip Fund Institutional Class shares and Quantum Fund Institutional Class
shares generally are distributed directly by the Distributor and do not have a
front-end sales charge, a CDSC or a Limited CDSC, and are not subject to 12b-1
Plan distribution expenses. To obtain the prospectus that describes the Blue
Chip Fund Institutional Class and the Quantum Fund Institutional Class, contact
the Distributor by writing to the address or by calling the telephone number
listed on the back of this Prospectus.
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HOW TO BUY SHARES
Purchase Amounts
Generally, the minimum initial purchase is $1,000 for Class A Shares,
Class B Shares and Class C Shares. Subsequent purchases of shares of any Class
generally must be $100 or more. For purchases under a Uniform Gifts to Minors
Act or Uniform Transfers to Minors Act or through an Automatic Investing Plan,
there is a minimum initial purchase of $250 and a minimum subsequent purchase of
$25. Minimum purchase requirements do not apply to retirement plans other than
IRAs, for which there is a minimum initial purchase of $250, and a minimum
subsequent purchase of $25, regardless of which Class is selected.
There is a maximum purchase limitation of $250,000 on each purchase of
Class B Shares. For Class C Shares, each purchase must be in an amount that is
less than $1,000,000. An investor may exceed these maximum purchase limitations
by making cumulative purchases over a period of time. In doing so, an investor
should keep in mind that reduced front-end sales charges are available on
investments of $100,000 or more in Class A Shares, and that Class A Shares (i)
are subject to lower annual 12b-1 Plan expenses than Class B Shares and Class C
Shares and (ii) generally are not subject to a CDSC. For retirement plans, the
maximum purchase limitations apply only to the initial purchase of Class B
Shares or Class C Shares by the plan.
Investing through Your Investment Dealer
You can make a purchase of shares of the Funds through most investment
dealers who, as part of the service they provide, must transmit orders promptly.
They may charge for this service. If you want a dealer but do not have one, we
can refer you to one.
Investing by Mail
1. Initial Purchases--An Investment Application or, in the case of a retirement
account, an appropriate retirement plan application, must be completed, signed
and sent with a check payable to specific Fund and Class selected, to Delaware
Group at 1818 Market Street, Philadelphia, PA 19103.
2. Subsequent Purchases--Additional purchases may be made at any time by mailing
a check payable to the specific Fund and Class selected. Your check should be
identified with your name(s) and account number. An investment slip (similar to
a deposit slip) is provided at the bottom of transaction confirmations and
dividend statements that you will receive from Equity Funds II, Inc. Use of this
investment slip can help expedite processing of your check when making
additional purchases. Your investment may be delayed if you send additional
purchases by certified mail.
Investing by Wire
You may purchase shares by requesting your bank to transmit funds by
wire to CoreStates Bank, N.A., ABA #031000011, account number 1412893401
(include your name(s) and your account number for the Fund and Class in which
you are investing).
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1. Initial Purchases--Before you invest, telephone the Shareholder Service
Center to get an account number. If you do not call first, processing of your
investment may be delayed. In addition, you must promptly send your Investment
Application or, in the case of a retirement account, an appropriate retirement
plan application, to the specific Fund and Class selected, to Delaware Group at
1818 Market Street, Philadelphia, PA 19103.
2. Subsequent Purchases--You may make additional investments anytime by wiring
funds to CoreStates Bank, N.A., as described above. You should advise the
Shareholder Service Center by telephone of each wire you send.
If you want to wire investments to a retirement plan account, call the
Shareholder Service Center for special wiring instructions.
Investing by Exchange
If you have an investment in another mutual fund in the Delaware Group,
you may write and authorize an exchange of part or all of your investment into
shares of either Fund. If you wish to open an account by exchange, call the
Shareholder Service Center for more information. All exchanges are subject to
the eligibility and minimum purchase requirements set forth in each fund's
prospectus. See Redemption and Exchange for more complete information concerning
your exchange privilege.
Holders of Class A Shares may exchange all or part of their shares for
certain of the shares of other funds in the Delaware Group, including other
Class A Shares, but may not exchange their Class A Shares for Class B Shares or
Class C Shares of either Fund or of any other fund in the Delaware Group.
Holders of Class B Shares of a Fund are permitted to exchange all or part of
their Class B Shares only into Class B Shares of other Delaware Group funds.
Similarly, holders of Class C Shares of a Fund are permitted to exchange all or
part of their Class C Shares only into Class C Shares of other Delaware Group
funds. See Appendix B--Classes Offered for a list of funds that offer Class A,
Class B, Class C and Consultant Class Shares. Class B Shares of a Fund and Class
C Shares of a Fund acquired by exchange will continue to carry the CDSC and, in
the case of Class B Shares, the automatic conversion schedule of the fund from
which the exchange is made. The holding period of Class B Shares of a Fund
acquired by exchange will be added to that of the shares that were exchanged for
purposes of determining the time of the automatic conversion into Class A Shares
of that Fund.
Permissible exchanges into Class A Shares of a Fund will be made
without a front-end sales charge, except for exchanges of shares that were not
previously subject to a front-end sales charge (unless such shares were acquired
through the reinvestment of dividends). Permissible exchanges into Class B
Shares or Class C Shares of a Fund will be made without the imposition of a CDSC
by the fund from which the exchange is being made at the time of the exchange.
See Allied Plans under Retirement Planning for information on exchanges
by participants in an Allied Plan.
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Additional Methods of Adding to Your Investment
Call the Shareholder Service Center for more information if you wish to
use the following services:
1. Automatic Investing Plan
The Automatic Investing Plan enables you to make regular monthly
investments without writing or mailing checks. You may authorize Equity Funds
II, Inc. to transfer a designated amount monthly from your checking account to
your Fund account. Many shareholders use this as an automatic savings plan.
Shareholders should allow a reasonable amount of time for initial purchases and
changes to these plans to become effective.
This option is not available to participants in the following plans:
SAR/SEP, SEP/IRA, Profit Sharing and Money Purchase Pension Plans, 401(k)
Defined Contribution Plans, 403(b)(7) Deferred Compensation Plans or 457
Deferred Compensation Plans.
2. Direct Deposit
You may have your employer or bank make regular investments directly to
your Fund account for you (for example: payroll deduction, pay by phone, annuity
payments). Each Fund also accepts preauthorized recurring government and private
payments by Electronic Fund Transfer, which avoids mail time and check clearing
holds on payments such as social security, federal salaries, Railroad Retirement
benefits, etc.
* * *
Should investments through an automatic investing plan or by direct
deposit be reclaimed or returned for some reason, Equity Funds II, Inc. has the
right to liquidate your shares to reimburse the government or transmitting bank.
If there are insufficient funds in your account, you are obligated to reimburse
the Fund.
3. Wealth Builder Option
You can use our Wealth Builder Option to invest in a Fund through
regular liquidations of shares in your accounts in other funds in the Delaware
Group. You may also elect to invest in other mutual funds in the Delaware Group
through the Wealth Builder Option through regular liquidations of shares in your
Fund account.
Under this automatic exchange program, you can authorize regular
monthly amounts (minimum of $100 per fund) to be liquidated from your account in
one or more funds in the Delaware Group and invested automatically into any
other Delaware Group account that you may specify. If in connection with the
election of the Wealth Builder Option, you wish to open a new account to receive
the automatic investment, such new account must meet the minimum initial
purchase requirements described in the prospectus of the fund that you select.
All investments under this option are exchanges and are therefore subject to the
same conditions and limitations as other exchanges noted above. You can
terminate your participation at any time by written notice to the fund from
which the exchanges are made. See Redemption and Exchange.
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This option is not available to participants in the following plans:
SAR/SEP, SEP/IRA, Profit Sharing and Money Purchase Pension Plans, 401(k)
Defined Contribution Plans, 403(b)(7) Deferred Compensation Plans or 457
Deferred Compensation Plans.
4. Dividend Reinvestment Plan
You can elect to have your distributions (capital gains and/or dividend
income) paid to you by check or reinvested in your Fund account. Or, you may
invest your distributions in certain other funds in the Delaware Group, subject
to the exceptions noted below as well as the eligibility and minimum purchase
requirements set forth in each fund's prospectus.
Reinvestments of distributions into Class A Shares of a Fund or of
other Delaware Group funds are made without a front-end sales charge.
Reinvestments of distributions into Class B Shares of a Fund or of other
Delaware Group funds or into Class C Shares of a Fund or of other Delaware Group
funds are also made without any sales charge and will not be subject to a CDSC
if later redeemed. See Automatic Conversion of Class B Shares under Classes of
Shares for information concerning the automatic conversion of Class B Shares
acquired by reinvesting dividends.
Holders of Class A Shares of a Fund may not reinvest their
distributions into Class B Shares or Class C Shares of any fund in the Delaware
Group, including the Funds. Holders of Class B Shares of a Fund may reinvest
their distributions only into Class B Shares of the funds in the Delaware Group
which offer that class of shares. Similarly, holders of Class C Shares of a Fund
may reinvest their distributions only into Class C Shares of the funds in the
Delaware Group which offer that class of shares. See Appendix B--Classes Offered
for a list of the funds offering those classes of shares. For more information
about reinvestments, call the Shareholder Service Center.
Distributions for capital gains and/or dividends for participants in
the following retirement plans are automatically reinvested into the same
Delaware Group fund: SAR/SEP, SEP/IRA, Profit Sharing, Money Purchase Pension,
401(k), 403(b)(7), or 457 Plans.
Delaware Group Asset Planner
To invest in Delaware Group funds using the Delaware Group Asset
Planner asset allocation service, you should complete a Delaware Group Asset
Planner Account Registration Form, which is available only from a financial
adviser or investment dealer. As previously described, the Delaware Group Asset
Planner service offers a choice of four predesigned asset allocation strategies
(each with a different risk/reward profile) in predetermined percentages in
Delaware Group funds. Or, with the help of a financial adviser, you may design a
customized asset allocation strategy.
The sales charge on an investment through the Asset Planner service is
determined by the individual sales charges of the underlying funds and their
percentage allocation in the selected Strategy. Exchanges from existing Delaware
Group accounts into the Asset Planner service may be made at net asset value
under the circumstances described under Investing by Exchange, above. The
minimum initial investment per Strategy is $2,000; subsequent investments must
be at least $100. Individual fund minimums do not apply to investments made
using the Asset Planner service. Class A, Class B and Class C Shares are
available through the Asset Planner service. Generally, only shares within the
same class may be used within the same Strategy. However, Class A Shares of a
Fund and of other funds in the Delaware Group may be used in the same Strategy
with consultant class shares that are offered by certain
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other Delaware Group funds. See Appendix B--Classes Offered for the funds in the
Delaware Group that offer consultant class shares.
An annual maintenance fee, currently $35 per Strategy, is typically due
at the time of initial investment and by September 30th of each subsequent year.
The fee, payable to Delaware Service Company, Inc. to defray extra costs
associated with administering the Asset Planner service, will be deducted
automatically from one of the funds within your Asset Planner account if not
paid by September 30th. However, effective November 1, 1996, the annual fee will
be waived until further notice. Investors who utilize the Asset Planner for an
IRA will continue to pay an annual IRA fee of $15 per Social Security number.
See Part B.
Investors will receive a customized quarterly Strategy Report
summarizing all Delaware Group Asset Planner investment performance and account
activity during the prior period. Confirmation statements will be sent following
all transactions other than those involving a reinvestment of distributions.
Certain shareholder services are not available to investors using the
Asset Planner service, due to its special design. These include Delaphone,
Checkwriting, Wealth Builder Option and Letter of Intention. Systematic
Withdrawal Plans are available after the account has been open for two years.
Purchase Price and Effective Date
The offering price and net asset value of the Class A, Class B and
Class C Shares are determined as of the close of regular trading on the New York
Stock Exchange (ordinarily, 4 p.m., Eastern time) on days when the Exchange is
open.
The effective date of a purchase made through an investment dealer is
the date the order is received by the Fund in which the shares are being
purchased. The effective date of a direct purchase is the day your wire,
electronic transfer or check is received unless it is received after the time
the offering price or net asset value of shares is determined, as noted above.
Purchase orders received after such time will be effective the next business
day.
The Conditions of Your Purchase
Each Fund reserves the right to reject any purchase order. If a
purchase is canceled because your check is returned unpaid, you are responsible
for any loss incurred. Each Fund can redeem shares from your account(s) to
reimburse itself for any loss, and you may be restricted from making future
purchases in any of the funds in the Delaware Group. Each Fund reserves the
right to reject purchase orders paid by third-party checks or checks that are
not drawn on a domestic branch of a United States financial institution. If a
check drawn on a foreign financial institution is accepted, you may be subject
to additional bank charges for clearance and currency conversion.
Each Fund also reserves the right, following shareholder notification,
to charge a service fee on non-retirement accounts that, as a result of a
redemption, have remained below the minimum stated account balance for a period
of three or more consecutive months. Holders of such accounts may be notified of
their insufficient account balance and advised that they have until the end of
the current calendar quarter to raise their balance to the stated minimum. If
the account has not reached the minimum balance requirement by that time, the
Fund in which the account is held will charge a $9 fee for that quarter and each
subsequent calendar quarter until the account is brought up to the minimum
balance.
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The service fee will be deducted from the account during the first week of each
calendar quarter for the previous quarter, and will be used to help defray the
cost of maintaining low-balance accounts. No fees will be charged without proper
notice, and no CDSC will apply to such assessments.
Each Fund also reserves the right, upon 60 days' written notice, to
involuntarily redeem accounts that remain under the minimum initial purchase
amount as a result of redemptions. An investor making the minimum initial
investment may be subject to involuntary redemption without the imposition of a
CDSC or Limited CDSC if he or she redeems any portion of his or her account.
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REDEMPTION AND EXCHANGE
You can redeem or exchange your shares in a number of different ways.
The exchange service is useful if your investment requirements change and you
want an easy way to invest in other equity funds, bond funds, tax-advantaged
funds or money market funds. This service is also useful if you are anticipating
a major expenditure and want to move a portion of your investment into a fund
that has the checkwriting feature. Exchanges are subject to the requirements of
each fund and all exchanges of shares constitute taxable events. See Taxes.
Further, in order for an exchange to be processed, shares of the fund being
acquired must be registered in the state where the acquiring shareholder
resides. You may want to consult your financial adviser or investment dealer to
discuss which funds in the Delaware Group will best meet your changing
objectives, and the consequences of any exchange transaction. You may also call
the Delaware Group directly for fund information.
All exchanges involve a purchase of shares of the fund into which the
exchange is made. As with any purchase, an investor should obtain and carefully
read that fund's prospectus before buying shares in an exchange. The prospectus
contains more complete information about the fund, including charges and
expenses.
Your shares will be redeemed or exchanged at a price based on the net
asset value next determined after the Fund receives your request in good order,
subject, in the case of a redemption, to any applicable CDSC or Limited CDSC.
For example, redemption or exchange requests received in good order after the
time the offering price and net asset value of shares are determined will be
processed on the next business day. See Purchase Price and Effective Date under
How to Buy Shares. A shareholder submitting a redemption request may indicate
that he or she wishes to receive redemption proceeds of a specific dollar
amount. In the case of such a request, and in the case of certain redemptions
from retirement plan accounts, the Fund will redeem the number of shares
necessary to deduct the applicable CDSC in the case of Class B and Class C
Shares, and, if applicable, the Limited CDSC in the case of Class A Shares and
tender to the shareholder the requested amount, assuming the shareholder holds
enough shares in his or her account for the redemption to be processed in this
manner. Otherwise, the amount tendered to the shareholder upon redemption will
be reduced by the amount of the applicable CDSC or Limited CDSC. Redemption
proceeds will be distributed promptly, as described below, but not later than
seven days after receipt of a redemption request.
Except as noted below, for a redemption request to be in "good order,"
you must provide your account number, account registration, and the total number
of shares or dollar amount of the transaction. For exchange requests, you must
also provide the name of the fund you want to receive the proceeds. Exchange
instructions and redemption requests must be signed by the record owner(s)
exactly as the shares are registered. You may request a redemption or an
exchange by calling the Shareholder Service Center at 800-523-1918. Each Fund
may suspend, terminate, or amend the terms of the exchange privilege upon 60
days' written notice to shareholders.
Each Fund will process written and telephone redemption requests to the
extent that the purchase orders for the shares being redeemed have already
settled. Each Fund will honor redemption requests as to shares for which a check
was tendered as payment, but neither Fund will not mail or wire the proceeds
until it is reasonably satisfied that the check has cleared, which may take up
to 15 days from the purchase date. You can avoid this potential delay if you
purchase shares by wiring Federal Funds. Each Fund
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reserves the right to reject a written or telephone redemption request or delay
payment of redemption proceeds if there has been a recent change to the
shareholder's address of record.
There is no front-end sales charge or fee for exchanges made between
shares of funds which both carry a front-end sales charge. Any applicable
front-end sales charge will apply to exchanges from shares of funds not subject
to a front-end sales charge, except for exchanges involving assets that were
previously invested in a fund with a front-end sales charge and/or exchanges
involving the reinvestment of dividends.
Holders of Class B Shares or Class C Shares that exchange their shares
("Original Shares") for shares of other funds in the Delaware Group (in each
case, "New Shares") in a permitted exchange, will not be subject to a CDSC that
might otherwise be due upon redemption of the Original Shares. However, such
shareholders will continue to be subject to the CDSC and, in the case of Class B
Shares, the automatic conversion schedule of the Original Shares as described in
this Prospectus and any CDSC assessed upon redemption will be charged by the
Fund from which the Original Shares were exchanged. In an exchange of Class B
Shares from Blue Chip Fund or Quantum Fund, such Fund's CDSC schedule may be
higher than the CDSC schedule relating to the New Shares acquired as a result of
the exchange. For purposes of computing the CDSC that may be payable upon a
disposition of the New Shares, the period of time that an investor held the
Original Shares is added to the period of time that an investor held the New
Shares. With respect to Class B Shares, the automatic conversion schedule of the
Original Shares may be longer than that of the New Shares. Consequently, an
investment in New Shares by exchange may subject an investor to the higher 12b-1
fees applicable to Class B Shares of either Fund for a longer period of time
than if the investment in New Shares were made directly.
Various redemption and exchange methods are outlined below. Except for
the CDSC applicable to certain redemptions of Class B and Class C Shares and the
Limited CDSC applicable to certain redemptions of Class A Shares purchased at
net asset value, there is no fee charged by either Fund or the Distributor for
redeeming or exchanging your shares, but such fees could be charged in the
future. You may have your investment dealer arrange to have your shares redeemed
or exchanged. Your investment dealer may charge for this service.
All authorizations given by shareholders, including selection of any of
the features described below, shall continue in effect until such time as a
written revocation or modification has been received by the Fund to which the
authorization relates or its agent.
Written Redemption
You can write to each Fund at 1818 Market Street, Philadelphia, PA
19103 to redeem some or all of your shares. The request must be signed by all
owners of the account or your investment dealer of record. For redemptions of
more than $50,000, or when the proceeds are not sent to the shareholder(s) at
the address of record, the Funds requires a signature by all owners of the
account and a signature guarantee for each owner. Each signature guarantee must
be supplied by an eligible guarantor institution. The Funds reserves the right
to reject a signature guarantee supplied by an eligible institution based on its
creditworthiness. The Funds may require further documentation from corporations,
executors, retirement plans, administrators, trustees or guardians.
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Payment is normally mailed the next business day after receipt of your
redemption request. If your Class A Shares are in certificate form, the
certificate must accompany your request and also be in good order. Certificates
are issued for Class A Shares only if a shareholder submits a specific request.
Certificates are not issued for Class B Shares or Class C Shares.
Written Exchange
You may also write to each Fund (at 1818 Market Street, Philadelphia,
PA 19103) to request an exchange of any or all of your shares into another
mutual fund in the Delaware Group, subject to the same conditions and
limitations as other exchanges noted above.
Telephone Redemption and Exchange
To get the added convenience of the telephone redemption and exchange
methods, you must have the Transfer Agent hold your shares (without charge) for
you. If you choose to have your Class A Shares in certificate form, you may
redeem or exchange only by written request and you must return your
certificates.
The Telephone Redemption--Check to Your Address of Record service and
the Telephone Exchange service, both of which are described below, are
automatically provided unless you notify the Fund in which you have your account
in writing that you do not wish to have such services available with respect to
your account. Each Fund reserves the right to modify, terminate or suspend these
procedures upon 60 days' written notice to shareholders. It may be difficult to
reach the Funds by telephone during periods when market or economic conditions
lead to an unusually large volume of telephone requests.
Neither the Funds nor their Transfer Agent is responsible for any
shareholder loss incurred in acting upon written or telephone instructions for
redemption or exchange of Fund shares which are reasonably believed to be
genuine. With respect to such telephone transactions, each Fund will follow
reasonable procedures to confirm that instructions communicated by telephone are
genuine (including verification of a form of personal identification) as, if it
does not, such Fund or the Transfer Agent may be liable for any losses due to
unauthorized or fraudulent transactions. Instructions received by telephone are
generally tape recorded, and a written confirmation will be provided for all
purchase, exchange and redemption transactions initiated by telephone. By
exchanging shares by telephone, you are acknowledging prior receipt of a
prospectus for the fund into which your shares are being exchanged.
Telephone Redemption--Check to Your Address of Record
The Telephone Redemption feature is a quick and easy method to redeem
shares. You or your investment dealer of record can have redemption proceeds of
$50,000 or less mailed to you at your address of record. Checks will be payable
to the shareholder(s) of record. Payment is normally mailed the next business
day after receipt of the redemption request. This service is only available to
individual, joint and individual fiduciary-type accounts.
Telephone Redemption--Proceeds to Your Bank
Redemption proceeds of $1,000 or more can be transferred to your
predesignated bank account by wire or by check. You should authorize this
service when you open your account. If you change your predesignated bank
account, you must complete an Authorization Form and have your signature
guaranteed. For your protection, your authorization must be on file. If you
request a wire, your funds
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will normally be sent the next business day. CoreStates Bank, N.A.'s fee
(currently $7.50) will be deducted from your redemption. If you ask for a check,
it will normally be mailed the next business day after receipt of your
redemption request to your predesignated bank account. There are no separate
fees for this redemption method, but the mail time may delay getting funds into
your bank account. Simply call the Shareholder Service Center prior to the time
the offering price and net asset value are determined, as noted above.
Telephone Exchange
The Telephone Exchange feature is a convenient and efficient way to
adjust your investment holdings as your liquidity requirements and investment
objectives change. You or your investment dealer of record can exchange your
shares into other funds in the Delaware Group under the same registration,
subject to the same conditions and limitations as other exchanges noted above.
As with the written exchange service, telephone exchanges are subject to the
requirements of each fund, as described above. Telephone exchanges may be
subject to limitations as to amounts or frequency.
Systematic Withdrawal Plans
1. Regular Plans
This plan provides shareholders with a consistent monthly (or
quarterly) payment. This is particularly useful to shareholders living on fixed
incomes, since it can provide them with a stable supplemental amount. With
accounts of at least $5,000, you may elect monthly withdrawals of $25 (quarterly
$75) or more. The Funds do not recommend any particular monthly amount, as each
shareholder's situation and needs vary. Payments are normally made by check. In
the alternative, you may elect to have your payments transferred from your Fund
account to your predesignated bank account through the MoneyLine Direct Deposit
Service. Your funds will normally be credited to your bank account two business
days after the payment date. There are no separate fees for this redemption
method. See MoneyLine Direct Deposit Service under The Delaware Difference for
more information about this service.
2. Retirement Plans
For shareholders eligible under the applicable retirement plan to
receive benefits in periodic payments, the Systematic Withdrawal Plan provides
you with maximum flexibility. A number of formulas are available for calculating
your withdrawals depending upon whether the distributions are required or
optional. Withdrawals must be for $25 or more; however, no minimum account
balance is required. The MoneyLine Direct Deposit Service described above is not
available for certain retirement plans.
* * *
Shareholders should not purchase additional shares while participating
in a Systematic Withdrawal Plan.
Redemptions of Class A Shares via a Systematic Withdrawal Plan may be
subject to a Limited CDSC if the original purchase was made at net asset value
within the 12 months prior to the withdrawal and a dealer's commission was paid
on that purchase. See Contingent Deferred Sales Charge for Certain Redemptions
of Class A Shares Purchased at Net Asset Value, below.
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The applicable CDSC for Class B Shares and Class C Shares redeemed via
a Systematic Withdrawal Plan will be waived if, on the date that the Plan is
established, the annual amount selected to be withdrawn is less than 12% of the
account balance. If the annual amount selected to be withdrawn exceeds 12% of
the account balance on the date that the Systematic Withdrawal Plan is
established, all redemptions under the Plan will be subject to the applicable
CDSC. Whether a waiver of the CDSC is available or not, the first shares to be
redeemed for each Systematic Withdrawal Plan payment will be those not subject
to a CDSC because they have either satisfied the required holding period or were
acquired through the reinvestment of distributions. The 12% annual limit will be
reset on the date that any Systematic Withdrawal Plan is modified (for example,
a change in the amount selected to be withdrawn or the frequency or date of
withdrawals), based on the balance in the account on that date. See Waiver of
Contingent Deferred Sales Charge - Class B and Class C Shares, below.
For more information on Systematic Withdrawal Plans, call the
Shareholder Service Center.
Contingent Deferred Sales Charge for Certain Redemptions of Class A Shares
Purchased at Net Asset Value
A Limited CDSC will be imposed on certain redemptions of Class A Shares
(or shares into which such Class A Shares are exchanged) made within 12 months
of purchase, if such purchases were made at net asset value and triggered the
payment by the Distributor of the dealer's commission previously described. See
Classes of Shares.
The Limited CDSC will be paid to the Distributor and will be equal to
the lesser of 1% of: (1) the net asset value at the time of purchase of the
Class A Shares being redeemed; or (2) the net asset value of such Class A Shares
at the time of redemption. For purposes of this formula, the "net asset value at
the time of purchase" will be the net asset value at purchase of the Class A
Shares even if those shares are later exchanged for shares of another Delaware
Group fund and, in the event of an exchange of Class A Shares, the "net asset
value of such shares at the time of redemption" will be the net asset value of
the shares acquired in the exchange.
Redemptions of such Class A Shares held for more than 12 months will
not be subjected to the Limited CDSC and an exchange of such Class A Shares into
another Delaware Group fund will not trigger the imposition of the Limited CDSC
at the time of such exchange. The period a shareholder owns shares into which
Class A Shares are exchanged will count towards satisfying the 12-month holding
period. The Limited CDSC is assessed if such 12-month period is not satisfied
irrespective of whether the redemption triggering its payment is of Class A
Shares of a Fund or Class A Shares acquired in the exchange.
In determining whether a Limited CDSC is payable, it will be assumed
that shares not subject to the Limited CDSC are the first redeemed followed by
other shares held for the longest period of time. The Limited CDSC will not be
imposed upon shares representing reinvested dividends or capital gains
distributions, or upon amounts representing share appreciation. All investments
made during a calendar month, regardless of what day of the month the investment
occurred, will age one month on the last day of that month and each subsequent
month.
Waiver of Limited Contingent Deferred Sales Charge - Class A Shares
The Limited CDSC for Class A Shares on which a dealer's commission has
been paid will be waived in the following instances: (i) redemptions that result
from a Fund's right to liquidate a
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<PAGE>
shareholder's account if the aggregate net asset value of the shares held in the
account is less than the then-effective minimum account size; (ii) distributions
to participants from a retirement plan qualified under section 401(a) or 401(k)
of the Internal Revenue Code of 1986, as amended (the "Code"), or due to death
of a participant in such a plan; (iii) redemptions pursuant to the direction of
a participant or beneficiary of a retirement plan qualified under section 401(a)
or 401(k) of the Code with respect to that retirement plan; (iv) distributions
from a section 403(b)(7) Plan or an IRA due to death, disability, or attainment
of age 59 1/2; (v) returns of excess contributions to an IRA; (vi) distributions
by other employee benefit plans to pay benefits; (vii) distributions described
in (ii), (iv), and (vi) above pursuant to a systematic withdrawal plan; and
(viii) redemptions by the classes of shareholders who are permitted to purchase
shares at net asset value, regardless of the size of the purchase (see Buying
Class A Shares at Net Asset Value under Classes of Shares).
Waiver of Contingent Deferred Sales Charge - Class B and Class C Shares
The CDSC is waived on certain redemptions of Class B Shares in
connection with the following redemptions: (i) redemptions that result from a
Fund's right to liquidate a shareholder's account if the aggregate net asset
value of the shares held in the account is less than the then-effective minimum
account size; (ii) returns of excess contributions to an IRA or 403(b)(7)
Deferred Compensation Plan; (iii) required minimum distributions from an IRA,
403(b)(7) Deferred Compensation Plan or 457 Deferred Compensation Plan; and (iv)
distributions from an account if the redemption results from the death of all
registered owners of the account (in the case of accounts established under the
Uniform Gifts to Minors or Uniform Transfers to Minors Acts or trust accounts,
the waiver applies upon the death of all beneficial owners) or a total and
permanent disability (as defined in Section 72 of the Code) of all registered
owners occurring after the purchase of the shares being redeemed.
The CDSC on Class C Shares is waived in connection with the following
redemptions: (i) redemptions that result from a Fund's right to liquidate a
shareholder's account if the aggregate net asset value of the shares held in the
account is less than the then-effective minimum account size; (ii) returns of
excess contributions to an IRA, 403(b)(7) Deferred Compensation Plan, Profit
Sharing Plan, Money Purchase Pension Plan or 401(k) Defined Contribution Plan;
(iii) required minimum distributions from an IRA, 403(b)(7) Deferred
Compensation Plan, 457 Deferred Compensation Plan, Profit Sharing Plan, Money
Purchase Pension Plan or 401(k) Defined Contribution Plan; (iv) distributions
from a 403(b)(7) Deferred Compensation Plan, 457 Deferred Compensation Plan,
Profit Sharing Plan, or 401(k) Defined Contribution Plan, under hardship
provisions of the plan; (v) distributions from a 403(b)(7) Deferred Compensation
Plan, 457 Deferred Compensation Plan, Profit Sharing Plan, Money Purchase
Pension Plan or a 401(k) Defined Contribution Plan upon attainment of normal
retirement age under the plan or upon separation from service; (vi)
distributions from an IRA on or after attainment of age 59 1/2; and (vii)
distributions from an account if the redemption results from the death of all
registered owners of the account (in the case of accounts established under the
Uniform Gifts to Minors or Uniform Transfers to Minors Acts or trust accounts,
the waiver applies upon the death of all beneficial owners) or a total and
permanent disability (as defined in Section 72 of the Code) of all registered
owners occurring after the purchase of the shares being redeemed.
In addition, the CDSC will be waived on Class B and Class C Shares
redeemed in accordance with a Systematic Withdrawal Plan if the annual amount
selected to be withdrawn under the Plan does not exceed 12% of the value of the
account on the date that the Systematic Withdrawal Plan was established or
modified.
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<PAGE>
DIVIDENDS AND DISTRIBUTIONS
Equity Funds II, Inc. currently intends to make quarterly payments from
Blue Chip Fund's net investment income and annual payments from Quantum Fund's
net investment income; provided, however, that no such payments will be made
with respect to Blue Chip Fund prior to June 1997. Payments from a Fund's net
realized security profits will be made during the first quarter of the next
fiscal year.
Each class of a Fund will share proportionately in the investment
income and expenses of that Fund, except that the per share dividends from net
investment income on the Class A Shares, the Class B Shares and the Class C
Shares will vary due to the expenses under the 12b-1 Plan applicable to each
Class. Generally, the dividends per share on Class B Shares and Class C Shares
can be expected to be lower than the dividends per share on Class A Shares
because the expenses under the 12b-1 Plans relating to Class B and Class C
Shares will be higher than the expenses under the 12b-1 Plan relating to Class A
Shares. See Distribution (12b-1) and Service under Management of the Fund.
Both dividends and distributions, if any, are automatically reinvested
in your account at net asset value unless you elect otherwise. Any check in
payment of dividends or other distributions which cannot be delivered by the
United States Post Office or which remains uncashed for a period of more than
one year may be reinvested in your account at the then-current net asset value
and the dividend option may be changed from cash to reinvest. If you elect to
take your dividends and distributions in cash and such dividends and
distributions are in an amount of $25 or more, you may choose the MoneyLine
Direct Deposit Service and have such payments transferred from your Fund account
to your predesignated bank account. This service is not available for certain
retirement plans. See MoneyLine Direct Deposit Service under The Delaware
Difference for more information about this service.
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<PAGE>
TAXES
The tax discussion set forth below is included for general information
only. Investors should consult their own tax advisers concerning the federal,
state, local or foreign tax consequences of an investment in a Fund.
Each Fund intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code (the "Code"). As such, a Fund will not
be subject to federal income tax, or to any excise tax, to the extent its
earnings are distributed as provided in the Code.
Each Fund intends to distribute substantially all of its net investment
income and net capital gains, if any. Dividends from net investment income or
net short-term capital gains will be taxable to those investors who are subject
to income taxes as ordinary income, whether received in cash or in additional
shares. It is expected that either none or only a nominal portion of a Fund's
dividends will be eligible for the dividends-received deduction for
corporations.
Distributions paid by a Fund from long-term capital gains, whether
received in cash or in additional shares, are taxable to those investors who are
subject to income taxes as long-term capital gains, regardless of the length of
time an investor has owned shares in the Fund. The Funds do not seek to realize
any particular amount of capital gains during a year; rather, realized gains are
a by-product of Fund management activities. Consequently, capital gains
distributions may be expected to vary considerably from year to year. Also, for
those investors subject to tax, if purchases of shares in a Fund are made
shortly before the record date for a dividend or capital gains distribution, a
portion of the investment will be returned as a taxable distribution.
Although dividends generally will be treated as distributed when paid,
dividends which are declared in October, November or December to shareholders of
record on a specified date in one of those months, but which, for operational
reasons, may not be paid to the shareholder until the following January, will be
treated for tax purposes as if paid by a Fund and received by the shareholder on
December 31 of the calendar year in which they are declared.
The sale of shares of the Funds is a taxable event and may result in a
capital gain or loss to shareholders subject to tax. Capital gain or loss may be
realized from an ordinary redemption of shares or an exchange of shares between
a Fund and any other fund in the Delaware Group. Any loss incurred on a sale or
exchange of Fund shares that had been held for six months or less will be
treated as a long-term capital loss to the extent of capital gain dividends
received with respect to such shares. All or a portion of the sales charge
incurred in acquiring Fund shares will be excluded from the federal tax basis of
any of such shares sold or exchanged within 90 days of their purchase (for
purposes of determining gain or loss upon the sale of such shares) if the sale
proceeds are reinvested in such Fund or in another fund in the Delaware Group of
funds and a sales charge that would otherwise apply to the reinvestment is
reduced or eliminated. Any portion of such sales charge excluded from the tax
basis of the shares sold will be added to the tax basis of the shares acquired
in the reinvestment.
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<PAGE>
The automatic conversion of Class B Shares into Class A Shares at the
end of approximately eight years after purchase will be tax-free for federal tax
purposes. See Automatic Conversion of Class B Shares under Classes of Shares.
Each Fund may be subject to foreign withholding taxes on income from
certain of its foreign securities.
In addition to federal taxes, shareholders may be subject to state and
local taxes on distributions. Distributions of interest income and capital gains
realized from certain types of U.S. government securities may be exempt from
state personal income taxes. Shares of each Fund are exempt from Pennsylvania
county personal property taxes.
Each year, Equity Funds II, Inc. will mail to you information on the
tax status of the dividends and distributions paid by the Fund in which you hold
shares. Shareholders will also receive each year information as to the portion
of dividend income that is derived from U.S. government securities that are
exempt from state income tax. Of course, shareholders who are not subject to tax
on their income would not be required to pay tax on amounts distributed to them
by a Fund.
Each Fund is required to withhold 31% of taxable dividends, capital
gains distributions, and redemptions paid to shareholders who have not complied
with IRS taxpayer identification regulations. You may avoid this withholding
requirement by certifying on your Investment Application your proper Taxpayer
Identification Number and by certifying that you are not subject to backup
withholding.
See Accounting and Tax Issues and Distributions and Taxes in Part B for
additional information on tax matters relating to each Fund and its
shareholders.
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<PAGE>
CALCULATION OF OFFERING PRICE AND NET ASSET VALUE PER SHARE
The net asset value ("NAV") per share is computed by adding the value
of all securities and other assets in the portfolio, deducting any liabilities
(expenses and fees are accrued daily) and dividing by the number of shares
outstanding. Debt securities are priced on the basis of valuations provided by
an independent pricing service using methods approved by Equity Funds II, Inc.'s
Board of Directors. Equity securities for which marked quotations are available
are priced at market value. Short-term investments having a maturity of less
than 60 days are valued at amortized cost, which approximates market value. All
other securities are valued at their fair value as determined in good faith and
in a method approved by Equity Funds II, Inc.'s Board of Directors.
Class A Shares are purchased at the offering price per share, while
Class B Shares and Class C Shares are purchased at the NAV per share. The
offering price per share of Class A Shares consists of the NAV per share next
computed after the order is received, plus any applicable front-end sales
charges.
The offering price and NAV are computed as of the close of regular
trading on the New York Stock Exchange (ordinarily, 4 p.m., Eastern time) on
days when the Exchange is open.
The net asset values of all outstanding shares of each class of a Fund
will be computed on a pro-rata basis for each outstanding share based on the
proportionate participation in that Fund represented by the value of shares of
that class. All income earned and expenses incurred by a Fund will be borne on a
pro-rata basis by each outstanding share of a class, based on each class'
percentage in that Fund represented by the value of shares of such classes,
except that the Blue Chip Fund Institutional Class and the Quantum Fund
Institutional Class will not incur any of the expenses under 12b-1 Plans and the
Class A, Class B and Class C Shares alone will bear the 12b-1 Plan expense
payable under their respective Plans.
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<PAGE>
MANAGEMENT OF THE FUNDS
Directors
The business and affairs of Equity Funds II, Inc. are managed under the
direction of its Board of Directors. Part B contains additional information
regarding Equity Funds II, Inc.'s directors and officers.
Investment Manager
The Manager furnishes investment management services to each Fund.
The Manager and its predecessors have been managing the funds in the
Delaware Group since 1938. On November 30, 1996, the Manager and its affiliates
within the Delaware Group, including Delaware International Advisers Ltd., were
managing in the aggregate more than $32 billion in assets in the various
institutional or separately managed (approximately $20,311,203,919) and
investment company (approximately $11,765,348,126) accounts.
The Manager is an indirect, wholly owned subsidiary of Delaware
Management Holdings, Inc. ("DMH"). On April 3, 1995, a merger between DMH and a
wholly owned subsidiary of Lincoln National Corporation ("Lincoln National") was
completed. DMH and the Manager are now indirect, wholly owned subsidiaries, and
subject to the ultimate control, of Lincoln National. Lincoln National, with
headquarters in Fort Wayne, Indiana, is a diversified organization with
operations in many aspects of the financial services industry, including
insurance and investment management.
The Manager administers the affairs of and is ultimately responsible
for the investment management of each of the Funds under separate Investment
Management Agreements with Equity Funds II, Inc. on behalf of each Fund dated
February 24, 1997. Under the Investment Management Agreement for Blue Chip Fund,
the Manager is paid an annual fee equal to 0.65% on the first $500 million of
average daily net assets, 0.625% on the next $500 million and 0.60% on the
average daily net assets in excess of $1 billion. Under the Investment
Management Agreement for Quantum Fund, the Manager is paid an annual fee equal
to 0.75% on the first $500 million of average daily net assets, 0.725% on the
next $500 million and 0.70% on the average daily net assets in excess of $1
billion.
Pursuant to the terms of a Sub-Advisory Agreement with the Manager, the
Sub-Adviser participates in the management of each Fund's assets, is responsible
for day-to-day investment management of each Fund, makes investment decisions
for each Fund in accordance with the Fund's investment objectives and stated
policies and places orders on behalf of each Fund to effect the investment
decisions made. The Manager continues to have ultimate responsibility for all
investment advisory services in connection with the management of the Funds
pursuant to the Investment Management Agreement and supervises the Sub-Adviser's
performance of such services. For the services provided to the Manager, the
Manager pays the Sub-Adviser 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
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<PAGE>
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 in 1979, it provides investment advice to pension plans,
endowments, insurance and commingled products and had assets under management,
as of January 31, 1997, in excess of $5 billion. T. Scott Wittman, President and
Chief Investment Officer of the Sub-Adviser, has primary responsibility for
making day-to-day investment decisions for each Fund. He has had such
responsibility for the Funds since their inception. His responsibilities include
both business administration and equity portfolio management. A CFA
charterholder, Mr. Wittman received both graduate and undergraduate degrees in
business administration form Indiana University. He has spent his entire
professional career in quantitative investment firms, including TSA Capital
Management, where he was a managing director, and Mellon Bank, where he was Vice
President and Manager of Quantitative Analysis and Systems.
Mr. Wittman also serves as portfolio manager for Lincoln National
Growth and Income Fund, Inc. ("Lincoln Growth and Income Fund") and Lincoln
National Social Awareness Fund, Inc. ("Lincoln Social Awareness Fund"), which
are available only through variable annuity contracts issued by Lincoln National
Life Insurance Co. In the capacity as portfolio manager, Mr. Wittman has had
primary responsibility for making day-to-day investment decisions for each such
fund. The Sub-Adviser has served as sub-adviser for Lincoln National Growth and
Income Fund since August 21, 1985 and for Lincoln Social Awareness Fund since
inception. Mr. Wittman has served as portfolio manager for each fund since
October 1993.
Comparative Performance
The investment objectives, policies and strategies of Blue Chip Fund
and Lincoln Growth and Income Fund are substantially similar. Mr. Wittman makes
comparable selections of securities for each such fund. The table below presents
total return performance as of December 31, 1996 on an annualized basis for
Lincoln Growth and Income Fund compared with the average of the performance of
all funds
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<PAGE>
offered through variable annuity contracts included as part of Lipper Analytical
Services Variable Annuity growth and income category:
<TABLE>
<CAPTION>
Since
1 Year 2 Years 3 Years 5 Years 10 Years Inception(1)
------ ------- ------- ------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Lincoln Growth and Income(2) 18.46% 27.39% 17.63% 12.97% 13.34% 14.33%
Average Growth and Income(3) 20.20% 25.35% 15.47% 13.28% 13.30% 15.09%
</TABLE>
(1) The fund's inception date is December 21, 1981.
(2) Returns reflect changes in share prices and reinvestment of dividends
and distributions and are net of all expenses, including insurance
related fees. The expense ratio of the Lincoln Growth and Income Fund,
including insurance related fees, has been capped at 1.50% since
inception.
(3) Returns represented in the Lipper Analytical Services Variable Annuity
growth and income category reflect changes in share prices and
reinvestment of dividends and distributions and are net of all
expenses, including insurance related fees.
Please note that the historical performance presented above is for Lincoln
Growth and Income Fund, a separate and unrelated fund, and its performance is
not indicative of the potential performance of Blue Chip Fund. Share prices and
investment returns will fluctuate reflecting market conditions.
The investment objectives, policies and strategies of Quantum Fund and
Lincoln Social Awareness Fund are substantially similar. Mr. Wittman makes
comparable selections of securities for each such fund. The table below presents
total return performance as of December 31, 1996 on an annualized basis for
Lincoln Social Awareness Fund compared with the average of the performance of
all funds offered through variable annuity contracts included in Lipper
Analytical Services Variable Annuity growth category:
<TABLE>
<CAPTION>
Since
1 Year 2 Years 3 Years 5 Years Inception(1)
------ ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C>
Lincoln Social Awareness Fund(2) 27.96% 34.71% 21.64% 15.76% 16.34%
Average Growth Funds(3) 18.96% 25.11% 15.18% 12.99% 14.63%
</TABLE>
(1) The fund's inception date is May 2, 1988.
(2) Returns reflect changes in share prices and reinvestment of dividends
and distributions and are net of all expenses, including insurance
related fees. The expense ratio of the Lincoln Social Awareness Fund,
including insurance related fees, has been capped at 1.50% since
inception.
(3) Returns represented in the Lipper Analytical Services Variable Annuity
growth and income category reflect changes in share prices and
reinvestment of dividends and distributions and are net of all
expenses, including insurance related fees.
Please note that the historical performance presented above is for Lincoln
Social Awareness Fund, a separate and unrelated fund, and its performance is not
indicative of the potential performance of Quantum Fund. Share prices and
investment returns will fluctuate reflecting market conditions.
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<PAGE>
Portfolio Trading Practices
Each Fund normally will not invest for short-term trading purposes.
However, a Fund may sell securities without regard to the length of time they
have been held. The degree of portfolio activity will affect brokerage costs of
a Fund and may affect taxes payable by such Fund's shareholders. Given each
Fund's investment objective, its annual portfolio turnover rate is not expected
to exceed 100%. A turnover rate of 100% would occur, for example, if all the
investments in the Fund's portfolio at the beginning of the year were replaced
by the end of the year.
Each Fund uses its best efforts to obtain the best available price and
most favorable execution for portfolio transactions. Orders may be placed with
brokers or dealers who provide brokerage and research services to the Manager or
to their advisory clients. These services may be used by the Manager in
servicing any of its accounts. Subject to best price and execution, each Fund
may consider a broker/dealer's sales of Fund shares in placing portfolio orders
and may place orders with broker/dealers that have agreed to defray certain Fund
expenses such as custodian fees.
Performance Information
From time to time, each Fund may quote total return performance of its
Classes in advertising and other types of literature.
Total return will be based on a hypothetical $1,000 investment,
reflecting the reinvestment of all distributions at net asset value and: (i) in
the case of Class A Shares, the impact of the maximum front-end sales charge at
the beginning of each specified period; and (ii) in the case of Class B Shares
and Class C Shares, the deduction of any applicable CDSC at the end of the
relevant period. Each presentation will include the average annual total return
for one-, five- and ten-year or life-of-fund periods, as relevant. Each Fund may
also advertise aggregate and average total return information concerning a Class
over additional periods of time. In addition, each Fund may present total return
information that does not reflect the deduction of the maximum front-end sales
charge or any applicable CDSC. In this case, such total return information would
be more favorable than total return information that includes the deductions of
the maximum front-end sales charge or any applicable CDSC.
Net asset value fluctuates and is not guaranteed. Past performance is
not a guarantee of future results.
Distribution (12b-1) and Service
The Distributor, Delaware Distributors, L.P., serves as the national
distributor of each Fund's shares under separate Distribution Agreements with
Equity Funds II, Inc. dated as of February 24, 1997.
Equity Funds II, Inc. has adopted a separate distribution plan under
Rule 12b-1 for each of the Class A Shares, Class B Shares and Class C Shares of
the Fund (the "Plans"). The Plans permit the Fund to which the Plans relate to
pay the Distributor from the assets of the respective Classes a monthly fee for
the Distributor's services and expenses in distributing and promoting sales of
shares. These expenses include, among other things, preparing and distributing
advertisements, sales literature, and prospectuses and reports used for sales
purposes, compensating sales and marketing personnel, holding special promotions
for specified periods of time, and paying distribution and maintenance fees to
brokers, dealers and others. In connection with the promotion of shares of the
Classes, the Distributor may, from time to time, pay to participate in
dealer-sponsored seminars and conferences, and reimburse dealers for expenses
incurred in connection with preapproved seminars, conferences, and advertising.
The
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<PAGE>
Distributor may pay or allow additional promotional incentives to dealers as
part of preapproved sales contests and/or to dealers who provide extra training
and information concerning a Class and increase sales of the Class. In addition,
each Fund may make payments from the 12b-1 plan fees of its respective Class
directly to others, such as banks, who aid in the distribution of Class shares
or provide services in respect of a Class, pursuant to service agreements with
Equity Funds II, Inc.
The 12b-1 Plan expenses relating to each of the Class B Shares and
Class C Shares are also used to pay the Distributor for advancing the commission
costs to dealers with respect to the initial sale of such shares.
The aggregate fees paid by a Fund from the assets of its respective
Classes to the Distributor and others under the Plans may not exceed (i) 0.30%
of the Class A Shares' average daily net assets in any year, and (ii) 1% (0.25%
of which are service fees to be paid to the Distributor, dealers and others for
providing personal service and/or maintaining shareholder accounts) of each of
the Class B Shares' and Class C Shares' average daily net assets in any year.
The Class A, Class B and Class C Shares will not incur any distribution expenses
beyond these limits, which may not be increased without shareholder approval.
While payments pursuant to the Plans may not exceed 0.30% annually with
respect to the Class A Shares, and 1% annually with respect to each of the Class
B Shares and the Class C Shares, the Plans do not limit fees to amounts actually
expended by the Distributor. It is therefore possible that the Distributor may
realize a profit in any particular year. However, the Distributor currently
expects that its distribution expenses will likely equal or exceed payments to
it under the Plans. The Distributor may, however incur such additional expenses
and make additional payments to dealers from its own resources to promote the
distribution of shares of the Classes. The monthly fees paid to the Distributor
under the Plans are subject to the review and approval of Equity Funds II,
Inc.'s unaffiliated directors, who may reduce the fees or terminate the Plans at
any time.
Equity Funds II, Inc.'s Plans do not apply to the Blue Chip Fund
Institutional Class of shares or the Quantum Fund Institutional Class of shares.
Those shares are not included in calculating the Plans' fees, and the Plans are
not used to assist in the distribution and marketing of the Blue Chip Fund
Institutional Class shares or the Quantum Fund Institutional Class shares.
The Transfer Agent, Delaware Service Company, Inc., serves as the
shareholder servicing, dividend disbursing and transfer agent for each Fund
pursuant to an amended and restated agreement dated as of February 24, 1997. The
Transfer Agent also provides accounting services to each Fund pursuant to the
terms of a separate Fund Accounting Agreement. The directors of Equity Funds II,
Inc. annually review service fees paid to the Transfer Agent.
The Distributor and the Transfer Agent are also indirect, wholly owned
subsidiaries of DMH.
Expenses
Each Fund is responsible for all of its own expenses other than those
borne by the Manager under the Investment Management Agreement and those borne
by the Distributor under the Distribution Agreement. The expense ratio of each
Class will reflect the impact of its 12b-1 Plan.
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<PAGE>
Shares
Equity Funds II, Inc. is an open-end management investment company.
Each Fund's portfolio of assets is diversified as defined by the 1940 Act.
Commonly known as a mutual fund, Equity Funds II, Inc. was organized as a
Maryland corporation on March 4, 1983. Equity Funds II, Inc. was previously
organized as a Delaware corporation in 1970. In addition to each Fund, Equity
Funds II, Inc. presently offers two other series of shares, the Decatur Income
Fund series and the Decatur Total Return Fund series.
Equity Funds II, Inc.'s shares have a par value of $1.00, equal voting
rights, except as noted below, and are equal in all other respects. Equity Funds
II, Inc.'s shares have noncumulative voting rights which means that the holders
of more than 50% of Equity Funds II, Inc.'s shares voting for the election of
directors can elect 100% of the directors if they choose to do so. Under
Maryland law, Equity Funds II, Inc. is not required, and does not intend, to
hold annual meetings of shareholders unless, under certain circumstances, it is
required to do so under the 1940 Act. Shareholders of 10% or more of Equity
Funds II, Inc.'s outstanding shares may request that a special meeting be called
to consider the removal of a director.
In addition to Class A Shares, Class B Shares and Class C Shares, the
Blue Chip Fund and Quantum Fund also offer, respectively, the Blue Chip Fund
Institutional Class and the Quantum Fund Institutional Class. Shares of each
class represent proportionate interests in the assets of a Fund and have the
same voting and other rights and preferences as the other classes of such Fund,
except that shares of the Blue Chip Fund Institutional Class and the Quantum
Fund Institutional Class are not subject to, and may not vote on matters
affecting, the Distribution Plans under Rule 12b-1 relating to the Class A,
Class B and Class C Shares. Similarly, as a general matter, the shareholders of
Class A Shares, Class B Shares and Class C Shares may vote only on matters
affecting the 12b-1 Plan that relates to the class of shares that they hold.
However, the Class B Shares may vote on any proposal to increase materially the
fees to be paid by the Fund under the Rule 12b-1 Plan relating to the Class A
Shares.
It is expected that The Lincoln National Life Insurance Company will
make an initial investment in each Fund, which could result in The Lincoln
National Life Insurance Company holding up to 100% of the outstanding shares of
a Fund. Subject to certain limited exceptions, there would be no limitation on
The Lincoln National Life Insurance Company's ability to redeem its shares of a
Fund and it may elect to do so at any time.
-47-
<PAGE>
OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS
Social Criteria
Quantum Fund will adhere to a Social Criteria strategy, which may be
changed by action of Equity Funds II, Inc.'s Board of Directors. The Sub-Adviser
will utilize the Social Investment Database published by KLD in determining
whether a company is engaged in any activity precluded by the Fund's Social
Criteria. The Social Investment Database reflects KLD's determination of the
extent to which a company's involvement in the activities prohibited by the
Social Criteria is significant enough to merit a concern or a major concern.
Significance may be determined on the basis of percentage of revenue generated
by, or the size of the operations attributable to, activities related to such
Social Criteria, or other factors selected by KLD. The social screening
undergoes continual refinement and modification. 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 this Prospectus.
The Fund will commence the orderly sale of securities of a company when
it is determined by the Sub-Adviser that such company no longer adheres to the
Social Criteria. The Fund will sell such securities in a manner so as to
minimize any adverse affect on the Fund's assets. Typically, such sales will be
made within 90 days from the date of the Sub-Adviser's determination, unless a
sale within the 90-day period would produce a significant loss to the overall
value of the Fund's assets.
Convertible, Debt and Non-Traditional Equity Securities
Each Fund may invest in convertible and debt securities of issuers in
any industry. A convertible security is a security which may be converted at a
stated price within a specified period of time into a certain quantity of the
common stock of the same or a different issuer. Convertible and debt securities
are senior to common stocks in a corporation's capital structure, although
convertible securities are usually subordinated to similar nonconvertible
securities. Convertible and debt securities provide a fixed-income stream and
the opportunity, through its conversion feature, to participate in the capital
appreciation resulting from a market price advance in the convertible security's
underlying common stock. Just as with debt securities, convertible securities
tend to increase in market value when interest rates decline and tend to
decrease in value when interest rates rise. However, the price of a convertible
security is also influenced by the market value of the security's underlying
common stock and tends to increase as the market value of the underlying stock
rises, whereas it tends to decrease as the market value of the underlying stock
declines.
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<PAGE>
Each Fund may invest in convertible preferred stocks that offer
enhanced yield features, such as Preferred Equity Redemption Cumulative Stock
("PERCS"), which provide an investor with the opportunity to earn higher
dividend income than is available on a company's common stock. A PERCS is a
preferred stock which generally features a mandatory conversion date, as well as
a capital appreciation limit which is usually expressed in terms of a stated
price. Upon the conversion date, most PERCS convert into common stock of the
issuer (PERCS are generally not convertible into cash at maturity). Under a
typical arrangement, if after a predetermined number of years the issuer's
common stock is trading at a price below that set by the capital appreciation
limit, each PERCS would convert to one share of common stock. If, however, the
issuer's common stock is trading at a price above that set by the capital
appreciation limit, the holder of the PERCS would receive less than one full
share of common stock. The amount of that fractional share of common stock
received by the PERCS holder is determined by dividing the price set by the
capital appreciation limit of the PERCS by the market price of the issuer's
common stock. PERCS can be called at any time prior to maturity, and hence do
not provide call protection. However, if called early, the issuer may pay a call
premium over the market price to the investor. This call premium declines at a
preset rate daily, up to the maturity date of the PERCS.
Each Fund may also invest in other enhanced convertible securities.
These include but are not limited to ACES (Automatically Convertible Equity
Securities), PEPS (Participating Equity Preferred Stock), PRIDES (Preferred
Redeemable Increased Dividend Equity Securities), SAILS (Stock Appreciation
Income Linked Securities), TECONS (Term Convertible Notes), QICS (Quarterly
Income Cumulative Securities) and DECS (Dividend Enhanced Convertible
Securities). ACES, PEPS, PRIDES, SAILS, TECONS, QICS and DECS all have the
following features: they are company-issued convertible preferred stock; unlike
PERCS, they do not have capital appreciation limits; they seek to provide the
investor with high current income, with some prospect of future capital
appreciation; they are typically issued with three to four-year maturities; they
typically have some built-in call protection for the first two to three years;
investors have the right to convert them into shares of common stock at a preset
conversion ratio or hold them until maturity; and upon maturity, they will
automatically convert to either cash or a specified number of shares of common
stock.
Foreign Securities
Each Fund may invest up to 20% of its total assets in foreign
securities. Foreign markets may be more volatile than U.S. markets, although the
Sub-Adviser does not presently anticipate doing so. Such investments involve
sovereign risk in addition to the normal risks associated with securities of
U.S. issuers. These risks include political risks, foreign taxes and exchange
controls and currency fluctuations. For example, foreign portfolio investments
may fluctuate in value due to changes in currency rates (i.e., other things
being equal, the value of foreign investments would increase with a fall in the
value of the dollar, and decrease with a rise in the value of the dollar) and
control regulations apart from market fluctuations. Each Fund may also
experience delays in foreign securities settlement.
Depositary Receipts
Each Fund may make foreign investments through the purchase and sale of
sponsored or unsponsored American, European and Global Depositary Receipts
("Depositary Receipts"). Depositary Receipts are receipts typically issued by a
U.S. or foreign bank or trust company which evidence ownership of underlying
securities issued by a foreign corporation. "Sponsored" Depositary Receipts are
issued jointly by the issuer of the underlying security and a depository,
whereas "unsponsored" Depositary Receipts are issued without participation of
the issuer of the deposited security. Holders of unsponsored Depositary Receipts
generally bear all the costs of such facilities and the depository of an
unsponsored facility
-49-
<PAGE>
frequently is under no obligation to distribute shareholder communications
received from the issuer of the deposited security or to pass through voting
rights to the holders of such receipts in respect of the deposited securities.
Therefore, there may not be a correlation between information concerning the
issuer of the security and the market value of an unsponsored Depositary
Receipt.
Futures Contracts
Each Fund may enter into futures contracts on stocks, stock indices and
foreign currencies, and purchase or sell options on such futures contracts.
These activities will not be entered into for speculative purposes, but rather
for hedging purposes and to facilitate the ability to quickly deploy into the
stock market a Fund's positions in cash, short-term debt securities and other
money market instruments, at times when a Fund's assets are not fully invested
in equity securities. Such positions will generally be eliminated when it
becomes possible to invest in securities that are appropriate for the Fund
involved.
A futures contract is a bilateral agreement providing for the purchase
and sale of a specified type and amount of a financial instrument, or for the
making and acceptance of a cash settlement, at a stated time in the future for a
fixed price. By its terms, a futures contract provides for a specified
settlement date on which the securities, foreign currency or other financial
instrument underlying the contract are delivered, or in the case of securities
index futures contracts, the difference between the price at which the contract
was entered into and the contract's closing value is settled between the
purchaser and seller in cash. Futures contracts differ from options in that they
are bilateral agreements, with both the purchaser and the seller equally
obligated to complete the transaction. In addition, futures contracts call for
settlement only on the expiration date, and cannot be "exercised" at any other
time during their term.
The purchase or sale of a futures contract also differs from the
purchase or sale of a security or the purchase of an option in that no purchase
price is paid or received. Instead, an amount of cash or cash equivalents, which
varies but may be as low as 5% or less of the value of the contract, must be
deposited with the broker as "initial margin" as a good faith deposit. This
amount is generally maintained in a segregated account at the custodian bank.
Subsequent payments to and from the broker, referred to as "variation margin,"
are made on a daily basis as the value of the index or instrument underlying the
futures contract fluctuates, making positions in the futures contracts more or
less valuable, a process known as "marking to the market."
Purchases or sales of stock index futures contracts are used for
hedging purposes to attempt to protect a Fund's current or intended investments
from broad fluctuations in stock prices. For example, a Fund may sell stock
index futures contracts in anticipation of or during a market decline to attempt
to offset the decrease in market value of the Fund's securities portfolio that
might otherwise result. If such decline occurs, the loss in value of portfolio
securities may be offset, in whole or part, by gains on the futures position.
When a Fund is not fully invested in the securities market and anticipates a
significant market advance, it may purchase stock index futures contracts in
order to gain rapid market exposure that may, in part or entirely, offset
increases in the cost of securities that the Fund intends to purchase. As such
purchases are made, the corresponding positions in stock index futures contracts
will be closed out.
Each Fund may purchase and sell foreign currency futures contracts for
hedging purposes to attempt to protect its current or intended investments
denominated in foreign currencies from fluctuations in currency exchange rates.
Such fluctuations could reduce the dollar value of portfolio securities
denominated in foreign currencies, or increase the cost of foreign-denominated
securities to be acquired, even if the value of such securities in the
currencies in which they are denominated remains constant. Each Fund may sell
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<PAGE>
futures contracts on a foreign currency, for example, when it holds securities
denominated in such currency and it anticipates a decline in the value of such
currency relative to the dollar. In the event such decline occurs, the resulting
adverse effect on the value of foreign-denominated securities may be offset, in
whole or in part, by gains on the futures contracts. However, if the value of
the foreign currency increases relative to the dollar, a Fund's loss on the
foreign currency futures contract may or may not be offset by an increase in the
value of the securities because a decline in the price of the security stated in
terms of the foreign currency may be greater than the increase in value as a
result of the change in exchange rates.
Conversely, a Fund could protect against a rise in the dollar cost of
foreign-denominated securities to be acquired by purchasing futures contracts on
the relevant currency, which could offset, in whole or in part, the increased
cost of such securities resulting from a rise in the dollar value of the
underlying currencies. When a Fund purchases futures contracts under such
circumstances, however, and the price of securities to be acquired instead
declines as a result of appreciation of the dollar, the Fund will sustain losses
on its futures position which could reduce or eliminate the benefits of the
reduced cost of portfolio securities to be acquired.
Each Fund may also purchase and write options on the types of futures
contracts in which the Fund may invest, and enter into related closing
transactions. Options on futures are similar to options on securities, as
described below, except that options on futures give the purchaser the right, in
return for the premium paid, to assume a position in a futures contract, rather
than to actually purchase or sell the futures contract, at a specified exercise
price at any time during the period of the option. In the event that an option
written by a Fund is exercised, the Fund will be subject to all the risks
associated with the trading of futures contracts, such as payment of variation
margin deposits. In addition, the writer of an option on a futures contract,
unlike the holder, is subject to initial and variation margin requirements on
the option position.
At any time prior to the expiration of a futures contract, a trader may
elect to close out its position by taking an opposite position on the contract
market on which the position was entered into, subject to the availability of a
secondary market, which will operate to terminate the initial position.
Likewise, a position in an option on a futures contract may be terminated by the
purchaser or seller prior to expiration by effecting a closing purchase or sale
transaction, subject to availability of a secondary market, which is the
purchase or sale of an option of the same series (i.e., the same exercise price
and expiration date) as the option previously purchased or sold. Each Fund may
realize a profit or a loss when closing out a futures contract or an option on a
futures contract.
To the extent that interest or exchange rates or securities prices move
in an unexpected direction, a Fund may not achieve the anticipated benefits of
investing in futures contracts and options thereon, or may realize a loss. To
the extent that a Fund purchases an option on a futures contract and fails to
exercise the option prior to the exercise date, it will suffer a loss of the
premium paid. Further, the possible lack of a secondary market could prevent a
Fund from closing out its positions relating to futures. See Part B for a
further discussion of this investment technique.
Options
Each Fund may write covered call options on individual issues as well
as write call options on stock indices. Each Fund may also purchase put options
on individual issues and on stock indices. The Sub-Adviser will employ these
techniques in an attempt to protect appreciation attained, to offset capital
losses and to take advantage of the liquidity available in the option markets.
The ability to hedge effectively using options on stock indices will depend, in
part, on the correlation between the composition of the index and a
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<PAGE>
Fund's portfolio as well as the price movement of individual securities. The
Sub-Adviser may also write covered call options to achieve income to offset the
cost of purchasing put options.
While there is no limit on the amount of a Fund's assets which may be
invested in covered call options, the Fund will not invest more than 2% of its
net assets in put options. Each Fund will only use Exchange-traded options.
Call Options
Writing Covered Call Options - A covered call option obligates a Fund
to sell one of its securities for an agreed price up to an agreed date. When a
Fund writes a call, it receives a premium and agrees to sell the callable
securities to a purchaser of a corresponding call during the call period
(usually, not more than nine months) at a fixed price regardless of market price
changes during the call period. The advantage is that the Fund receives premium
income for the limited purpose of offsetting the costs of purchasing put options
or offsetting any capital loss or decline in the market value of the security.
However, if the Sub-Adviser's forecast is wrong, the Fund may not fully
participate in the market appreciation if the security's price rises.
Writing a Call Option on Stock Indices - Writing a call option on stock
indices is similar to the writing of a call option on an individual stock. Stock
indices used will include, but not be limited to, the S&P 500, the S&P 100 and
the S&P Over-The-Counter ("OTC") 250.
Put Options
Purchasing a Put Option - A put option gives a Fund the right to sell
one of its securities for an agreed price up to an agreed date. The advantage is
that the Fund can be protected should the market value of the security decline.
However, the Fund must pay a premium for this right which would be lost if the
option is not exercised.
Purchasing a Put Option on Stock Indices - Purchasing a protective put
option on stock indices is similar to the purchase of protective puts on an
individual stock. Indices used will include, but not be limited to, the S&P 500,
the S&P 100 and the S&P OTC 250.
Closing Transactions - Closing transactions essentially let a Fund
offset a put option or covered call option prior to its exercise or expiration.
If the Fund cannot effect a closing transaction, it may have to hold a security
it would otherwise sell or deliver a security it might want to hold.
Restricted/Illiquid Securities
Each Fund may invest in restricted securities, including securities
eligible for resale without registration pursuant to Rule 144A ("Rule 144A
Securities") under the Securities Act of 1933 ("1933 Act"). Rule 144A exempts
many privately placed and legally restricted securities from the registration
requirements of the 1933 Act and permits such securities to be freely traded
among certain institutional buyers such as the Funds.
Each Fund may invest no more than 15% of the value of its net assets in
illiquid securities. Illiquid securities, for purposes of this policy, include
repurchase agreements maturing in more than seven days.
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<PAGE>
While maintaining oversight, the Board of Directors has delegated to
each Fund's Sub-Adviser the day-to-day functions of determining whether or not
individual Rule 144A Securities are liquid for purposes of a Fund's limitation
on investments in illiquid assets. The Board has instructed each Fund's
Sub-Adviser to consider the following factors in determining the liquidity of a
Rule 144A Security: (i) the frequency of trades and trading volume for the
security; (ii) whether at least three dealers are willing to purchase or sell
the security and the number of potential purchasers; (iii) whether at least two
dealers are making a market in the security; and (iv) the nature of the security
and the nature of the marketplace trades (e.g., the time needed to dispose of
the security, the method of soliciting offers, and the mechanics of transfer).
If a Sub-Adviser determines that a Rule 144A Security which was
previously determined to be liquid is no longer liquid and, as a result, the
Fund's holdings of illiquid securities exceed the 15% limit on investment in
such securities, the Sub-Adviser will determine what action shall be taken to
ensure that the Fund continues to adhere to such limitation.
Short-Term Investments
The short-term investments in which the Funds will invest are:
(1) Time deposits, certificates of deposit (including marketable
variable rate certificates of deposit) and bankers' acceptances issued by a U.S.
commercial bank. Time deposits are non-negotiable deposits maintained in a
banking institution for a specified period of time at a stated interest rate.
Time deposits maturing in more than seven days will not be purchased by either
Fund, and time deposits maturing from two business days through seven calendar
days will not exceed 15% of either Fund's total assets. Certificates of deposit
are negotiable short-term obligations issued by commercial banks against funds
deposited in the issuing institution. Variable rate certificates of deposit are
certificates of deposit on which the interest rate is periodically adjusted
prior to their stated maturity based upon a specified market rate. A bankers'
acceptance is a time draft drawn on a commercial bank by a borrower usually in
connection with an international commercial transaction (to finance the import,
export, transfer or storage of goods).
Neither Fund will invest in any security issued by a commercial bank
unless (i) the bank has total assets of at least $1 billion or, in the case of a
bank which does not have total assets of at least $1 billion, the aggregate
investment made in any one such bank is limited to $100,000 and the principal
amount of such investment is insured in full by the Federal Deposit Insurance
Corporation, (ii) it is a member of the Federal Deposit Insurance Corporation,
and (iii) the bank or its securities have received the highest quality rating by
a nationally-recognized statistical rating organization;
(2) Commercial paper with the highest quality rating by a
nationally-recognized statistical rating organization (e.g., A-1 by S&P or
Prime-1 by Moody's) or, if not so rated, of comparable quality as determined by
each Fund's investment adviser;
(3) Short-term corporate obligations with the highest quality rating by
a nationally-recognized statistical rating organization (e.g., AAA by S&P or Aaa
by Moody's) or, if not so rated, of comparable quality as determined by each
Fund's investment adviser;
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<PAGE>
(4) U.S. government securities; and
(5) Repurchase agreements collateralized by securities listed below.
See Appendix A of Part B for a description of applicable ratings.
When-Issued and Delayed Delivery Securities
Each Fund may purchase securities on a when-issued or delayed delivery
basis. In such transactions, instruments are purchased with payment and delivery
taking place in the future in order to secure what is considered to be an
advantageous yield or price at the time of the transaction. Delivery of and
payment for these securities may take as long as a month or more after the date
of the purchase commitment. Each Fund will maintain with its Custodian Bank a
separate account with a segregated portfolio of securities in an amount at least
equal to these commitments. The payment obligation and the interest rates that
will be received are each fixed at the time a Fund enters into the commitment
and no interest accrues to such Fund until settlement. Thus, it is possible that
the market value at the time of settlement could be higher or lower than the
purchase price if the general level of interest rates has changed. It is a
current policy of each Fund not to enter into when-issued commitments exceeding
in the aggregate 15% of the market value of the its total assets less
liabilities other than the obligations created by these commitments.
Repurchase Agreements
In order to invest its short-term cash reserves or when in a temporary
defensive posture, each Fund may enter into repurchase agreements with banks or
broker/dealers deemed to be creditworthy by its Sub-Adviser, under guidelines
approved by the Board of Directors. A repurchase agreement is a short-term
investment in which the purchaser (i.e., the Fund) acquires ownership of a debt
security and the seller agrees to repurchase the obligation at a future time and
set price, thereby determining the yield during the purchaser's holding period.
Generally, repurchase agreements are of short duration, often less than one week
but on occasion for longer periods. Not more than 15% of each Fund's assets may
be invested in repurchase agreement of over seven days' maturity or other
illiquid assets. Should an issuer of a repurchase agreement fail to repurchase
the underlying security, the loss, if any, would be the difference between the
repurchase price and the market value of the security. Each Fund will limit its
investments in repurchase agreements to those which its Sub-Adviser under
guidelines of the Board of Directors determines to present minimal credit risks
and which are of high quality. In addition, the Fund must have collateral of at
least 100% of the repurchase price, including the portion representing the
Fund's yield under such agreements, which is monitored on a daily basis.
Securities Lending Activities
Each Fund may loan up to 25% of its assets to qualified broker/dealers
or institutional investors for their use relating to short sales or other
security transactions.
The major risk to which each Fund would be exposed on a loan
transaction is the risk that the borrower would go bankrupt at a time when the
value of the security goes up. Therefore, each Fund will only enter into loan
arrangements after a review of all pertinent facts by the investment adviser,
subject to overall supervision by the Board of Directors, including the
creditworthiness of the borrowing broker,
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<PAGE>
dealer or institution and then only if the consideration to be received from
such loans would justify the risk. Creditworthiness will be monitored on an
ongoing basis by the management for each Fund.
Borrowing from Banks
Each Fund may borrow money as a temporary measure for extraordinary
purposes or to facilitate redemptions. A Fund will not borrow money in excess of
one-third of the value of its net assets. A 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 a 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%, a Fund shall, within three days
thereafter (not including Sundays or holidays, or such longer period as the
Securities and Exchange Commission may prescribe by rules and regulations),
reduce the amount of its borrowings to such an extent that the asset coverage of
such borrowings shall be at least 300%. Each Fund will not pledge more than 10%
of its net assets, or issue senior securities as defined in the 1940 Act, except
for notes to banks. Investment securities will not be purchased while a Fund has
an outstanding borrowing.
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<PAGE>
<TABLE>
<CAPTION>
APPENDIX B--CLASSES OFFERED
Growth of Capital A Class B Class C Class Consultant
Class
<S> <C> <C> <C> <C>
Trend Fund x x x -
Enterprise Fund x x x -
DelCap Fund x x x -
Value Fund x x x -
U.S. Growth Fund x x x -
Quantum Fund x x x -
Total Return
Devon Fund x x x -
Decatur Total Return Fund x x x -
Decatur Income Fund x x x -
Delaware Fund x x x -
Blue Chip Fund x x x -
International Diversification
Emerging Markets Fund x x x -
New Pacific Fund x x x -
International Equity Fund x x x -
World Growth Fund x x x -
Global Assets Fund x x x -
Global Bond Fund x x x -
Current Income
Delchester Fund x x x -
Strategic Income Fund x x x -
Corporate Income Fund x x x -
Federal Bond Fund x x x -
U.S. Government Fund x x x -
Limited-Term Government Fund x x x -
Tax-Free Current Income
Tax-Free Pennsylvania Fund x x x -
Tax-Free USA Fund x x x -
Tax-Free Insured Fund x x x -
Tax-Free USA Intermediate Fund x x x -
Money Market Funds
Delaware Cash Reserve x x x x
U.S. Government Money Fund x - - x
Tax-Free Money Fund x - - x
</TABLE>
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<PAGE>
APPENDIX A - INVESTMENT ILLUSTRATIONS
Illustrations of the Potential Impact on Investment Based on Purchase Option
$10,000 Purchase
<TABLE>
<CAPTION>
Scenario 1 Scenario 2 Scenario 3
No Redemption Redeem 1st Year Redeem 3rd Year
----------------------------------- ------------------------------------- -------------------------------------
Year Class A Class B Class C Class A Class B Class C Class A Class B Class C
- ---- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0 9,525 10,000 10,000 9,525 10,000 10,000 9,525 10,000 10,000
1 10,478 10,930 10,930 10,478 10,530 10,830+ 10,478 10,930 10,930
2 11,525 11,946 11,946 11,525 11,946 11,946
3 12,678 13,058 13,058 12,678 12,758 13,058+
4 13,946 14,272 14,272
5 15,340 15,599 15,599
6 16,874 17,050 17,050
7 18,562 18,636 18,636
8 20,418+ 20,369 20,369
9 22,459 22,405* 22,263
10 24,705 24,646* 24,333
</TABLE>
<TABLE>
<CAPTION>
Scenario 4
Redeem 5th Year
------------------------------------
Year Class A Class B Class C
- ---- ------- ------- -------
<S> <C> <C> <C>
0 9,525 10,000 10,000
1 10,478 10,930 10,930
2 11,525 11,946 11,946
3 12,678 13,058 13,058
4 13,946 14,272 14,272
5 15,340 15,399 15,599+
6
7
8
9
10
</TABLE>
*This assumes that Class B Shares were converted to Class A
Shares at the end of the eighth year.
<PAGE>
<TABLE>
<CAPTION>
$250,000 Purchase
Scenario 1 Scenario 2 Scenario 3
No Redemption Redeem 1st Year Redeem 3rd Year
-------------------------------------- --------------------------------- ----------------------------------
Year Class A Class B Class C Class A Class B Class C Class A Class B Class C
- ---- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0 243,750 250,000 250,000 243,750 250,000 250,000 243,750 250,000 250,000
1 268,125 273,250 273,250 268,125 263,250 270,750+ 268,125 273,250 273,250
2 294,938 298,662 298,662 294,938 298,662 298,662
3 324,431 326,438 326,438 324,431 318,938 326,438+
4 356,874+ 356,797 356,797
5 392,562 389,979 389,979
6 431,818 426,247 426,247
7 475,000 465,888 465,888
8 522,500 509,215 509,215
9 574,750 560,137* 556,572
10 632,225 616,150* 608,333
</TABLE>
<TABLE>
<CAPTION>
Scenario 4
Redeem 5th Year
-----------------------------------
Year Class A Class B Class C
- ---- ------- ------- -------
<S> <C> <C> <C>
0 243,750 250,000 250,000
1 268,125 273,250 273,250
2 294,938 298,662 298,662
3 324,431 326,438 326,438
4 356,874+ 356,797 356,797
5 392,562 384,979 389,979
6
7
8
9
10
</TABLE>
*This assumes that Class B Shares were converted to Class A
Shares at the end of the eighth year.
Assumes a hypothetical return for Class A of 10% per year, a hypothetical return
for Class B of 9.3% for years 1-8 and 10% for years 9-10, and a hypothetical
return for Class C of 9.3% per year. Hypothetical returns vary due to the
different expense structures for each Class and do not represent actual
performance.
Class A purchase subject to appropriate sales charge breakpoint (4.75% @
$10,000; 3.75% @ $100,000; 2.50% @ $250,000).
Class B purchase assessed appropriate CDSC upon redemption (4%-4%-3%-3%-2%-1% in
years 1-2-3-4-5-6).
Class C purchase assessed 1% CDSC upon redemption in year 1.
Figures marked "+" identify which Class offers the greater return potential
based on investment amount, holding period and the expense structure of each
Class.
<PAGE>
For more information contact the Delaware Group at 800-828-5052.
INVESTMENT MANAGER
Delaware Management Company, Inc.
One Commerce Square
Philadelphia, PA 19103
SUB-ADVISER
Vantage Global Advisors, Inc.
630 Fifth Avenue
New York, NY 10111
NATIONAL DISTRIBUTOR
Delaware Distributors, L.P.
1818 Market Street
Philadelphia, PA 19103
SHAREHOLDER SERVICING,
DIVIDEND DISBURSING,
ACCOUNTING SERVICES
AND TRANSFER AGENT
Delaware Service Company, Inc.
1818 Market Street
Philadelphia, PA 19103
LEGAL COUNSEL
Stradley, Ronon, Stevens & Young, LLP
One Commerce Square
Philadelphia, PA 19103
INDEPENDENT AUDITORS
Ernst & Young LLP
Two Commerce Square
Philadelphia, PA 19103
CUSTODIAN
The Chase Manhattan Bank
4 Chase Metrotech Center
Brooklyn, NY 11245
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BLUE CHIP FUND
QUANTUM FUND
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INSTITUTIONAL
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P R O S P E C T U S
FEBRUARY 24, 1997
DELAWARE
GROUP
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BLUE CHIP FUND PROSPECTUS
QUANTUM FUND FEBRUARY 24, 1997
INSTITUTIONAL CLASS SHARES
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1818 Market Street, Philadelphia, PA 19103
For more information about
the Blue Chip Fund Institutional Class
and the Quantum Fund Institutional Class
call the Delaware Group at 800-828-5052.
This Prospectus describes two series, the Blue Chip Fund and
the Quantum Fund (individually a "Fund" and collectively the "Funds"), of
Delaware Group Equity Funds II, Inc. ("Equity Funds II, Inc."), a
professionally-managed mutual fund of the series type. The Blue Chip Fund offers
the Blue Chip Fund Institutional Class and the Quantum Fund offers the Quantum
Fund Institutional Class. Each class is referred to individually as a "Class"
and collectively as the "Classes."
The objective of Blue Chip Fund is to achieve long-term capital
appreciation. Current income is a secondary objective. It seeks to achieve these
objectives by investing primarily in equity securities and any securities that
are convertible into equity securities. The objective of Quantum Fund is to
achieve long-term capital appreciation. It seeks to achieve this objective by
investing primarily in equity securities of medium to large-sized companies
expected to grow over time that meet the Fund's "Social Criteria" strategy.
This Prospectus relates only to the Classes and sets forth information
that you should read and consider before you invest. Please retain it for future
reference. The Statement of Additional Information ("Part B") of Equity Funds
II, Inc.'s registration statement, dated February 24, 1997, as it may be amended
from time to time, contains additional information about the Funds and has been
filed with the Securities and Exchange Commission. Part B is incorporated by
reference into this Prospectus and is available, without charge, by writing to
Delaware Distributors, L.P. at the above address or by calling the above number.
The Blue Chip Fund also offers the Blue Chip Fund A Class of shares,
the Blue Chip Fund B Class of shares and the Blue Chip Fund C Class of shares.
The Quantum Fund also offers the Quantum Fund A Class of shares, the Quantum
Fund B Class of shares and the Quantum Fund C Class of shares. Shares of these
classes are subject to sales charges and other expenses, which may affect their
performance. A prospectus for these classes can be obtained by writing to
Delaware Distributors, L.P. at the above address or by calling 800-523-4640.
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TABLE OF CONTENTS
Cover Page Redemption and Exchange
Synopsis Dividends and Distributions
Summary of Expenses Taxes
Investment Objective and Policies Calculation of Net Asset
Suitability Value Per Share
Investment Strategy Management of the Fund
Classes of Shares Other Investment Policies
How to Buy Shares and Risk Considerations
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
BE SURE TO CONSULT YOUR FINANCIAL ADVISER WHEN MAKING INVESTMENTS. MUTUAL FUNDS
CAN BE A VALUABLE PART OF YOUR FINANCIAL PLAN; HOWEVER, SHARES OF THE FUNDS ARE
NOT FDIC OR NCUSIF INSURED, ARE NOT GUARANTEED BY ANY BANK OR ANY CREDIT UNION,
ARE NOT OBLIGATIONS OF ANY BANK OR ANY CREDIT UNION, AND INVOLVE INVESTMENT
RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. SHARES OF THE FUNDS ARE NOT BANK
OR CREDIT UNION DEPOSITS.
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SYNOPSIS
Investment Objective
Blue Chip Fund - The objective of Blue Chip Fund is to achieve
long-term capital appreciation. Current income is a secondary objective. It
seeks to achieve these objectives by investing primarily in equity securities
and any securities that are convertible into equity securities.
Quantum Fund - The objective of Quantum Fund is to achieve long-term
capital appreciation. It seeks to achieve this objective by investing primarily
in equity securities of medium to large-sized companies expected to grow over
time that meet the Fund's "Social Criteria" strategy.
Risk Factors and Special Considerations
Each Fund has the ability to enter into options and futures
transactions for hedging purposes to attempt to counterbalance portfolio
volatility. There are risks that result from the use of options and futures and
the investor should review the description of these risks in this Prospectus.
See Futures Contracts and Options under Other Investment Policies and Risk
Considerations.
Each Fund may invest up to 20% of its total assets directly or
indirectly in securities of issuers domiciled in foreign countries. Such
investments involve certain risk and opportunity considerations not typically
associated with investing in United States companies. See Foreign Securities
under Other Investment Policies and Risk Considerations.
Investment Manager, Distributor and Service Agent
Delaware Management Company, Inc. (the "Manager") furnishes investment
management services to each Fund, subject to the supervision and direction of
Equity Funds II, Inc.'s Board of Directors. The Manager also provides investment
management services to certain of the other funds in the Delaware Group. The
Manager has selected Vantage Global Advisors, Inc. (the "Sub-Adviser") to serve
as sub-adviser to each Fund and to provide the day-to-day management to each
Fund. Delaware Distributors, L.P. (the "Distributor") is the national
distributor for the Fund and for all of the other mutual funds in the Delaware
Group. Delaware Service Company, Inc. (the "Transfer Agent") is the shareholder
servicing, dividend disbursing, accounting services and transfer agent for the
Fund and for all of the other mutual funds in the Delaware Group. See Summary of
Expenses and Management of the Funds for further information regarding the
Manager and the Sub-Adviser and the fees payable under each Fund's Investment
Management Agreement and Sub-Advisory Agreement.
Purchase Price
Shares of each Class offered by this Prospectus are available at net
asset value, without a front-end or contingent deferred sales charge, and are
not subject to distribution fees under a Rule 12b-1 distribution plan. See
Classes of Shares.
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Redemption and Exchange
Shares of each Class are redeemed or exchanged at the net asset value
calculated after receipt of the redemption or exchange request. See Redemption
and Exchange.
Open-End Investment Company
Equity Funds II, Inc., which was organized as a Maryland corporation in
1983, is an open-end management investment company. Each Fund's portfolio of
assets is diversified as defined by the Investment Company Act of 1940 (the
"1940 Act"). Equity Funds II, Inc. was previously organized as a Delaware
corporation in 1956. See Shares under Management of the Funds.
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SUMMARY OF EXPENSES
Blue
Chip Quantum
Shareholder Transaction Expenses Fund Fund
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Maximum Sales Charge Imposed on
Purchases (as a percentage of
offering price)................................None None
Maximum Sales Charge Imposed on
Reinvested Dividends (as a
percentage of offering price)..................None None
Exchange Fees...........................................None* None*
Annual Operating Expenses Blue
(as a percentage of Chip Quantum
average daily net assets) Fund Fund
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Management Fees
(after voluntary waivers).................... 0.30% 0.21%
12b-1 Fees.............................................None None
Other Operating Expenses...............................0.90% 0.99%
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Total Operating Expenses+
(after voluntary waivers)................1.20% 1.20%
===== =====
Because the Funds have no operating history, "Other Operating Expenses"
are estimated based on expenses expected to be incurred during each Fund's first
fiscal year.
*Exchanges are subject to the requirements of each fund and a front-end sales
charge may apply.
+"Total Operating Expenses" and "Other Operating Expenses" for each Class are
based on estimated amounts for the first full fiscal year of the Class, after
giving effect to the voluntary expense waiver. The Manager has elected
voluntarily to waive that portion, if any, of the annual management fees payable
by each Fund and to pay certain expenses of that Fund to the extent necessary to
ensure that the Total Operating Expenses of the Class do not exceed 1.20% during
the commencement of the public offering of the Class through July 31, 1997. If
the voluntary expense waivers were not in effect, it is estimated that for the
first full fiscal year the Total Operating Expenses, as a percentage of average
daily net assets, would be 1.55% for the Blue Chip Fund Institutional Class,
reflecting management fees of 0.65% and 1.74% for the Quantum Fund Institutional
Class, reflecting management fees of 0.75%.
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For expense information about Class A Shares, Class B Shares and Class
C Shares, see the separate prospectus relating to those classes.
The following example illustrates the expenses that an investor would
pay on a $1,000 investment over various time periods, assuming (1) a 5% annual
rate of return, and (2) redemption at the end of each time period. As noted in
the table above, the Fund charges no redemption fees. The following example
assumes the voluntary waiver of the management fee by the Manager.
1 year 3 years
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Blue Chip Fund $12 $38
Quantum Fund $12 $38
The purpose of the above tables is to assist the investor in
understanding the various costs and expenses that an investor in the Class will
bear directly or indirectly.
This example should not be considered a representation of past or future
expenses or performance. Actual expenses may be greater or less than those
shown.
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INVESTMENT OBJECTIVE AND POLICIES
Blue Chip Fund - The objective of Blue Chip Fund is to achieve
long-term capital appreciation. Current income is a secondary objective. It
seeks to achieve these objectives by investing primarily in equity securities
and any securities that are convertible into equity securities.
Quantum Fund - The objective of Quantum Fund is to achieve long-term
capital appreciation. It seeks to achieve this objective by investing primarily
in equity securities of medium to large-sized companies expected to grow over
time that meet the Fund's "Social Criteria" strategy.
SUITABILITY
Blue Chip Fund - The Fund may be suitable for the patient investor
interested in long-term capital appreciation with the potential for current
income. Investors should be willing to accept the risks associated with
investments in equity securities and securities convertible into equity
securities, issued by domestic and foreign issuers. Because current income is a
secondary objective of the Fund, the Fund is not suitable as an investment
vehicle for investors whose primary investment goal is current income.
Quantum Fund - The Fund may be suitable for the patient investor
interested in capital appreciation. Investors should be willing to accept the
risks associated with investments in equity securities issued by domestic and
foreign issuers. The Fund is designed for capital appreciation; providing
current income is not a goal of the Fund. Any income produced, therefore, is
expected to be minimal.
* * *
Naturally, the Funds cannot assure a specific rate of return or that
principal will be protected. The value of each Fund's shares can be expected to
move up and down depending upon market conditions. Consequently, appreciation
may be obtained in periods of generally rising markets, while in declining
markets, the value of its shares may, of course, decline. For this reason,
neither Fund is appropriate for short-term investors. However, through the
cautious selection and supervision of its portfolio, each Fund will strive to
achieve its objective set forth above.
Investors should not consider a purchase of shares of either Fund as
equivalent to a complete investment program. The Delaware Group includes a
family of funds, generally available through registered investment dealers,
which may be used together to create a more complete investment program.
INVESTMENT STRATEGY
Blue Chip Fund - The objective of Blue Chip Fund is to achieve
long-term capital appreciation. Current income is a secondary objective. It
seeks to achieve these objectives by investing in equity securities and any
securities that are convertible into equity securities. The Sub-Adviser will
invest in companies which it believes exhibit growth potential that
significantly exceeds the average anticipated growth rate of companies included
in the Standard and Poor's 500 Index ("S&P 500"). Under normal market
conditions, at least 65% of the total assets of the Fund will be in companies
determined by the Sub-Adviser to be "Blue Chip." Generally, the median market
capitalization of companies targeted for investment by the Fund will be greater
than $5 billion. For investment purposes, however, "Blue Chip" companies are
those whose market capitalization is greater than $2.5 billion at the time of
investment.
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The Sub-Adviser believes "Blue Chip" companies have characteristics
which are desirable in seeking to achieve the investment objectives of the Fund.
For example, such companies tend to have a lengthy history of profit growth and
dividend payment, and a reputation for quality management structure, products
and service. Securities of "Blue Chip" companies generally are considered to be
highly liquid, because compared to those of lesser capitalized companies, more
shares of these securities are outstanding in the marketplace and their trading
volume tends to be higher.
While it is anticipated that the Fund will invest principally in common
stock and securities that are convertible into common stock, the Fund may invest
in all available types of equity securities, including without limitation,
preferred stock and warrants. Investments in equity securities other than common
stock or securities that are convertible into common stock will be made when
such securities are more attractively priced relative to the underlying common
stock. Such investments may be made in any proportion deemed prudent under
existing market and economic conditions. Convertible securities include
preferred stock and debentures that pay a stated interest rate or dividend and
are convertible into common stock at an established ratio. These securities,
which are usually priced at a premium to their conversion value, may allow the
Fund to receive current income while participating to some extent in any
appreciation in the underlying common stock. The value of a convertible security
tends to be affected by changes in interest rates as well as factors affecting
the market value of the underlying common stock.
See Other Investment Policies and Risks Considerations.
Up to 20% of the Fund's total assets may be invested directly or
indirectly in securities of issuers domiciled in foreign countries, including
investments in American, European and Global Depositary Receipts. See Foreign
Investment Information under Other Investment Policies and Risk Considerations.
The Fund may enter into options and futures transactions for hedging
purposes to attempt to counterbalance portfolio volatility. See Futures
Contracts and Options under Other Investment Policies and Risk Considerations.
The Fund may hold cash or invest in short-term debt securities and
other money market instruments when, in the Sub-Adviser's opinion, such holdings
are prudent given then prevailing market conditions. The Fund may also invest in
such instruments pending investment by the Fund of proceeds from the sale of
portfolio securities or proceeds from new sales of Fund shares pending
investment in other types of securities for the Fund or to maintain sufficient
liquidity to meet redemptions. All such short-term investments will be of the
highest quality as determined by a nationally-recognized statistical rating
organization (e.g., AAA by Standard & Poor's Rating Group ("S&P") or Aaa by
Moody's Investors Service, Inc. ("Moody's")) or, if unrated, judged to be of
comparable quality as determined by the Sub-Adviser. See Short-Term Investments
under Other Investment Policies and Risk Considerations.
The Fund will constantly strive to achieve its objectives and, in
investing to do so, may hold securities for any period of time. To the extent
the Fund engages in short-term trading in attempting to achieve its objectives,
it may increase the turnover rate and incur larger brokerage commissions and
other expenses than might otherwise be the case.
Quantum Fund - The objective of Quantum Fund is to achieve long-term
capital appreciation. It seeks to achieve this objective by investing primarily
in equity securities of medium to large-sized companies expected to grow over
time. Medium to large-size companies generally are those having a market
capitalization of greater than $1 billion at the time of investment. The
Sub-Adviser will invest
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substantially all of the assets of the Fund in equity securities that it
believes exhibit growth potential that significantly exceeds the average
anticipated growth rate of companies included in the S&P 500 and meet the Fund's
"Social Criteria" strategy.
The Fund will adhere to a Social Criteria strategy, which can be
changed by action of Equity Funds II, Inc.'s Board of Directors. The Sub-Adviser
will utilize the Social Investment Database published by Kinder, Lydenberg,
Domini & Co. Inc. ("KLD") in determining whether a company is engaged in any
activity precluded by the Fund's Social Criteria. KLD specializes in providing
the financial community with social research on publicly traded U.S.
corporations. The Fund will not purchase securities of any company for which the
Social Investment Database indicates a concern or a major concern relating to
one or more of the Social Criteria. See Social Criteria under Other Investment
Policies and Risk Considerations.
Because of the Social Criteria strategy, the Fund may be underexposed
in certain sectors which may at times outperform the market.
While it is anticipated that the Fund, under normal market conditions,
will invest principally in common stock, the Fund may invest in all available
types of equity securities, including without limitation, preferred stock,
warrants and securities convertible into common stock. Such investments may be
made in any proportion deemed prudent under existing market and economic
conditions. See Other Investment Policies and Risk Considerations.
Up to 20% of the Fund's total assets may be invested directly or
indirectly in securities of issuers domiciled in foreign countries, including
investments in American, European or Global Depositary Receipts. See Foreign
Investment Information under Other Investment Policies and Risk Considerations.
The Fund may enter into options and futures transactions for hedging
purposes to counterbalance portfolio volatility. See Futures Contracts and
Options under Other Investment Policies and Risk Considerations.
The Fund may hold cash or invest in short-term debt securities
and other money market instruments when, in the Sub-Adviser's opinion, such
holdings are prudent given then prevailing market conditions. The Fund may also
invest in such instruments pending investment by the Fund of proceeds from the
sale of portfolio securities or proceeds from new sales of Fund shares pending
investment in other types of securities for the Fund as to maintain sufficient
liquidity to meet redemptions. All such short-term investments will be of the
highest quality as determined by a nationally-recognized statistical rating
organization (e.g., AAA by S&P or Aaa by Moody's) or, if unrated, judged to be
of comparable quality as determined by the Sub-Adviser. See Short-Term
Investments under Other Investment Policies and Risk Considerations.
The Fund will constantly strive to achieve its objective and, in
investing to do so, may hold securities for any period of time. To the extent
the Fund engages in short-term trading in attempting to achieve its objective,
it may increase the turnover rate and incur larger brokerage commissions and
other expenses than might otherwise be the case.
* * *
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For additional information on each Fund's investment policies and
certain risks associated with investments in certain types of securities, see
Other Investment Policies and Risk Considerations.
Although each Fund will constantly strive to attain its respective
objectives, there can be no assurance that they will be attained.
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CLASSES OF SHARES
The Distributor serves as the national distributor for each Fund.
Shares of each Class may be purchased directly by contacting a Fund or its agent
or through authorized investment dealers. All purchases of shares of each Class
are at net asset value. There is no front-end or contingent deferred sales
charge.
Investment instructions given on behalf of participants in an
employer-sponsored retirement plan are made in accordance with directions
provided by the employer. Employees considering purchasing shares of a Class as
part of their retirement program should contact their employer for details.
Shares of each Class are available for purchase only by: (a) retirement
plans introduced by persons not associated with brokers or dealers that are
primarily engaged in the retail securities business and rollover individual
retirement accounts from such plans; (b) tax-exempt employee benefit plans of
the Manager or its affiliates and securities dealer firms with a selling
agreement with the Distributor; (c) institutional advisory accounts of the
Manager or its affiliates and those having client relationships with Delaware
Investment Advisers, a division of the Manager, or its affiliates and their
corporate sponsors, as well as subsidiaries and related employee benefit plans
and rollover individual retirement accounts from such institutional advisory
accounts; (d) a bank, trust company and similar financial institution investing
for its own account or for the account of its trust customers for whom such
financial institution is exercising investment discretion in purchasing shares
of the Class, except where the investment is part of a program that requires
payment to the financial institution of a Rule 12b-1 Plan fee; and (e)
registered investment advisers investing on behalf of clients that consist
solely of institutions and high net-worth individuals having at least $1,000,000
entrusted to the adviser for investment purposes, but only if the adviser is not
affiliated or associated with a broker or dealer and derives compensation for
its services exclusively from its clients for such advisory services.
Blue Chip Fund A Class, Blue Chip Fund B Class, Blue Chip Fund C Class, Quantum
Fund A Class, Quantum Fund B Class and Quantum Fund C Class
In addition to offering the Blue Chip Fund Institutional Class, Blue
Chip Fund also offers the Blue Chip Fund A Class, the Blue Chip Fund B Class and
the Blue Chip Fund C Class and in addition to offering the Quantum Fund
Institutional Class, Quantum Fund also offers the Quantum Fund A Class, the
Quantum Fund B Class and the Quantum Fund C Class, which are described in a
separate prospectus. The Class A, Class B and Class C Shares of each Fund may be
purchased through authorized investment dealers or directly by contacting the
relevant Fund or its Distributor. The Class A Shares of each Fund carry a
front-end sales charge and have annual 12b-1 expenses equal to a maximum of
0.30%. The maximum front-end sales charge as a percentage of the offering price
is 4.75% and is reduced on certain transactions of $100,000 or more. The Class B
and Class C Shares of each Fund have no front-end sales charge but are subject
to annual 12b-1 expenses equal to a maximum of 1%. Class B Shares and Class C
Shares and certain Class A Shares may be subject to a contingent deferred sales
charge upon redemption. To obtain a prospectus relating to such classes, contact
the Distributor by writing to the address or by calling the phone numbers listed
on the cover of this Prospectus.
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HOW TO BUY SHARES
Each Fund makes it easy to invest by mail, by wire, by exchange and by
arrangement with your investment dealer. In all instances, investors must
qualify to purchase shares of the Classes.
Investing Directly by Mail
1. Initial Purchases--An Investment Application, or in the case of a retirement
account, an appropriate retirement plan application, must be completed, signed
and sent with a check payable to specific Fund and Class, to Delaware Group at
1818 Market Street, Philadelphia, PA 19103.
2. Subsequent Purchases--Additional purchases may be made at any time by mailing
a check payable to the specific Fund and Class. Your check should be identified
with your name(s) and account number.
Investing Directly by Wire
You may purchase shares by requesting your bank to transmit funds by
wire to CoreStates Bank, N.A., ABA #031000011, account number 1412893401
(include your name(s) and your account number).
1. Initial Purchases--Before you invest, telephone the Fund's Client Services
Department at 800- 828-5052 to get an account number. If you do not call first,
it may delay processing your investment. In addition, you must promptly send
your Investment Application, or in the case of a retirement account, an
appropriate retirement plan application, to the specific Fund and Class, to
Delaware Group at 1818 Market Street, Philadelphia, PA 19103.
2. Subsequent Purchases--You may make additional investments anytime by wiring
funds to CoreStates Bank, N.A., as described above. You must advise your Client
Services Representative by telephone at 800-828-5052 prior to sending your wire.
Investing by Exchange
If you have an investment in another mutual fund in the Delaware Group
and you qualify to purchase shares of the Classes, you may write and authorize
an exchange of part or all of your investment into the Fund. However, Class B
Shares and Class C Shares of each Fund and the Class B Shares and Class C Shares
of the other funds in the Delaware Group offering such a class of shares may not
be exchanged into either Class. If you wish to open an account by exchange, call
your Client Services Representative at 800-828-5052 for more information. See
Redemption and Exchange for more complete information concerning your exchange
privileges.
Investing through Your Investment Dealer
You can make a purchase of Fund shares through most investment dealers
who, as part of the service they provide, must transmit orders promptly to the
Fund. They may charge for this service.
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Purchase Price and Effective Date
The purchase price (net asset value) is determined as of the close of
regular trading on the New York Stock Exchange (ordinarily, 4 p.m., Eastern
time) on days when the Exchange is open.
The effective date of a purchase made through an investment dealer is
the date the order is received by a Fund. The effective date of a direct
purchase is the day your wire, electronic transfer or check is received, unless
it is received after the time the share price is determined, as noted above.
Purchase orders received after such time will be effective the next business
day.
The Conditions of Your Purchase
Each Fund reserves the right to reject any purchase order. If a
purchase is canceled because your check is returned unpaid, you are responsible
for any loss incurred. A Fund can redeem shares from your account(s) to
reimburse itself for any loss, and you may be restricted from making future
purchases in any of the funds in the Delaware Group. Each Fund reserves the
right to reject purchase orders paid by third-party checks or checks that are
not drawn on a domestic branch of a United States financial institution. If a
check drawn on a foreign financial institution is accepted, you may be subject
to additional bank charges for clearance and currency conversion.
Each Fund also reserves the right, upon 60 days' written notice, to
involuntarily redeem accounts that remain under $250 as a result of redemptions.
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REDEMPTION AND EXCHANGE
Redemption and exchange requests made on behalf of participants in an
employer-sponsored retirement plan are made in accordance with directions
provided by the employer. Employees should therefore contact their employer for
details.
Your shares will be redeemed or exchanged based on the net asset value
next determined after the Fund receives your request in good order. For example,
redemption and exchange requests received in good order after the time the net
asset value of shares is determined will be processed on the next business day.
See Purchase Price and Effective Date under How to Buy Shares. Except as
otherwise noted below, for a redemption request to be in "good order," you must
provide your account number, account registration, and the total number of
shares or dollar amount of the transaction. With regard to exchanges, you must
also provide the name of the fund you want to receive the proceeds. Exchange
instructions and redemption requests must be signed by the record owner(s)
exactly as the shares are registered. You may request a redemption or an
exchange by calling a Fund at 800-828-5052. Redemption proceeds will be
distributed promptly, as described below, but not later than seven days after
receipt of a redemption request.
All exchanges involve a purchase of shares of the fund into which the
exchange is made. As with any purchase, an investor should obtain and carefully
read that fund's prospectus before buying shares in an exchange. The prospectus
contains more complete information about the fund, including charges and
expenses.
Each Fund will process written and telephone redemption requests to the
extent that the purchase orders for the shares being redeemed have already
settled. Each Fund will honor redemption requests as to shares for which a check
was tendered as payment, but neither Fund will mail or wire the proceeds until
it is reasonably satisfied that the check has cleared, which may take up to 15
days from the purchase date. You can avoid this potential delay if you purchase
shares by wiring Federal Funds. Each Fund reserves the right to reject a written
or telephone redemption request or delay payment of redemption proceeds if there
has been a recent change to the shareholder's address of record.
Shares of each Class may be exchanged into any other Delaware Group
mutual fund, provided: (1) the investment satisfies the eligibility and other
requirements set forth in the prospectus of the fund being acquired, including
the payment of any applicable front-end sales charge; and (2) the shares of the
fund being acquired are in a state where that fund is registered. If exchanges
are made into other shares that are eligible for purchase only by those
permitted to purchase shares of a Class, such exchange will be exchanged at net
asset value. Shares of a Class may not be exchanged into the Class B Shares or
Class C Shares of the funds in the Delaware Group. Each Fund may suspend,
terminate or amend the terms of the exchange privilege upon 60 days' written
notice to shareholders.
Various redemption and exchange methods are outlined below. No fee is
charged by the Funds or the Distributor for redeeming or exchanging your shares.
You may also have your investment dealer arrange to have your shares redeemed or
exchanged. Your investment dealer may charge for this service.
All authorizations, including selection of any of the features
described below, shall continue in effect until such time as a written
revocation or modification has been received by a Fund or its agent.
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Written Redemption and Exchange
You can write to each Fund at 1818 Market Street, Philadelphia, PA
19103 to redeem some or all of your shares or to request an exchange of any or
all of your shares into another mutual fund in the Delaware Group, subject to
the same conditions and limitations as other exchanges noted above. The request
must be signed by all owners of the account or your investment dealer of record.
For redemptions of more than $50,000, or when the proceeds are not sent
to the shareholder(s) at the address of record, each Fund requires a signature
by all owners of the account and may require a signature guarantee. Each
signature guarantee must be supplied by an eligible guarantor institution. The
Funds reserve the right to reject a signature guarantee supplied by an eligible
institution based on its creditworthiness. The Funds may require further
documentation from corporations, executors, retirement plans, administrators,
trustees or guardians.
Payment is normally mailed the next business day after receipt of your
redemption request. Certificates are issued for shares only if you submit a
specific request. If your shares are in certificate form, the certificate must
accompany your request and also be in good order.
You also may submit your written request for redemption or exchange by
facsimile transmission at the following number: 215-255-8864.
Telephone Redemption and Exchange
To get the added convenience of the telephone redemption and exchange
methods, you must have the Transfer Agent hold your shares (without charge) for
you. If you choose to have your shares in certificate form, you may redeem or
exchange only by written request and you must return your certificates.
The Telephone Redemption--Check to Your Address of Record service and
the Telephone Exchange service, both of which are described below, are
automatically provided unless you notify the Fund in which you are investing in
writing that you do not wish to have such services available with respect to
your account. Each Fund reserves the right to modify, terminate or suspend these
procedures upon 60 days' written notice to shareholders. It may be difficult to
reach a Fund by telephone during periods when market or economic conditions lead
to an unusually large volume of telephone requests.
Neither the Funds nor their Transfer Agent is responsible for any
shareholder loss incurred in acting upon written or telephone instructions for
redemption or exchange of Fund shares which are reasonably believed to be
genuine. With respect to such telephone transactions, a Fund will follow
reasonable procedures to confirm that instructions communicated by telephone are
genuine (including verification of a form of personal identification) as, if it
does not, the Fund or the Transfer Agent may be liable for any losses due to
unauthorized or fraudulent transactions. A written confirmation will be provided
for all purchase, exchange and redemption transactions initiated by telephone.
By exchanging shares by telephone, you are acknowledging prior receipt of a
prospectus for the fund into which your shares are being exchanged.
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<PAGE>
Telephone Redemption--Check to Your Address of Record
You or your investment dealer of record can have redemption proceeds of
$50,000 or less mailed to you at your record address. Checks will be payable to
the shareholder(s) of record. Payment is normally mailed the next business day
after receipt of the redemption request.
Telephone Redemption--Proceeds to Your Bank
Redemption proceeds of $1,000 or more can be transferred to your
predesignated bank account by wire or by check. You should authorize this
service when you open your account. If you change your predesignated bank
account, you must submit a written authorization and you may need to have your
signature guaranteed. For your protection, your authorization must be on file.
If you request a wire, your funds will normally be sent the next business day.
If you ask for a check, it will normally be mailed the next business day after
receipt of your redemption request to your predesignated bank account. There are
no fees for this redemption method, but the mail time may delay getting funds
into your bank account. Simply call your Client Services Representative prior to
the time the net asset value is determined, as noted above.
Telephone Exchange
You or your investment dealer of record can exchange shares into any
fund in the Delaware Group under the same registration. As with the written
exchange service, telephone exchanges are subject to the same conditions and
limitations as other exchanges noted above. Telephone exchanges may be subject
to limitations as to amounts or frequency.
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DIVIDENDS AND DISTRIBUTIONS
Equity Funds II, Inc. currently intends to make quarterly payments from
Blue Chip Fund's net investment income and annual payments from Quantum Fund's
net investment income; provided, however, that no such payments will be made
with respect to Blue Chip Fund prior to June 1997. Payments from a Fund's net
realized security profits will be made during the first quarter of the next
fiscal year. Both dividends and distributions are automatically reinvested in
your account at net asset value.
Each Class of each Fund will share proportionately in the investment
income and expenses of that Fund, except that a Class will not incur
distribution fees under the Rule 12b-1 Plans which apply to the Class A Shares,
Class B Shares and the Class C Shares.
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<PAGE>
TAXES
The tax discussion set forth below is included for general information
only. Investors should consult their own tax advisers concerning the federal,
state, local or foreign tax consequences of an investment in a Fund.
Each Fund intends to qualify as a regulated investment company under
Subchapter M of the Code. As such, a Fund will not be subject to federal income
tax, or to any excise tax, to the extent its earnings are distributed as
provided in the Code.
Each Fund intends to distribute substantially all of its net investment
income and net capital gains, if any. Dividends from net investment income or
net short-term capital gains will be taxable to you as ordinary income, whether
received in cash or in additional shares. For corporate investors, dividends
from net investment income will generally qualify in part for the corporate
dividends-received deduction. The portion of dividends paid by a Fund that so
qualifies will be designated each year in a notice from Equity Funds II, Inc. to
the Fund's shareholders.
Distributions paid by a Fund from long-term capital gains, received in
additional shares, are taxable to those investors who are subject to income
taxes as long-term capital gains, regardless of the length of time an investor
has owned shares in the Fund. A Fund does not seek to realize any particular
amount of capital gains during a year; rather, realized gains are a by-product
of Fund management activities. Consequently, capital gains distributions may be
expected to vary considerably from year to year. Also, for those investors
subject to tax, if purchases of shares in a Fund are made shortly before the
record date for a dividend or capital gains distribution, a portion of the
investment will be returned as a taxable distribution.
Although dividends generally will be treated as distributed when paid,
dividends which are declared in October, November or December to shareholders of
record on a specified date in one of those months, but which, for operational
reasons, may not be paid to the shareholder until the following January, will be
treated for tax purposes as if paid by a Fund and received by the shareholder on
December 31 of the calendar year in which they are declared.
The sale of shares of a Fund is a taxable event and may result in a
capital gain or loss to shareholders subject to tax. Capital gain or loss may be
realized from an ordinary redemption of shares or an exchange of shares between
a Fund and any other fund in the Delaware Group. Any loss incurred on a sale or
exchange of Fund shares that had been held for six months or less will be
treated as a long-term capital loss to the extent of capital gain dividends
received with respect to such shares.
In addition to federal taxes, shareholders may be subject to state and
local taxes on distributions. Distributions of interest income and capital gains
realized from certain types of U.S. government securities may be exempt from
state personal income taxes. Shares of each Fund are exempt from Pennsylvania
county personal property taxes.
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<PAGE>
Each year, Equity Funds II, Inc. will mail to you information on the
tax status of a Fund's dividends and distributions. Shareholders will also
receive each year information as to the portion of dividend income that is
derived from U.S. government securities that are exempt from state income tax.
Of course, shareholders who are not subject to tax on their income would not be
required to pay tax on amounts distributed to them by a Fund.
Each Fund is required to withhold 31% of taxable dividends, capital
gains distributions, and redemptions paid to shareholders who have not complied
with IRS taxpayer identification regulations. You may avoid this withholding
requirement by certifying on your Investment Application your proper Taxpayer
Identification Number and by certifying that you are not subject to backup
withholding.
See Accounting and Tax Issues and Distributions and Taxes in Part B for
additional information on tax matters relating to each Fund and its
shareholders.
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<PAGE>
CALCULATION OF NET ASSET VALUE PER SHARE
The purchase and redemption price of Class shares is the net asset
value ("NAV") per share of a Class next computed after the order is received.
The NAV is computed as of the close of regular trading on the New York Stock
Exchange (ordinarily, 4 p.m., Eastern time) on days when the Exchange is open.
The NAV per share is computed by adding the value of all securities and
other assets in the portfolio, deducting any liabilities (expenses and fees are
accrued daily) and dividing by the number of shares outstanding. Debt securities
are priced on the basis of valuations provided by an independent pricing service
using methods approved by Equity Funds II, Inc.'s Board of Directors. Equity
securities for which marked quotations are available are priced at market value.
Short-term investments having a maturity of less than 60 days are valued at
amortized cost, which approximates market value. All other securities are valued
at their fair value as determined in good faith and in a method approved by
Equity Funds II, Inc.'s Board of Directors.
The net asset values of all outstanding shares of each class of a Fund
will be computed on a pro-rata basis for each outstanding share based on the
proportionate participation in the Fund represented by the value of shares of
that class. All income earned and expenses incurred by a Fund will be borne on a
pro-rata basis by each outstanding share of a class, based on each class'
percentage in the Fund represented by the value of shares of such classes,
except that the Class will not incur any of the expenses under the Fund's 12b-1
Plans and the Class A, B and C Shares alone will bear the 12b-1 Plan fees
payable under their respective Plans.
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<PAGE>
MANAGEMENT OF THE FUNDS
Directors
The business and affairs of Equity Funds II, Inc. are managed under the
direction of its Board of Directors. Part B contains additional information
regarding Equity Funds II, Inc.'s directors and officers.
Investment Manager
The Manager furnishes investment management services to each Fund.
The Manager and its predecessors have been managing the funds in the
Delaware Group since 1938. On November 30, 1996, the Manager and its affiliates
within the Delaware Group, including Delaware International Advisers Ltd., were
managing in the aggregate more than $32 billion in assets in the various
institutional or separately managed (approximately $20,311,203,919) and
investment company (approximately $11,765,348,126) accounts.
The Manager is an indirect, wholly owned subsidiary of Delaware
Management Holdings, Inc. ("DMH"). On April 3, 1995, a merger between DMH and a
wholly owned subsidiary of Lincoln National Corporation ("Lincoln National") was
completed. DMH and the Manager are now indirect, wholly owned subsidiaries, and
subject to the ultimate control, of Lincoln National. Lincoln National, with
headquarters in Fort Wayne, Indiana, is a diversified organization with
operations in many aspects of the financial services industry, including
insurance and investment management.
The Manager administers the affairs of and is ultimately responsible
for the investment management of each of the Funds under separate Investment
Management Agreements with Equity Funds II, Inc. on behalf of each Fund dated
February 24, 1997. Under the Investment Management Agreement for Blue Chip Fund,
the Manager is paid an annual fee equal to 0.65% on the first $500 million of
average daily net assets, 0.625% on the next $500 million and 0.60% on the
average daily net assets in excess of $1 billion. Under the Investment
Management Agreement for Quantum Fund, the Manager is paid an annual fee equal
to 0.75% on the first $500 million of average daily net assets, 0.725% on the
next $500 million and 0.70% on the average daily net assets in excess of $1
billion.
Pursuant to the terms of a Sub-Advisory Agreement with the Manager, the
Sub-Adviser participates in the management of each Fund's assets, is responsible
for day-to-day investment management of each Fund, makes investment decisions
for each Fund in accordance with the Fund's investment objectives and stated
policies and places orders on behalf of each Fund to effect the investment
decisions made. The Manager continues to have ultimate responsibility for all
investment advisory services in connection with the management of the Funds
pursuant to the Investment Management Agreement and supervises the Sub-Adviser's
performance of such services. For the services provided to the Manager, the
Manager pays the Sub-Adviser 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
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<PAGE>
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 in 1979, it provides investment advice to pension plans,
endowments, insurance and commingled products and had assets under management,
as of January 31, 1997, in excess of $5 billion. T. Scott Wittman, President and
Chief Investment Officer of the Sub-Adviser, has primary responsibility for
making day-to-day investment decisions for each Fund. He has had such
responsibility for the Funds since their inception. His responsibilities include
both business administration and equity portfolio management. A CFA
charterholder, Mr. Wittman received both graduate and undergraduate degrees in
business administration form Indiana University. He has spent his entire
professional career in quantitative investment firms, including TSA Capital
Management, where he was a managing director, and Mellon Bank, where he was Vice
President and Manager of Quantitative Analysis and Systems.
Mr. Wittman also serves as portfolio manager for Lincoln National
Growth and Income Fund, Inc. ("Lincoln Growth and Income Fund") and Lincoln
National Social Awareness Fund, Inc. ("Lincoln Social Awareness Fund"), which
are available only through variable annuity contracts issued by Lincoln National
Life Insurance Co. In the capacity as portfolio manager, Mr. Wittman has had
primary responsibility for making day-to-day investment decisions for each such
fund. The Sub-Adviser has served as sub-adviser for Lincoln National Growth and
Income Fund since August 21, 1985 and for Lincoln Social Awareness Fund since
inception. Mr. Wittman has served as portfolio manager for each fund since
October 1993.
Comparative Performance
The investment objectives, policies and strategies of Blue Chip Fund
and Lincoln Growth and Income Fund are substantially similar. Mr. Wittman makes
comparable selections of securities for each such fund. The table below presents
total return performance as of December 31, 1996 on an annualized basis for
Lincoln Growth and Income Fund compared with the average of the performance of
all funds
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<PAGE>
offered through variable annuity contracts included as part of Lipper Analytical
Services Variable Annuity growth and income category:
<TABLE>
<CAPTION>
Since
1 Year 2 Years 3 Years 5 Years 10 Years Inception(1)
------ ------- ------- ------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Lincoln Growth and Income(2) 18.46% 27.39% 17.63% 12.97% 13.34% 14.33%
Average Growth and Income(3) 20.20% 25.35% 15.47% 13.28% 13.30% 15.09%
</TABLE>
(1) The fund's inception date is December 21, 1981.
(2) Returns reflect changes in share prices and reinvestment of dividends
and distributions and are net of all expenses, including insurance
related fees. The expense ratio of the Lincoln Growth and Income Fund,
including insurance related fees, has been capped at 1.50% since
inception.
(3) Returns represented in the Lipper Analytical Services Variable Annuity
growth and income category reflect changes in share prices and
reinvestment of dividends and distributions and are net of all
expenses, including insurance related fees.
Please note that the historical performance presented above is for Lincoln
Growth and Income Fund, a separate and unrelated fund, and its performance is
not indicative of the potential performance of Blue Chip Fund. Share prices and
investment returns will fluctuate reflecting market conditions.
The investment objectives, policies and strategies of Quantum Fund and
Lincoln Social Awareness Fund are substantially similar. Mr. Wittman makes
comparable selections of securities for each such fund. The table below presents
total return performance as of December 31, 1996 on an annualized basis for
Lincoln Social Awareness Fund compared with the average of the performance of
all funds offered through variable annuity contracts included in Lipper
Analytical Services Variable Annuity growth category:
<TABLE>
<CAPTION>
Since
1 Year 2 Years 3 Years 5 Years Inception(1)
------ ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C>
Lincoln Social Awareness Fund(2) 27.96% 34.71% 21.64% 15.76% 16.34%
Average Growth Funds(3) 18.96% 25.11% 15.18% 12.99% 14.63%
</TABLE>
(1) The fund's inception date is May 2, 1988.
(2) Returns reflect changes in share prices and reinvestment of dividends
and distributions and are net of all expenses, including insurance
related fees. The expense ratio of the Lincoln Social Awareness Fund,
including insurance related fees, has been capped at 1.50% since
inception.
(3) Returns represented in the Lipper Analytical Services Variable Annuity
growth category reflect changes in share prices and reinvestment of
dividends and distributions and are net of all expenses, including
insurance related fees.
Please note that the historical performance presented above is for Lincoln
Social Awareness Fund, a separate and unrelated fund, and its performance is not
indicative of the potential performance of Quantum Fund. Share prices and
investment returns will fluctuate reflecting market conditions.
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<PAGE>
Portfolio Trading Practices
Each Fund normally will not invest for short-term trading purposes.
However, a Fund may sell securities without regard to the length of time they
have been held. The degree of portfolio activity will affect brokerage costs of
a Fund and may affect taxes payable by such Fund's shareholders. Given each
Fund's investment objective, its annual portfolio turnover rate is not expected
to exceed 100%. A turnover rate of 100% would occur, for example, if all the
investments in the Fund's portfolio at the beginning of the year were replaced
by the end of the year.
Each Fund uses its best efforts to obtain the best available price and
most favorable execution for portfolio transactions. Orders may be placed with
brokers or dealers who provide brokerage and research services to the Manager or
to their advisory clients. These services may be used by the Manager in
servicing any of its accounts. Subject to best price and execution, each Fund
may consider a broker/dealer's sales of Fund shares in placing portfolio orders
and may place orders with broker/dealers that have agreed to defray certain Fund
expenses such as custodian fees.
Performance Information
From time to time, each Fund may quote total return performance of its
Class in advertising and other types of literature.
Total return will be based on a hypothetical $1,000 investment,
reflecting the reinvestment of all distributions. Each presentation will include
the average annual total return for one-, five- and ten-year periods or
life-of-fund, as relevant. Each Fund may also advertise aggregate and average
total return information concerning its Class over additional periods of time.
Net asset value fluctuates and is not guaranteed. Past performance is
not a guarantee of future results.
Statements and Confirmations
You will receive quarterly statements of your account summarizing all
transactions during the period. A confirmation statement will be sent following
all transactions other than those involving a reinvestment of dividends. You
should examine statements and confirmations immediately and promptly report any
discrepancy by calling your Client Services Representative.
Financial Information about the Fund
Each fiscal year, you will receive an audited annual report and an
unaudited semi-annual report. These reports provide detailed information about
the Fund's investments and performance. Equity Funds II, Inc.'s fiscal year ends
on November 30.
Distribution and Service
The Distributor, Delaware Distributors, L.P., serves as the national
distributor of each Fund's shares under separate Distribution Agreements with
Equity Funds II, Inc. dated as of February 24, 1997. The Distributor bears all
of the costs of promotion and distribution.
The Transfer Agent, Delaware Service Company, Inc., serves as the
shareholder servicing, dividend disbursing and transfer agent for each Fund
under an amended and restated agreement dated as of February 24, 1997. The
Transfer Agent also provides accounting services to each Fund pursuant to the
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<PAGE>
terms of a separate Fund Accounting Agreement. The directors annually review
service fees paid to the Transfer Agent. Certain recordkeeping and other
shareholder services that otherwise would be performed by the Transfer Agent may
be performed by certain other entities and the Transfer Agent may elect to enter
into an agreement to pay such other entities for their services. In addition,
participant account maintenance fees may be assessed for certain recordkeeping
provided as part of retirement plan and administration service packages. These
fees are based on the number of participants in the plan and the various
services selected. Fees will be quoted upon request and are subject to change.
The Distributor and the Transfer Agent are also indirect, wholly owned
subsidiaries of DMH.
Expenses
Each Fund is responsible for all of its own expenses other than those
borne by the Manager under the Investment Management Agreement and those borne
by the Distributor under the Distribution Agreement.
Shares
Equity Funds II, Inc. is an open-end management investment company.
Each Fund's portfolio of assets is diversified as defined by the 1940 Act.
Commonly known as a mutual fund, Equity Funds II, Inc. was organized as a
Maryland corporation on March 4, 1983. Equity Funds II, Inc. was previously
organized as a Delaware corporation in 1970. In addition to each Fund, Equity
Funds II, Inc. presently offers two other series of shares, the Decatur Income
Fund series and the Decatur Total Return Fund series.
Equity Funds II, Inc.'s shares have a par value of $1.00, equal voting
rights, except as noted below, and are equal in all other respects. Equity Funds
II, Inc.'s shares have noncumulative voting rights which means that the holders
of more than 50% of Equity Funds II, Inc.'s shares voting for the election of
directors can elect 100% of the directors if they choose to do so. Under
Maryland law, Equity Funds II, Inc. is not required, and does not intend, to
hold annual meetings of shareholders unless, under certain circumstances, it is
required to do so under the 1940 Act. Shareholders of 10% or more of Equity
Funds II, Inc.'s outstanding shares may request that a special meeting be called
to consider the removal of a director.
In addition to the Classes, each Fund also offers Class A Shares, Class
B Shares and Class C Shares. Shares of each class of a Fund represent
proportionate interests in the assets of that Fund and have the same voting and
other rights and preferences as the other classes of the Fund, except that
shares of the Class are not subject to, and may not vote on matters affecting,
the Distribution Plans under Rule 12b-1 relating to the Class A Shares, Class B
Shares and Class C Shares.
It is expected that The Lincoln National Life Insurance Company will
make an initial investment in each Fund, which could result in The Lincoln
National Life Insurance Company holding up to 100% of the outstanding shares of
a Fund. Subject to certain limited exceptions, there would be no limitation on
The Lincoln National Life Insurance Company's ability to redeem its shares of a
Fund and it may elect to do so at any time.
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<PAGE>
OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS
Social Criteria
Quantum Fund will adhere to a Social Criteria strategy, which may be
changed by action of Equity Funds II, Inc.'s Board of Directors. The Sub-Adviser
will utilize the Social Investment Database published by KLD in determining
whether a company is engaged in any activity precluded by the Fund's Social
Criteria. The Social Investment Database reflects KLD's determination of the
extent to which a company's involvement in the activities prohibited by the
Social Criteria is significant enough to merit a concern or a major concern.
Significance may be determined on the basis of percentage of revenue generated
by, or the size of the operations attributable to, activities related to such
Social Criteria, or other factors selected by KLD. The social screening
undergoes continual refinement and modification. 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 this Prospectus.
The Fund will commence the orderly sale of securities of a company when
it is determined by the Sub-Adviser that such company no longer adheres to the
Social Criteria. The Fund will sell such securities in a manner so as to
minimize any adverse affect on the Fund's assets. Typically, such sales will be
made within 90 days from the date of the Sub-Adviser's determination, unless a
sale within the 90-day period would produce a significant loss to the overall
value of the Fund's assets.
Convertible, Debt and Non-Traditional Equity Securities
Each Fund may invest in convertible and debt securities of issuers in
any industry. A convertible security is a security which may be converted at a
stated price within a specified period of time into a certain quantity of the
common stock of the same or a different issuer. Convertible and debt securities
are senior to common stocks in a corporation's capital structure, although
convertible securities are usually subordinated to similar nonconvertible
securities. Convertible and debt securities provide a fixed-income stream and
the opportunity, through its conversion feature, to participate in the capital
appreciation resulting from a market price advance in the convertible security's
underlying common stock. Just as with debt securities, convertible securities
tend to increase in market value when interest rates decline and tend to
decrease in value when interest rates rise. However, the price of a convertible
security is also influenced by the market value of the security's underlying
common stock and tends to increase as the market value of the underlying stock
rises, whereas it tends to decrease as the market value of the underlying stock
declines.
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<PAGE>
Each Fund may invest in convertible preferred stocks that offer
enhanced yield features, such as Preferred Equity Redemption Cumulative Stock
("PERCS"), which provide an investor with the opportunity to earn higher
dividend income than is available on a company's common stock. A PERCS is a
preferred stock which generally features a mandatory conversion date, as well as
a capital appreciation limit which is usually expressed in terms of a stated
price. Upon the conversion date, most PERCS convert into common stock of the
issuer (PERCS are generally not convertible into cash at maturity). Under a
typical arrangement, if after a predetermined number of years the issuer's
common stock is trading at a price below that set by the capital appreciation
limit, each PERCS would convert to one share of common stock. If, however, the
issuer's common stock is trading at a price above that set by the capital
appreciation limit, the holder of the PERCS would receive less than one full
share of common stock. The amount of that fractional share of common stock
received by the PERCS holder is determined by dividing the price set by the
capital appreciation limit of the PERCS by the market price of the issuer's
common stock. PERCS can be called at any time prior to maturity, and hence do
not provide call protection. However, if called early, the issuer may pay a call
premium over the market price to the investor. This call premium declines at a
preset rate daily, up to the maturity date of the PERCS.
Each Fund may also invest in other enhanced convertible securities.
These include but are not limited to ACES (Automatically Convertible Equity
Securities), PEPS (Participating Equity Preferred Stock), PRIDES (Preferred
Redeemable Increased Dividend Equity Securities), SAILS (Stock Appreciation
Income Linked Securities), TECONS (Term Convertible Notes), QICS (Quarterly
Income Cumulative Securities) and DECS (Dividend Enhanced Convertible
Securities). ACES, PEPS, PRIDES, SAILS, TECONS, QICS and DECS all have the
following features: they are company-issued convertible preferred stock; unlike
PERCS, they do not have capital appreciation limits; they seek to provide the
investor with high current income, with some prospect of future capital
appreciation; they are typically issued with three to four-year maturities; they
typically have some built-in call protection for the first two to three years;
investors have the right to convert them into shares of common stock at a preset
conversion ratio or hold them until maturity; and upon maturity, they will
automatically convert to either cash or a specified number of shares of common
stock.
Foreign Securities
Each Fund may invest up to 20% of its total assets in foreign
securities. Foreign markets may be more volatile than U.S. markets, although the
Sub-Adviser does not anticipate doing so. Such investments involve sovereign
risk in addition to the normal risks associated with securities of U.S. issuers.
These risks include political risks, foreign taxes and exchange controls and
currency fluctuations. For example, foreign portfolio investments may fluctuate
in value due to changes in currency rates (i.e., other things being equal, the
value of foreign investments would increase with a fall in the value of the
dollar, and decrease with a rise in the value of the dollar) and control
regulations apart from market fluctuations. Each Fund may also experience delays
in foreign securities settlement.
Depositary Receipts
Each Fund may make foreign investments through the purchase and sale of
sponsored or unsponsored American, European and Global Depositary Receipts
("Depositary Receipts"). Depositary Receipts are receipts typically issued by a
U.S. or foreign bank or trust company which evidence ownership of underlying
securities issued by a foreign corporation. "Sponsored" Depositary Receipts are
issued jointly by the issuer of the underlying security and a depository,
whereas "unsponsored" Depositary Receipts are issued without participation of
the issuer of the deposited security. Holders of unsponsored Depositary Receipts
generally bear all the costs of such facilities and the depository of an
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unsponsored facility frequently is under no obligation to distribute shareholder
communications received from the issuer of the deposited security or to pass
through voting rights to the holders of such receipts in respect of the
deposited securities. Therefore, there may not be a correlation between
information concerning the issuer of the security and the market value of an
unsponsored Depositary Receipt.
Futures Contracts
Each Fund may enter into futures contracts on stocks, stock indices and
foreign currencies, and purchase or sell options on such futures contracts.
These activities will not be entered into for speculative purposes, but rather
for hedging purposes and to facilitate the ability to quickly deploy into the
stock market a Fund's positions in cash, short-term debt securities and other
money market instruments, at times when a Fund's assets are not fully invested
in equity securities. Such positions will generally be eliminated when it
becomes possible to invest in securities that are appropriate for the Fund
involved.
A futures contract is a bilateral agreement providing for the purchase
and sale of a specified type and amount of a financial instrument, or for the
making and acceptance of a cash settlement, at a stated time in the future for a
fixed price. By its terms, a futures contract provides for a specified
settlement date on which the securities, foreign currency or other financial
instrument underlying the contract are delivered, or in the case of securities
index futures contracts, the difference between the price at which the contract
was entered into and the contract's closing value is settled between the
purchaser and seller in cash. Futures contracts differ from options in that they
are bilateral agreements, with both the purchaser and the seller equally
obligated to complete the transaction. In addition, futures contracts call for
settlement only on the expiration date, and cannot be "exercised" at any other
time during their term.
The purchase or sale of a futures contract also differs from the
purchase or sale of a security or the purchase of an option in that no purchase
price is paid or received. Instead, an amount of cash or cash equivalents, which
varies but may be as low as 5% or less of the value of the contract, must be
deposited with the broker as "initial margin" as a good faith deposit. This
amount is generally maintained in a segregated account at the custodian bank.
Subsequent payments to and from the broker, referred to as "variation margin,"
are made on a daily basis as the value of the index or instrument underlying the
futures contract fluctuates, making positions in the futures contracts more or
less valuable, a process known as "marking to the market."
Purchases or sales of stock index futures contracts are used for
hedging purposes to attempt to protect a Fund's current or intended investments
from broad fluctuations in stock prices. For example, a Fund may sell stock
index futures contracts in anticipation of or during a market decline to attempt
to offset the decrease in market value of the Fund's securities portfolio that
might otherwise result. If such decline occurs, the loss in value of portfolio
securities may be offset, in whole or part, by gains on the futures position.
When a Fund is not fully invested in the securities market and anticipates a
significant market advance, it may purchase stock index futures contracts in
order to gain rapid market exposure that may, in part or entirely, offset
increases in the cost of securities that the Fund intends to purchase. As such
purchases are made, the corresponding positions in stock index futures contracts
will be closed out.
Each Fund may purchase and sell foreign currency futures contracts for
hedging purposes to attempt to protect its current or intended investments
denominated in foreign currencies from fluctuations in currency exchange rates.
Such fluctuations could reduce the dollar value of portfolio securities
denominated in foreign currencies, or increase the cost of foreign-denominated
securities to be acquired, even if the value of such securities in the
currencies in which they are denominated remains constant. Each Fund may sell
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futures contracts on a foreign currency, for example, when it holds securities
denominated in such currency and it anticipates a decline in the value of such
currency relative to the dollar. In the event such decline occurs, the resulting
adverse effect on the value of foreign-denominated securities may be offset, in
whole or in part, by gains on the futures contracts. However, if the value of
the foreign currency increases relative to the dollar, a Fund's loss on the
foreign currency futures contract may or may not be offset by an increase in the
value of the securities because a decline in the price of the security stated in
terms of the foreign currency may be greater than the increase in value as a
result of the change in exchange rates.
Conversely, a Fund could protect against a rise in the dollar cost of
foreign-denominated securities to be acquired by purchasing futures contracts on
the relevant currency, which could offset, in whole or in part, the increased
cost of such securities resulting from a rise in the dollar value of the
underlying currencies. When a Fund purchases futures contracts under such
circumstances, however, and the price of securities to be acquired instead
declines as a result of appreciation of the dollar, the Fund will sustain losses
on its futures position which could reduce or eliminate the benefits of the
reduced cost of portfolio securities to be acquired.
Each Fund may also purchase and write options on the types of futures
contracts in which the Fund may invest, and enter into related closing
transactions. Options on futures are similar to options on securities, as
described below, except that options on futures give the purchaser the right, in
return for the premium paid, to assume a position in a futures contract, rather
than to actually purchase or sell the futures contract, at a specified exercise
price at any time during the period of the option. In the event that an option
written by a Fund is exercised, the Fund will be subject to all the risks
associated with the trading of futures contracts, such as payment of variation
margin deposits. In addition, the writer of an option on a futures contract,
unlike the holder, is subject to initial and variation margin requirements on
the option position.
At any time prior to the expiration of a futures contract, a trader may
elect to close out its position by taking an opposite position on the contract
market on which the position was entered into, subject to the availability of a
secondary market, which will operate to terminate the initial position.
Likewise, a position in an option on a futures contract may be terminated by the
purchaser or seller prior to expiration by effecting a closing purchase or sale
transaction, subject to availability of a secondary market, which is the
purchase or sale of an option of the same series (i.e., the same exercise price
and expiration date) as the option previously purchased or sold. Each Fund may
realize a profit or a loss when closing out a futures contract or an option on a
futures contract.
To the extent that interest or exchange rates or securities prices move
in an unexpected direction, a Fund may not achieve the anticipated benefits of
investing in futures contracts and options thereon, or may realize a loss. To
the extent that a Fund purchases an option on a futures contract and fails to
exercise the option prior to the exercise date, it will suffer a loss of the
premium paid. Further, the possible lack of a secondary market could prevent a
Fund from closing out its positions relating to futures. See Part B for a
further discussion of this investment technique.
Options
Each Fund may write covered call options on individual issues as well
as write call options on stock indices. Each Fund may also purchase put options
on individual issues and on stock indices. The Sub-Adviser will employ these
techniques in an attempt to protect appreciation attained, to offset capital
losses and to take advantage of the liquidity available in the option markets.
The ability to hedge effectively using options on stock indices will depend, in
part, on the correlation between the composition of the index and a
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<PAGE>
Fund's portfolio as well as the price movement of individual securities. The
Sub-Adviser may also write covered call options to achieve income to offset the
cost of purchasing put options.
While there is no limit on the amount of a Fund's assets which may be
invested in covered call options, the Fund will not invest more than 2% of its
net assets in put options. Each Fund will only use Exchange-traded options.
Call Options
Writing Covered Call Options - A covered call option obligates a Fund
to sell one of its securities for an agreed price up to an agreed date. When a
Fund writes a call, it receives a premium and agrees to sell the callable
securities to a purchaser of a corresponding call during the call period
(usually, not more than nine months) at a fixed price regardless of market price
changes during the call period. The advantage is that the Fund receives premium
income for the limited purpose of offsetting the costs of purchasing put options
or offsetting any capital loss or decline in the market value of the security.
However, if the Sub- Adviser's forecast is wrong, the Fund may not fully
participate in the market appreciation if the security's price rises.
Writing a Call Option on Stock Indices - Writing a call option on stock
indices is similar to the writing of a call option on an individual stock. Stock
indices used will include, but not be limited to, the S&P 500, the S&P 100 and
the S&P Over-The-Counter ("OTC") 250.
Put Options
Purchasing a Put Option - A put option gives a Fund the right to sell
one of its securities for an agreed price up to an agreed date. The advantage is
that the Fund can be protected should the market value of the security decline.
However, the Fund must pay a premium for this right which would be lost if the
option is not exercised.
Purchasing a Put Option on Stock Indices - Purchasing a protective put
option on stock indices is similar to the purchase of protective puts on an
individual stock. Indices used will include, but not be limited to, the S&P 500,
the S&P 100 and the S&P OTC 250.
Closing Transactions - Closing transactions essentially let a Fund
offset a put option or covered call option prior to its exercise or expiration.
If the Fund cannot effect a closing transaction, it may have to hold a security
it would otherwise sell or deliver a security it might want to hold.
Restricted/Illiquid Securities
Each Fund may invest in restricted securities, including securities
eligible for resale without registration pursuant to Rule 144A ("Rule 144A
Securities") under the Securities Act of 1933 ("1933 Act"). Rule 144A exempts
many privately placed and legally restricted securities from the registration
requirements of the 1933 Act and permits such securities to be freely traded
among certain institutional buyers such as the Funds.
Each Fund may invest no more than 15% of the value of its net assets in
illiquid securities. Illiquid securities, for purposes of this policy, include
repurchase agreements maturing in more than seven days.
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<PAGE>
While maintaining oversight, the Board of Directors has delegated to
each Fund's Sub-Adviser the day-to-day functions of determining whether or not
individual Rule 144A Securities are liquid for purposes of a Fund's limitation
on investments in illiquid assets. The Board has instructed each Fund's
Sub-Adviser to consider the following factors in determining the liquidity of a
Rule 144A Security: (i) the frequency of trades and trading volume for the
security; (ii) whether at least three dealers are willing to purchase or sell
the security and the number of potential purchasers; (iii) whether at least two
dealers are making a market in the security; and (iv) the nature of the security
and the nature of the marketplace trades (e.g., the time needed to dispose of
the security, the method of soliciting offers, and the mechanics of transfer).
If a Sub-Adviser determines that a Rule 144A Security which was
previously determined to be liquid is no longer liquid and, as a result, the
Fund's holdings of illiquid securities exceed the 15% limit on investment in
such securities, the Sub-Adviser will determine what action shall be taken to
ensure that the Fund continues to adhere to such limitation.
Short-Term Investments
The short-term investments in which the Funds will invest are:
(1) Time deposits, certificates of deposit (including marketable
variable rate certificates of deposit) and bankers' acceptances issued by a U.S.
commercial bank. Time deposits are non-negotiable deposits maintained in a
banking institution for a specified period of time at a stated interest rate.
Time deposits maturing in more than seven days will not be purchased by either
Fund, and time deposits maturing from two business days through seven calendar
days will not exceed 15% of either Fund's total assets. Certificates of deposit
are negotiable short-term obligations issued by commercial banks against funds
deposited in the issuing institution. Variable rate certificates of deposit are
certificates of deposit on which the interest rate is periodically adjusted
prior to their stated maturity based upon a specified market rate. A bankers'
acceptance is a time draft drawn on a commercial bank by a borrower usually in
connection with an international commercial transaction (to finance the import,
export, transfer or storage of goods).
Neither Fund will invest in any security issued by a commercial bank
unless (i) the bank has total assets of at least $1 billion or, in the case of a
bank which does not have total assets of at least $1 billion, the aggregate
investment made in any one such bank is limited to $100,000 and the principal
amount of such investment is insured in full by the Federal Deposit Insurance
Corporation, (ii) it is a member of the Federal Deposit Insurance Corporation,
and (iii) the bank or its securities have received the highest quality rating by
a nationally-recognized statistical rating organization;
(2) Commercial paper with the highest quality rating by a
nationally-recognized statistical rating organization (e.g., A-1 by S&P or
Prime-1 by Moody's) or, if not so rated, of comparable quality as determined by
each Fund's investment adviser;
(3) Short-term corporate obligations with the highest quality rating by
a nationally-recognized statistical rating organization (e.g., AAA by S&P or Aaa
by Moody's) or, if not so rated, of comparable quality as determined by each
Fund's investment adviser;
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<PAGE>
(4) U.S. government securities; and
(5) Repurchase agreements collateralized by securities listed below.
See Appendix A of Part B for a description of applicable ratings.
When-Issued and Delayed Delivery Securities
Each Fund may purchase securities on a when-issued or delayed delivery
basis. In such transactions, instruments are purchased with payment and delivery
taking place in the future in order to secure what is considered to be an
advantageous yield or price at the time of the transaction. Delivery of and
payment for these securities may take as long as a month or more after the date
of the purchase commitment. Each Fund will maintain with its Custodian Bank a
separate account with a segregated portfolio of securities in an amount at least
equal to these commitments. The payment obligation and the interest rates that
will be received are each fixed at the time a Fund enters into the commitment
and no interest accrues to such Fund until settlement. Thus, it is possible that
the market value at the time of settlement could be higher or lower than the
purchase price if the general level of interest rates has changed. It is a
current policy of each Fund not to enter into when-issued commitments exceeding
in the aggregate 15% of the market value of the its total assets less
liabilities other than the obligations created by these commitments.
Repurchase Agreements
In order to invest its short-term cash reserves or when in a temporary
defensive posture, each Fund may enter into repurchase agreements with banks or
broker/dealers deemed to be creditworthy by its Sub- Adviser, under guidelines
approved by the Board of Directors. A repurchase agreement is a short-term
investment in which the purchaser (i.e., the Fund) acquires ownership of a debt
security and the seller agrees to repurchase the obligation at a future time and
set price, thereby determining the yield during the purchaser's holding period.
Generally, repurchase agreements are of short duration, often less than one week
but on occasion for longer periods. Not more than 15% of each Fund's assets may
be invested in repurchase agreement of over seven days' maturity or other
illiquid assets. Should an issuer of a repurchase agreement fail to repurchase
the underlying security, the loss, if any, would be the difference between the
repurchase price and the market value of the security. Each Fund will limit its
investments in repurchase agreements to those which its Sub-Adviser under
guidelines of the Board of Directors determines to present minimal credit risks
and which are of high quality. In addition, the Fund must have collateral of at
least 100% of the repurchase price, including the portion representing the
Fund's yield under such agreements, which is monitored on a daily basis.
Securities Lending Activities
Each Fund may loan up to 25% of its assets to qualified broker/dealers
or institutional investors for their use relating to short sales or other
security transactions.
The major risk to which each Fund would be exposed on a loan
transaction is the risk that the borrower would go bankrupt at a time when the
value of the security goes up. Therefore, each Fund will only enter into loan
arrangements after a review of all pertinent facts by the investment adviser,
subject to overall supervision by the Board of Directors, including the
creditworthiness of the borrowing broker,
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<PAGE>
dealer or institution and then only if the consideration to be received from
such loans would justify the risk. Creditworthiness will be monitored on an
ongoing basis by the management for each Fund.
Borrowing from Banks
Each Fund may borrow money as a temporary measure for extraordinary
purposes or to facilitate redemptions. A Fund will not borrow money in excess of
one-third of the value of its net assets. A 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 a 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%, a Fund shall, within three days
thereafter (not including Sundays or holidays, or such longer period as the
Securities and Exchange Commission may prescribe by rules and regulations),
reduce the amount of its borrowings to such an extent that the asset coverage of
such borrowings shall be at least 300%. Each Fund will not pledge more than 10%
of its net assets, or issue senior securities as defined in the 1940 Act, except
for notes to banks. Investment securities will not be purchased while a Fund has
an outstanding borrowing.
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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
- -------------------------------------------------------------------------------------------------------------------------------
Investment Policies and Portfolio Techniques
- -------------------------------------------------------------------------------------------------------------------------------
Accounting and Tax Issues
- -------------------------------------------------------------------------------------------------------------------------------
Performance Information
- -------------------------------------------------------------------------------------------------------------------------------
Trading Practices and Brokerage
- -------------------------------------------------------------------------------------------------------------------------------
Purchasing Shares
- -------------------------------------------------------------------------------------------------------------------------------
Investment Plans
- -------------------------------------------------------------------------------------------------------------------------------
Determining Offering Price
and Net Asset Value
- -------------------------------------------------------------------------------------------------------------------------------
Redemption and Repurchase
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Distributions and Taxes
- -------------------------------------------------------------------------------------------------------------------------------
Investment Management Agreements
and Sub-Advisory Agreements
- -------------------------------------------------------------------------------------------------------------------------------
Officers and Directors
- -------------------------------------------------------------------------------------------------------------------------------
Exchange Privilege
- -------------------------------------------------------------------------------------------------------------------------------
General Information
- -------------------------------------------------------------------------------------------------------------------------------
Appendix A--Ratings
- -------------------------------------------------------------------------------------------------------------------------------
Appendix B--IRA Information
- -------------------------------------------------------------------------------------------------------------------------------
Appendix C--Performance Overview
- -------------------------------------------------------------------------------------------------------------------------------
Appendix D--The Company Life Cycle
- -------------------------------------------------------------------------------------------------------------------------------
Financial Statements
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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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.
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<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.
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<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.
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<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.
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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.
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3. Blue Chip Fund will not purchase or retain the securities of any
issuer which has an officer, director or security holder who is a director or
officer of Equity Funds II, Inc. or of the Manager or Sub- Adviser if or so long
as the directors and officers of Equity Funds II, Inc. and of the Manager and
Sub- Adviser together own beneficially more than 5% of any class of securities
of such issuer.
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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.
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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
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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
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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.
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<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.
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<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
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<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
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<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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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-
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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.
-19-
<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 or equipment for the
production of nuclear power;
3. The manufacture of, or contracting for, military weapons; or
4. The liquor, tobacco or gambling industries.
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.
-20-
<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.
-21-
<PAGE>
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
-22-
<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.
-23-
<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.
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<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.
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<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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<PAGE>
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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<PAGE>
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.
-48-
<PAGE>
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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<PAGE>
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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<PAGE>
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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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.
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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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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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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.
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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.
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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 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 0.25% (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.
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 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%
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 c/o DelPac - 16th Floor
1818 Market Street
Philadelphia, PA 19103 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
</TABLE>
-65-
<PAGE>
<TABLE>
<CAPTION>
Philadelphia, PA 19101 1,322,414 10.09%
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 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%
</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., Delaware Capital Management, Inc. and
Delaware Investment & Retirement Services, Inc.
Chairman, President, Chief Executive Officer, Chief Investment Officer
and Director of Delaware Management Company, Inc.
Chairman, Chief Executive Officer and Director of Delaware
International Advisers Ltd.
Director of Delaware Service Company, Inc.
During the past five years, Mr. Stork has served in various executive
capacities at different times within the Delaware
organization.
Winthrop S. Jessup (51)
Executive Vice President of Equity Funds II, Inc., 16 other investment
companies in the Delaware Group (which excludes Delaware
Pooled Trust, Inc.) and Delaware Management Holdings, Inc.
President and Chief Executive Officer of Delaware Pooled Trust, Inc.
President and Director of Delaware Capital Management, Inc.
Executive Vice President and Director of DMH Corp., Delaware Management
Company, Inc., Delaware International Holdings Ltd. and
Founders Holdings, Inc.
Vice Chairman and Director of Delaware Distributors, Inc.
Vice Chairman of Delaware Distributors, L.P.
Director of Delaware Service Company, Inc., Delaware International
Advisers Ltd., Delaware Management Trust Company and Delaware
Investment & Retirement Services, Inc.
During the past five years, Mr. Jessup has served in various
executive capacities at different times within the Delaware
organization.
- ----------
*Director affiliated with Equity Funds II, Inc.'s investment manager and
considered an "interested person" as defined in the 1940 Act.
-67-
<PAGE>
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.
-68-
<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.
-69-
<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)
Vice President/Treasurer of Equity Funds II, Inc., each of the
other 17 investment companies in the Delaware Group, Delaware
Management Company, Inc., Delaware Distributors, Inc.,
Delaware Distributors, L.P., Delaware Service Company, Inc.
and Founders Holdings, Inc.
Vice President/Manager of Investment Accounting of Delaware
International Holdings Ltd.
Assistant Treasurer of Founders CBO Corporation.
Before joining the Delaware Group in 1995, Mr. Bishof was a Vice
President for Bankers Trust, New York, NY from 1994 to 1995, a
Vice President for CS First Boston Investment Management, New
York, NY from 1993 to 1994 and an Assistant Vice President for
Equitable Capital Management Corporation, New York, NY from
1987 to 1993.
-70-
<PAGE>
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.
-71-
<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.
-72-
<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).
-76-
<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%]
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<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%]
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<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.
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<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.
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<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.
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<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.
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<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 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.
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<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
--------------------
Net Asset Value Standard & Dow Jones Consumer
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.
<PAGE>
PART C
Other Information
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Part A - Financial Highlights
*Part B - Statements of Net Assets
Statements of Operations
Statements of Changes in Net Assets
Notes to Financial Statements
Accountant's Reports
* The financial statements and Accountant's Reports listed above
for Decatur Income Fund and Decatur Total Return Fund are
incorporated by reference into Part B from the Registrant's
Annual Report for such Funds for the fiscal year ended
November 30, 1996. Financial statements for Blue Chip and
Quantum Fund, whose shares were not offered prior to the
effective date of this Registration Statement, are not
included.
(b) Exhibits:
(1) Articles of Incorporation.
(a) Articles of Incorporation, as amended and
supplemented through November 27, 1995,
incorporated into this filing by reference
to Post-Effective Amendment No. 104 filed
November 27, 1995.
(b) Executed Articles Supplementary (November
28, 1995) incorporated into this filing by
reference to Post-Effective Amendment No.
105 filed January 30, 1996.
(c) Form of Articles Supplementary (1997)
incorporated into this filing by reference
to Post-Effective Amendment No. 106 filed
December 10, 1996.
(d) Form of Articles of Amendment (1997)
incorporated into this filing by reference
to Post-Effective Amendment No. 106 filed
December 10, 1996.
(2) By-Laws. By-Laws, as amended to date,
incorporated into this filing by reference to
Post-Effective Amendment No. 104 filed November
27, 1995.
(3) Voting Trust Agreement. Inapplicable.
(4) Copies of All Instruments Defining the Rights of
Holders.
(a) Articles of Incorporation, Articles of
Amendment and Articles Supplementary.
<PAGE>
PART C - Other Information
(Continued)
(i) Article Second of Articles
Supplementary (June 30, 1993,
April 27, 1994 and September 2,
1994), Article Fifth of the
Articles of Incorporation
(March 4, 1983) and Article
Eleventh of Articles of
Amendment (May 2, 1985)
incorporated into this filing
by reference to Post-Effective
Amendment No. 104 filed
November 27, 1995.
(ii) Articles Third and Fourth of
Articles Supplementary
(November 28, 1995)
incorporated into this filing
by reference to Post-Effective
Amendment No. 105 filed January
30, 1996.
(iii) Form of Articles Supplementary
(1997) incorporated into this
filing by reference to
Post-Effective Amendment No.
106 filed December 10, 1996.
(b) By-Laws. Article II, Article III, as
amended, and Article XIII, which was
subsequently redesignated as Article XIV,
incorporated into this filing by reference
to Post-Effective Amendment No. 104 filed
November 27, 1995.
(5) Investment Management Agreements.
(a) Investment Management Agreement (April 3,
1995) between Delaware Management Company,
Inc. and the Registrant on behalf of
Decatur Income Fund incorporated into this
filing by reference to Post-Effective
Amendment No. 104 filed November 27, 1995.
(b) Investment Management Agreement (April 3,
1995) between Delaware Management Company,
Inc. and the Registrant on behalf of
Decatur Total Return Fund incorporated
into this filing by reference to
Post-Effective Amendment No. 104 filed
November 27, 1995.
(c) Proposed Investment Management Agreement
(February __, 1997) between Delaware
Management Company, Inc. and the
Registrant on behalf of Blue Chip Fund
incorporated into this filing by reference
to Post-Effective Amendment No. 106 filed
December 10, 1996.
(d) Proposed Investment Management Agreement
(February __, 1997) between Delaware
Management Company, Inc. and the
Registrant on behalf of Quantum Fund
incorporated into this filing by reference
to Post-Effective Amendment No. 106 filed
December 10, 1996.
(e) Proposed Sub-Advisory Agreement (February
__, 1997) between Delaware Management
Company, Inc. and Vantage Global Advisors,
Inc. on behalf of Blue Chip Fund
incorporated into this filing by reference
to Post-Effective Amendment No. 106 filed
December 10, 1996.
(f) Proposed Sub-Advisory Agreement (February
__, 1997) between Delaware Management
Company, Inc. and Vantage Global Advisors,
Inc. on behalf of Quantum Fund
incorporated by reference to
Post-Effective Amendment No. 106 filed
December 10, 1996.
<PAGE>
PART C - Other Information
(Continued)
(6) (a) Distribution Agreements.
(i) Form of Distribution Agreements
(April 1995) between Delaware
Distributors, L.P. and the
Registrant on behalf of Decatur
Income Fund and Decatur Total
Return Fund incorporated into
this filing by reference to
Post-Effective Amendment No. 104
filed November 27, 1995.
(ii) Form of Amendment No. 1 to
Distribution Agreements
(November 1995) on behalf of
Decatur Income Fund and Decatur
Total Return Fund incorporated
into this filing by reference to
Post-Effective Amendment No. 104
filed November 27, 1995.
(iii) Proposed Distribution Agreement
(February __, 1997) (Module)
between Delaware Distributors,
L.P. and the Registrant on
behalf of Blue Chip Fund and
Quantum Fund incorporated into
this filing by reference to
Post-Effective Amendment No. 106
filed December 10, 1996.
(b) Administration and Service Agreement. Form
of Administration and Service Agreement
(as amended November 1995) (Module)
incorporated into this filing by reference
to Post-Effective Amendment No. 104 filed
November 27, 1995.
(c) Dealer's Agreement. Dealer's Agreement (as
amended November 1995) (Module)
incorporated into this filing by reference
to Post-Effective Amendment No. 104 filed
November 27, 1995.
(d) Mutual Fund Agreement for the Delaware
Group of Funds (November 1995) (Module)
incorporated into this filing by reference
to Post-Effective Amendment No. 105 filed
January 30, 1996.
(7) Bonus, Profit Sharing, Pension Contracts.
(a) Amended and Restated Profit Sharing Plan
incorporated into this filing by reference
to Post-Effective Amendment No. 104 filed
November 27, 1995.
(b) Amendment to Profit Sharing Plan (December
21, 1995) (Module) incorporated into this
filing by reference to Post-Effective
Amendment No. 105 filed January 30, 1996.
(8) Custodian Agreements.
(a) Form of Custodian Agreement (1996) between
Bankers Trust Company and the Registrant
on behalf of Decatur Income Fund and
Decatur Total Return Fund incorporated
into this filing by reference to
Post-Effective Amendment No. 106 filed
December 10, 1996.
(b) Form of Securities Lending Agreement
(1996) between Bankers Trust Company and
the Registrant on behalf of Decatur Income
Fund and Decatur Total Return Fund
incorporated into this filing by reference
to Post-Effective Amendment No. 106 filed
December 10, 1996.
<PAGE>
PART C - Other Information
(Continued)
(c) Proposed Custodian Agreement (1997)
between The Chase Manhattan Bank and the
Registrant on behalf of Blue Chip Fund and
Quantum Fund incorporated into this filing
by reference to Post-Effective Amendment
No. 106 filed December 10, 1996.
(d) Proposed Securities Lending Agreement
(1997) between The Chase Manhattan Bank
and the Registrant on behalf of Blue Chip
Fund and Quantum Fund incorporated into
this filing by reference to Post-Effective
Amendment No. 106 filed December 10, 1996.
(9) Other Material Contracts.
(a) Proposed Amended and Restated Shareholders
Services Agreement (February __, 1997)
(Module) between Delaware Service Company,
Inc. and the Registrant on behalf of each
Fund incorporated into this filing by
reference to Post-Effective Amendment No.
106 filed December 10, 1996.
(b) Executed Fund Accounting Agreement (August
19, 1996) between Delaware Service
Company, Inc. and the Registrant
incorporated into this filing by reference
to Post-Effective Amendment No. 106 filed
December 10, 1996.
(c) Executed Amendment No. 2 (November 29,
1996) to Schedule A to Delaware Group of
Funds Fund Accounting Agreement attached
as Exhibit.
(d) Executed Amendment No. 3 (December 27,
1996) to Schedule A to Delaware Group of
Funds Fund Accounting Agreement attached
as Exhibit.
(e) Proposed Amendment (1996) (Module) to
Schedule A to Delaware Group of Funds Fund
Accounting Agreement for Blue Chip Fund
and Quantum Fund incorporated into this
filing by reference to Post-Effective
Amendment No. 106 filed December 10, 1996.
(10) Opinion of Counsel. Filed with letter relating
to Rule 24f-2 on January 29, 1997.
(11) Consent of Auditors. Attached as Exhibit.
(12-13) Inapplicable.
(14) Model Plans. Incorporated into this filing by
reference to Post-Effective Amendment No. 93
filed February 1, 1993, Post-Effective Amendment
No. 95 filed May 27, 1993 and Post-Effective
Amendment No. 104 filed November 27, 1995.
(15) Plans under Rule 12b-1.
(a) Form of Plan under Rule 12b-1 for Class A
(November 1995) for Decatur Income Fund
and Decatur Total Return Fund incorporated
into this filing by reference to
Post-Effective Amendment No. 104 filed
November 27, 1995.
<PAGE>
PART C - Other Information
(Continued)
(b) Form of Plan under Rule 12b-1 for Class B
(November 1995) for Decatur Income Fund
and Decatur Total Return Fund incorporated
into this filing by reference to
Post-Effective Amendment No. 104 filed
November 27, 1995.
(c) Form of Plan under Rule 12b-1 for Class C
(November 1995) for Decatur Income Fund
and Decatur Total Return Fund incorporated
into this filing by reference to
Post-Effective Amendment No. 104 filed
November 27, 1995.
(d) Proposed Plan under Rule 12b-1 (Module)
for Blue Chip Fund and Quantum Fund Class
A (February __, 1997) incorporated into
this filing by reference to Post-Effective
Amendment No. 106 filed December 10, 1996.
(e) Proposed Plan under Rule 12b-1 (Module)
for Blue Chip Fund and Quantum Fund Class
B (February __, 1997) incorporated into
this filing by reference to Post-Effective
Amendment No. 106 filed December 10, 1996.
(f) Proposed Plan under Rule 12b-1 (Module)
for Blue Chip Fund and Quantum Fund Class
C (February __, 1997) incorporated into
this filing by reference to Post-Effective
Amendment No. 106 filed December 10, 1996.
(16) Schedules of Computation for each Performance
Quotation.
(a) Incorporated into this filing by reference
to Post-Effective Amendment No. 104 filed
November 27, 1995 and Post-Effective
Amendment No. 105 filed January 30, 1996.
(b) Schedules of Computation for each
Performance Quotation for periods not
previously electronically filed attached
as Exhibit.
(17) Financial Data Schedules. Attached as Exhibit.
(18) Plan under Rule 18f-3.
(a) Plan under Rule 18f-3 (November 29, 1995)
(Module) incorporated into this filing by
reference to Post-Effective Amendment No.
105 filed January 30, 1996.
(b) Amended Appendix A (November 29, 1996) to
Plan under Rule 18f-3 attached as Exhibit.
(c) Proposed Amended Appendix A (February __,
1997) (Module) to Plan under Rule 18f-3
incorporated into this filing by reference
to Post-Effective Amendment No. 106 filed
December 10, 1996.
<PAGE>
PART C - Other Information
(Continued)
(19) Other: Directors' Power of Attorney.
Incorporated into this filing by
reference to Post-Effective Amendment
No. 104 filed November 27, 1995.
Item 25. Persons Controlled by or under Common Control with Registrant.
None.
Item 26. Number of Holders of Securities.
(1) (2)
Number of
Title of Class Record Holders
Delaware Group Decatur Fund, Inc.'s
Decatur Income Fund series:
Decatur Income Fund A Class
Common Stock Par Value 73,771 Accounts as of
$1.00 Per Share January 31, 1997
Decatur Income Fund B Class
Common Stock Par Value 3,517 Accounts as of
$1.00 Per Share January 31, 1997
Decatur Income Fund C Class
Common Stock Par Value 351 Accounts as of
$1.00 Per Share January 31, 1997
Decatur Income Fund Institutional Class
Common Stock Par Value 106 Accounts as of
$1.00 Per Share January 31, 1997
Delaware Group Decatur Fund, Inc.'s
Decatur Total Return Fund series:
Decatur Total Return Fund A Class
Common Stock Par Value 36,834 Accounts as of
$1.00 Per Share January 31, 1997
Decatur Total Return Fund B Class
Common Stock Par Value 4,074 Accounts as of
$1.00 Per Share January 31, 1997
Decatur Total Return Fund C Class
Common Stock Par Value 631 Accounts as of
$1.00 Per Share January 31, 1997
<PAGE>
PART C - Other Information
(Continued)
(1) (2)
Number of
Title of Class Record Holders
Decatur Total Return Fund
Institutional Class
Common Stock Par Value 26 Accounts as of
$1.00 Per Share January 31, 1997
Delaware Group Decatur Fund, Inc.'s
Blue Chip Fund series*:
Blue Chip Fund A Class
Common Stock Par Value 0 Accounts as of
$1.00 Per Share January 31, 1997
Blue Chip Fund B Class
Common Stock Par Value 0 Accounts as of
$1.00 Per Share January 31, 1997
Blue Chip Fund C Class
Common Stock Par Value 0 Accounts as of
$1.00 Per Share January 31, 1997
Blue Chip Fund Institutional Class 0 Accounts as of
Common Stock Par Value January 31, 1997
$1.00 Per Share
Delaware Group Decatur Fund, Inc.'s
Quantum Fund series*:
Quantum Fund A Class
Common Stock Par Value 0 Accounts as of
$1.00 Per Share January 31, 1997
Quantum Fund B Class
Common Stock Par Value 0 Accounts as of
$1.00 Per Share January 31, 1997
Quantum Fund C Class
Common Stock Par Value 0 Accounts as of
$1.00 Per Share January 31, 1997
<PAGE>
PART C - Other Information
(Continued)
(1) (2)
Number of
Title of Class Record Holders
Quantum Fund Institutional Class 0 Accounts as of
Common Stock Par Value January 31, 1997
$1.00 Per Share
*Shares of Blue Chip Fund and Quantum Fund Classes were not offered prior to the
effective date of this Registration Statement.
Item 27. Indemnification. Incorporated into this filing by reference
to Post-Effective Amendment No. 75 filed May 23, 1986 and Article
VII of the By-Laws, as amended, incorporated into this filing by
reference to Post-Effective Amendment No. 104 filed November 27,
1995.
Item 28. Business and Other Connections of Investment Adviser.
Delaware Management Company, Inc. (the "Manager") serves as
investment manager to the Registrant and also serves as investment manager or
sub-adviser to certain of the other funds in the Delaware Group (Delaware Group
Trend Fund, Inc., Delaware Group Equity Funds I, Inc., Delaware Group Equity
Funds IV, Inc., Delaware Group Equity Funds V, Inc.; Delaware Group Income
Funds, Inc., Delaware Group Government Fund, Inc., Delaware Group Limited-Term
Government Funds, Inc., Delaware Group Cash Reserve, Inc., Delaware Group
Tax-Free Fund, Inc., DMC Tax-Free Income Trust-Pennsylvania, Delaware Group
Tax-Free Money Fund, Inc., Delaware Group Premium Fund, Inc., Delaware Group
Global & International Funds, Inc., Delaware Pooled Trust, Inc., Delaware Group
Adviser Funds, Inc., Delaware Group Dividend and Income Fund, Inc. and Delaware
Group Global Dividend and Income Fund, Inc.) and provides investment advisory
services to institutional accounts, primarily retirement plans and endowment
funds, and to certain other investment companies. In addition, certain directors
of the Manager also serve as directors/trustees of the other Delaware Group
funds, and certain officers are also officers of these other funds. A company
indirectly owned by the Manager's parent company acts as principal underwriter
to the mutual funds in the Delaware Group (see Item 29 below) and another such
company acts as the shareholder servicing, dividend disbursing, accounting
services and transfer agent for all of the mutual funds in the Delaware Group.
<PAGE>
PART C - Other Information
(Continued)
The following persons serving as directors or officers of the
Manager have held the following positions during the past two years:
<TABLE>
<CAPTION>
Name and Principal Positions and Offices with the Manager and its
Business Address* Affiliates and Other Positions and Offices Held
- ------------------ -----------------------------------------------
<S> <C>
Wayne A. Stork Chairman of the Board, President, Chief Executive Officer, Chief Investment
Officer and Director of Delaware Management Company, Inc.; President, Chief
Executive Officer, Chairman of the Board and Director of the Registrant and,
with the exception of Delaware Pooled Trust, Inc., each of the other funds in the
Delaware Group, Delaware Management Holdings, Inc., DMH Corp., Delaware
International Holdings Ltd. and Founders Holdings, Inc.; Chairman of the Board
and Director of Delaware Pooled Trust, Inc., Delaware Distributors, Inc. and
Delaware Capital Management, Inc.; Chairman, Chief Executive Officer and
Director of Delaware International Advisers Ltd.; and Director of Delaware
Service Company, Inc. and Delaware Investment & Retirement Services, Inc.
Winthrop S. Jessup Executive Vice President and Director of Delaware Management Company, Inc.,
DMH Corp., Delaware International Holdings Ltd. and Founders Holdings, Inc.;
Executive Vice President of the Registrant and, with the exception of Delaware
Pooled Trust, Inc., each of the other funds in the Delaware Group and Delaware
Management Holdings, Inc.; President and Chief Executive Officer of Delaware
Pooled Trust, Inc.; Vice Chairman of Delaware Distributors, L.P.; Vice
Chairman and Director of Delaware Distributors, Inc.; Director of Delaware
Service Company, Inc., Delaware Management Trust Company, Delaware
International Advisers Ltd. and Delaware Investment & Retirement Services,
Inc.; and President and Director of Delaware Capital Management, Inc.
Board of Directors, Glen Lincoln Inc. since 1985, Frazer, PA; Partner of Yellowstone
Bluffs since 1995, Livingstone, MT; Trustee of Hero Scholarship Fund since 1990,
Philadelphia, PA
Richard G. Unruh, Jr. Executive Vice President and Director of Delaware Management Company,
Inc.; Executive Vice President of the Registrant and each of the other funds in
the Delaware Group; Senior Vice President of Delaware Management Holdings,
Inc. and Delaware Capital Management, Inc.; and Director of
Delaware International Advisers Ltd.
Board of Directors, Chairman of Finance Committee, Keystone Insurance Company since
1989, 2040 Market Street, Philadelphia, PA; Board of Directors, Chairman of Finance
Committee, Mid Atlantic, Inc. since 1989, 2040 Market Street, Philadelphia, PA;
Board of Directors, Metron, Inc. since 1995, 11911 Freedom Drive, Reston, VA
Paul E. Suckow Executive Vice President/Chief Investment Officer, Fixed Income of Delaware
Management Company, Inc., the Registrant and each of the other funds in the
Delaware Group; Executive Vice President and Director of Founders Holdings,
Inc.; Senior Vice President/Chief Investment Officer, Fixed Income of Delaware
Management Holdings, Inc.; Senior Vice President of Delaware Capital
Management, Inc.; and Director of Founders CBO Corporation
Director of HYPPCO Finance Company, Ltd.
</TABLE>
<PAGE>
PART C - Other Information
(continued)
<TABLE>
<CAPTION>
Name and Principal Positions and Offices with the Manager and its
Business Address* Affiliates and Other Positions and Offices Held
- ------------------ -----------------------------------------------
<S> <C>
David K. Downes Executive Vice President, Chief Operating Officer and Chief Financial Officer of
Delaware Management Company, Inc.; Senior Vice President, Chief
Administrative Officer and Chief Financial Officer of the Registrant and each of
the other funds in the Delaware Group; Chairman and Director of Delaware
Management Trust Company; Executive Vice President, Chief Operating
Officer and Chief Financial Officer of Delaware Management Holdings, Inc.;
Executive Vice President, Chief Operating Officer, Chief Financial Officer and
Director of DMH Corp., Delaware Distributors, Inc. and Founders Holdings,
Inc.; 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 and Chief Operating
Officer of Delaware Capital Management, Inc.; Chairman and Director of
Delaware Investment & Retirement Services, Inc.; Director of Delaware
International Advisers Ltd.; and Senior Vice President, Chief Administrative
Officer and Chief Financial Officer of Delaware Distributors, L.P.
Chief Executive Officer and Director of Forewarn, Inc. since 1993, 8 Clayton Place,
Newtown Square, PA
George M. Senior Vice President, Secretary and Director of Delaware Management
Chamberlain, Jr. Company, Inc., DMH Corp., Delaware Distributors, Inc., Delaware Service
Company, Inc., Founders Holdings, Inc., Delaware Capital Management, Inc. and
Delaware Investment & Retirement Services, Inc.; Senior Vice President and Secretary
of the Registrant, each of the other funds in the Delaware Group, Delaware
Distributors, L.P. and Delaware Management Holdings, Inc.; Executive Vice President,
Secretary and Director of Delaware Management Trust Company; Secretary and
Director of Delaware International Holdings Ltd.; and Director of Delaware
International Advisers Ltd.
Richard J. Flannery Senior Vice President/Corporate & International Affairs of Delaware
Management Company, Inc., Delaware Management Holdings, Inc., DMH
Corp., Delaware Distributors, L.P., Delaware Distributors, Inc., Delaware
Management Trust Company, Founders CBO Corporation and Delaware
Capital Management, Inc.; Vice President of the Registrant and each of the
other funds in the Delaware Group; Senior Vice President/Corporate &
International Affairs and Director of Founders Holdings, Inc. and Delaware
International Holdings Ltd.; Managing Director/Corporate & Tax Affairs of
Delaware Service Company, Inc. and Delaware Investment & Retirement
Services, Inc.; and Director of Delaware International Advisers Ltd.
Director of HYPPCO Finance Company, Ltd.
</TABLE>
<PAGE>
PART C - Other Information
(continued)
<TABLE>
<CAPTION>
Name and Principal Positions and Offices with the Manager and its
Business Address* Affiliates and Other Positions and Offices Held
- ------------------ -----------------------------------------------
<S> <C>
Limited Partner of Stonewall Links, L.P. since 1991, Bulltown Rd., Elverton,
PA; Director and Member of Executive Committee of Stonewall Links, Inc.
since 1991, Bulltown Rd., Elverton, PA
Michael P. Bishof(1) Senior Vice President of Delaware Management Company, Inc.; Vice President
and Treasurer of the Registrant, each of the other funds in the Delaware Group,
Delaware Distributors, L.P. and Delaware Service Company, Inc.; Senior Vice
President/Treasurer of Delaware Distributors, Inc. and Founders Holdings, Inc.;
Assistant Treasurer of Founders CBO Corporation; and Vice President and
Manager of Investment Accounting of Delaware International Holdings Ltd.
Joseph H. Hastings Senior Vice President/Corporate Controller and Treasurer of Delaware
Management Company, Inc., Delaware Management Holdings, Inc. and DMH
Corp.; Senior Vice President/Treasurer of Delaware Distributors, Inc.; Senior
Vice President/Corporate Controller of Founders Holdings, Inc.; Vice
President/Corporate Controller of the Registrant, each of the other funds in the
Delaware Group, Delaware Distributors, L.P., Delaware Service Company, Inc.
and Delaware International Holdings Ltd.; Vice President/Treasurer of
Delaware Capital Management, Inc.; Executive Vice President, Chief Financial
Officer and Treasurer of Delaware Management Trust Company; Chief
Financial Officer and Treasurer of Delaware Investment & Retirement Services,
Inc.; and Assistant Treasurer of Founders CBO Corporation
Douglas L. Anderson Senior Vice President/Operations of Delaware Management Company, Inc.;
Vice President/Operations of Delaware Investment & Retirement Services, Inc.
and Delaware Service Company, Inc.; and Vice President/Operations and
Director of Delaware Management Trust Company
Michael T. Taggart Senior Vice President/Facilities Management and Administrative Services of
Delaware Management Company, Inc.
Eric E. Miller Vice President and Assistant Secretary of Delaware Management Company,
Inc., the Registrant, each of the other funds in the Delaware Group, Delaware
Management Holdings, Inc., DMH Corp., Delaware Distributors, L.P.,
Delaware Distributors Inc., Delaware Service Company, Inc., Delaware
Management Trust Company, Founders Holdings, Inc., Delaware Capital
Management, Inc. and Delaware Investment & Retirement Services, Inc.
</TABLE>
<PAGE>
PART C - Other Information
(Continued)
<TABLE>
<CAPTION>
Name and Principal Positions and Offices with the Manager and its
Business Address* Affiliates and Other Positions and Offices Held
- ------------------ -----------------------------------------------
<S> <C>
Richelle S. Maestro Vice President and Assistant Secretary of Delaware Management Company,
Inc., the Registrant, each of the other funds in the Delaware Group, Delaware
Management Holdings, Inc., Delaware Distributors, L.P., Delaware
Distributors, Inc., Delaware Service Company, Inc., DMH Corp., Delaware
Management Trust Company, Delaware Capital Management, Inc., Delaware
Investment & Retirement Services, Inc. and Founders Holdings, Inc.; Secretary
of Founders CBO Corporation; and Assistant Secretary of Delaware
International Holdings Ltd.
Partner of Tri-R Associates since 1989, 10001 Sandmeyer Ln., Philadelphia, PA
Richard Salus(2) Vice President/Assistant Controller of Delaware Management Company, Inc.;
and Vice President of Delaware Management Trust Company
Bruce A. Ulmer Vice President/Director of Internal Audit of Delaware Management Company,
Inc., the Registrant, each of the other funds in the Delaware Group, Delaware
Management Holdings, Inc., DMH Corp. and Delaware Management Trust
Company; and Vice President/Internal Audit of Delaware Investment &
Retirement Services, Inc.
Steven T. Lampe(3) Vice President/Taxation of Delaware Management Company, Inc., the
Registrant, each of the other funds in the Delaware Group, Delaware
Management Holdings, Inc., DMH Corp., Delaware Distributors, L.P.,
Delaware Distributors, Inc., Delaware Service Company, Inc., Delaware
Management Trust Company, Founders Holdings, Inc., Founders CBO
Corporation, Delaware Capital Management, Inc. and Delaware Investment &
Retirement Services, Inc.
Lisa O. Brinkley Vice President/Compliance of Delaware Management Company, Inc., the
Registrant, each of the other funds in the Delaware Group, DMH Corp., Delaware
Distributors, L.P., Delaware Distributors, Inc., Delaware Service Company, Inc.,
Delaware Management Trust Company, Delaware Capital Management, Inc. and Delaware
Investment & Retirement Services, Inc.
Rosemary E. Milner Vice President/Legal of Delaware Management Company, Inc., the Registrant,
each of the other funds in the Delaware Group, Delaware Distributors, L.P. and
Delaware Distributors, Inc.
Gerald T. Nichols Vice President/Senior Portfolio Manager of Delaware Management Company,
Inc., the Registrant, each of the tax-exempt funds, the fixed income funds
and the closed-end funds in the Delaware Group; Vice President of Founders Holdings,
Inc.; and Treasurer, Assistant Secretary and Director of Founders CBO Corporation
</TABLE>
<PAGE>
PART C - Other Information
(continued)
<TABLE>
<CAPTION>
Name and Principal Positions and Offices with the Manager and its
Business Address* Affiliates and Other Positions and Offices Held
- ------------------ -----------------------------------------------
<S> <C>
Gary A. Reed Vice President/Senior Portfolio Manager of Delaware Management Company, Inc., the Registrant,
each of the tax-exempt funds and the fixed income funds in the Delaware Group and Delaware
Capital Management Counselors, Inc.
Paul A. Matlack Vice President/Senior Portfolio Manager of Delaware Management Company,
Inc., the Registrant, each of the tax-exempt funds, the fixed income funds
and the closed-end funds in the Delaware Group; Vice President of Founders Holdings,
Inc.; and Secretary and Director of
Founders CBO Corporation
Babak Zenouzi Vice President/Portfolio Manager of Fund, the Registrant, each of the
equity funds and the closed-end funds in the Delaware Group
Patrick P. Coyne Vice President/Senior Portfolio Manager of Delaware Management Company, Inc., the Registrant,
each of the tax-exempt funds and the fixed income funds in the Delaware Group and Delaware
Capital Management, Inc.
Roger A. Early Vice President/Senior Portfolio Manager of Delaware Management Company, Inc., the Registrant,
each of the tax-exempt funds and the fixed income funds in the Delaware Group
Mitchell L. Conery(4) Vice President/Senior Portfolio Manager of Delaware Management Company,
Inc., the Registrant and the tax-exempt and the fixed-income funds in the
Delaware Group
Edward N. Antoian Vice President/Senior Portfolio Manager of Delaware Management Company,
Inc. and each of the equity funds in the Delaware Group and Delaware Capital
Management, Inc.
Director of HR Easy since 1996, 6407 Idlewild Road, Suite 100, Charlotte, NC
George H. Burwell Vice President/Senior Portfolio Manager of Delaware Management Company,
Inc. and each of the equity funds in the Delaware Group
John B. Fields Vice President/Senior Portfolio Manager of Delaware Management Company,
Inc., each of the equity funds in the Delaware Group and Delaware Capital
Management, Inc.
David C. Dalrymple Vice President/Senior Portfolio Manager of Delaware Management Company,
Inc. and each of the equity funds in the Delaware Group
Gerald S. Frey(5) Vice President/Senior Portfolio Manager of Delaware Management Company,
Inc. and each of the equity funds in the Delaware Group
</TABLE>
<PAGE>
PART C - Other Information
(continued)
<TABLE>
<CAPTION>
Name and Principal Positions and Offices with the Manager and its
Business Address* Affiliates and Other Positions and Offices Held
- ------------------ -----------------------------------------------
<S> <C>
Faye P. Staples(6) Vice President/Human Resources of Delaware Management Company, Inc. and
Delaware Distributors, Inc.; Senior Vice President/Human Resources of
Delaware Distributors, L.P.; and Vice President/Director of Human Resources of
Delaware Service Company, Inc.
</TABLE>
(1) VICE PRESIDENT/GLOBAL INVESTMENT MANAGEMENT OPERATIONS, Bankers Trust
and VICE PRESIDENT, CS First Boston Investment Management prior to June
1995.
(2) SENIOR MANAGER, Ernst & Young LLP prior to December 1996.
(3) TAX MANAGER, Price Waterhouse prior to October 1995.
(4) INVESTMENT OFFICER, Travelers Insurance prior to January 1997 and
RESEARCH ANALYST, CS First Boston prior to March 1995.
(5) SENIOR DIRECTOR, Morgan Grenfell Capital Management prior to June 1996.
(6) VICE PRESIDENT/HUMAN RESOURCES, Nova Care prior to September 1995.
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
Vantage Global Advisors, Inc. ("Vantage"), 630 Fifth Avenue, New
York, NY 10111, is an indirect, wholly owned subsidiary of Lincoln National
Corporation and an affiliate of Delaware Management Company, Inc. Vantage
provides investment advice to pension plans, endowments, insurance and
commingled products. Vantage serves as sub-investment adviser to the Blue Chip
Fund series and the Quantum Fund series. The directors and officers of Vantage
are listed below. Unless otherwise indicated, the principal business address of
each person is 630 Fifth Avenue, New York, NY 10111.
<TABLE>
<CAPTION>
Name and Principal Positions and Offices with Vantage Global Advisors, Inc. and its Principal
Business Address Affiliates and Other Positions and Offices Held
- ------------------ --------------------------------------------------------------------------
<S> <C>
T. Scott Wittman President, Chief Investment Officer and Director of Vantage Global Advisors,
Inc.
Elliot M. Gartner Senior Vice President of Vantage Global Advisors, Inc.
John B. Guerard Senior Vice President of Vantage Global Advisors, Inc.
Marc C. Viani Vice President of Vantage Global Advisors, Inc.
Florence P. Leong Vice President of Vantage Global Advisors, Inc.
Evelyn M. Poy Vice President of Vantage Global Advisors, Inc.
*Dennis A. Blume Director of Vantage Global Advisors, Inc.
Senior Vice President and Director of Lincoln Investment Management, Inc.
since 1982, 200 East Berry Street, Fort Wayne, IN; Director of Lynch & Mayer,
Inc. since 1996, 520 Madison Avenue, New York, NY
</TABLE>
<PAGE>
PART C - Other Information
(continued)
<TABLE>
<CAPTION>
Name and Principal Positions and Offices with Vantage Global Advisors, Inc. and its Principal
Business Address Affiliates and Other Positions and Offices Held
- ------------------ --------------------------------------------------------------------------
<S> <C>
*H. Thomas McMeekin Director of Vantage Global Advisors, Inc.
President and Director of Lincoln Investment Management, Inc., Lincoln National Convertible
Securities Fund, Inc., Lincoln National Income Fund, Inc. since 1994; Executive Vice President
and Chief Investment Officer of Lincoln National Corporation since 1994; President, Chief
Executive Officer and Director of Lincoln National Mezzanine Corporation, 200 East Berry Street,
Fort Wayne, IN; Director of Lynch & Mayer, Inc., 520 Madison Avenue, New York, NY
**Bruce D. Barton(1) Director of Vantage Global Advisors, Inc.
President and Chief Executive Officer of Delaware Distributors, L.P. since 1996,
1818 Market Street, Philadelphia, PA;
(1) SENIOR VICE PRESIDENT AND DIRECTOR, Lincoln National Investment Companies February 1996 to
October 1996;
VICE PRESIDENT, Lincoln National Corporation May 1992 to October 1996.
* Business address is 200 East Berry Street, Fort Wayne, IN 46802.
** Business address is 1818 Market Street, Philadelphia, PA 19103
</TABLE>
Item 29. Principal Underwriters.
(a) Delaware Distributors, L.P. serves as principal
underwriter for all the mutual funds in the Delaware
Group.
(b) Information with respect to each director, officer or
partner of principal underwriter:
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address* with Underwriter with Registrant
- ------------------- ---------------------- ---------------------
<S> <C> <C>
Delaware Distributors, Inc. General Partner None
Delaware Management
Company, Inc. Limited Partner Investment Manager
Delaware Capital
Management, Inc. Limited Partner None
Winthrop S. Jessup Vice Chairman Executive Vice President
</TABLE>
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
PART C - Other Information
(continued)
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address* with Underwriter with Registrant
- ------------------- ---------------------- ---------------------
<S> <C> <C>
Bruce D. Barton President and Chief None
Executive Officer
David K. Downes Senior Vice President, Senior Vice President/Chief
Chief Administrative Officer Administrative
and Chief Financial Officer Officer/Chief
Financial Officer
George M. Chamberlain, Jr. Senior Vice President/ Senior Vice President/
Secretary Secretary
Thomas Sawyer Senior Vice President/ None
Western Sales Division
William F. Hostler Senior Vice President/ None
Marketing Services
Dana B. Hall Senior Vice President/ None
Key Accounts
J. Chris Meyer Senior Vice President/ None
Product Development
Richard J. Flannery Senior Vice President/Corporate Vice President
& International Affairs
Eric E. Miller Vice President/ Vice President/
Assistant Secretary Assistant Secretary
Richelle S. Maestro Vice President/ Vice President/
Assistant Secretary Assistant Secretary
Michael P. Bishof Vice President/Treasurer Vice President/Treasurer
Steven T. Lampe Vice President/Taxation Vice President/Taxation
Joseph H. Hastings Vice President/ Vice President/
Corporate Controller Corporate Controller
Lisa O. Brinkley Vice President/ Vice President/
Compliance Compliance
Rosemary E. Milner Vice President/Legal Vice President/Legal
</TABLE>
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
PART C - Other Information
(continued)
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address* with Underwriter with Registrant
- ------------------- ---------------------- ---------------------
<S> <C> <C>
Daniel H. Carlson Vice President/Marketing None
Diane M. Anderson Vice President/ None
Retirement Services
Joseph M. Barrett Vice President/ None
Media Relations
Denise F. Guerriere Vice President/Client Services None
Julia R. Vander Els Vice President/ None
Client Services
Jerome J. Alrutz Vice President/ None
Client Services
Joanne A. Mettenheimer Vice President/ None
National Accounts
Gregory J. McMillan Vice President/ None
National Accounts
Christopher H. Price Vice President/Annuity None
Marketing & Administration
Stephen J. DeAngelis Vice President/Product None
Development
Susan T. Friestedt Vice President/Customer None
Service
Dinah J. Huntoon Vice President/Product None
Management
Soohee Lee Vice President/Fixed Income None
Project Management
Ellen M. Krott Vice President/Communications None
Holly W. Reimel Vice President/Telemarketing None
Terrence L. Bussard Vice President/Wholesaler None
William S. Carroll Vice President/Wholesaler None
</TABLE>
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
PART C - Other Information
(continued)
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address* with Underwriter with Registrant
- ------------------- ---------------------- ---------------------
<S> <C> <C>
William L. Castetter Vice President/Wholesaler None
Thomas J. Chadie Vice President/Wholesaler None
Thomas C. Gallagher Vice President/Wholesaler None
Douglas R. Glennon Vice President/Wholesaler None
Christopher L. Johnston Vice President/Wholesaler None
Thomas P. Kennett Vice President/Wholesaler None
William M. Kimbrough Vice President/Wholesaler None
Mac McAuliffe Vice President/Wholesaler None
Patrick L. Murphy Vice President/Wholesaler None
Henry W. Orvin Vice President/Wholesaler None
Philip G. Rickards Vice President/Wholesaler None
Laura E. Roman Vice President/Wholesaler None
Michael W. Rose Vice President/Wholesaler None
Thomas E. Sawyer Vice President/Wholesaler None
Edward B. Sheridan Vice President/Wholesaler None
Linda Schulz Vice President/Wholesaler None
Stephen H. Slack Vice President/Wholesaler None
Robert E. Stansbury Vice President/Wholesaler None
</TABLE>
* Business address of each is 1818 Market Street, Philadelphia, PA 19103
<PAGE>
PART C - Other Information
(continued)
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address* with Underwriter with Registrant
- ------------------- ---------------------- ---------------------
<S> <C> <C>
Larry D. Stone Vice President/Wholesaler None
Faye P. Staples Vice President/Human Resources None
John Wells Vice President/Marketing None
Technology
</TABLE>
(c) Not Applicable.
Item 30. Location of Accounts and Records.
All accounts and records are maintained in Philadelphia at 1818
Market Street, Philadelphia, PA 19103 or One Commerce Square,
Philadelphia, PA 19103.
Item 31. Management Services.
None.
Item 32. Undertakings.
(a) Not Applicable.
(b) The Registrant hereby undertakes to file a
post-effective amendment, using financial statements
which need not be certified, within four to six months
from the public offering of shares of the Blue Chip
Fund.
The Registrant hereby undertakes to file a
post-effective amendment, using financial statements
which need not be certified, within four to six months
from the public offering of shares of the Quantum
Fund.
(c) The Registrant hereby undertakes to furnish each
person to whom a prospectus is delivered with a copy
of the Registrant's latest annual report to
shareholders, upon request and without charge.
(d) The Registrant hereby undertakes to promptly call a
meeting of shareholders for the purpose of voting upon
the question of removal of any director when requested
in writing to do so by the record holders of not less
than 10% of the outstanding shares.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, this Registrant certifies that it meets all of the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in this City of Philadelphia and Commonwealth of Pennsylvania on
this 20th day of February, 1997.
DELAWARE GROUP DECATUR FUND, INC.
(to be renamed Delaware Group Equity Funds II, Inc.)
By /s/Wayne A. Stork
-------------------
Wayne A. Stork
Chairman of the Board, President,
Chief Executive Officer and Director
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
- -------------------------- ----------------------------------------- -----------------
<S> <C> <C>
Chairman of the Board, President,
/s/Wayne A. Stork Chief Executive Officer and Director February 20, 1997
- --------------------------
Wayne A. Stork
Senior Vice President/Chief Administrative
Officer/Chief Financial Officer (Principal
Financial Officer and Principal Accounting
/s/David K. Downes Officer) February 20, 1997
- --------------------------
David K. Downes
/s/Walter A. Babich * Director February 20, 1997
- --------------------------
Walter A. Babich
/s/Anthony D. Knerr * Director February 20, 1997
- --------------------------
Anthony D. Knerr
/s/Ann R. Leven * Director February 20, 1997
- --------------------------
Ann R. Leven
/s/W. Thacher Longstreth * Director February 20, 1997
- --------------------------
W. Thacher Longstreth
/s/Charles E. Peck * Director February 20, 1997
- --------------------------
Charles E. Peck
</TABLE>
* By /s/Wayne A. Stork
-------------------
Wayne A. Stork
as Attorney-in-Fact for
each of the persons indicated
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Exhibits
to
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Exhibit
- ----------- -------
EX-99.B9C Executed Amendment No. 2 (November 29, 1996) to Delaware
Group of Funds Fund Accounting Agreement
EX-99.B9D Executed Amendment No. 3 (December 27, 1996) to Delaware
Group of Funds FundAccounting Agreement
EX-99.B11 Consent of Auditors
EX-99.B16B Schedules of Computation for each Performance Quotation for
periods not previously electronically filed
EX-27 Financial Data Schedules
EX-99.B18B Amended Appendix A (November 29, 1996) to Plan under
Rule 18f-3
<PAGE>
AMENDMENT NO. 2 TO
SCHEDULE A
TO DELAWARE GROUP OF FUNDS*
FUND ACCOUNTING AGREEMENT
Delaware Group Adviser Funds, Inc.
Corporate Income Fund
Enterprise Fund
Federal Bond Fund
New Pacific Fund
U.S. Growth Fund
World Growth Fund
Delaware Group Cash Reserve, Inc.
Delaware Group Decatur Fund, Inc.
Decatur Income Fund
Decatur Total Return Fund
Delaware Group Delaware Fund, Inc.
Delaware Fund
Devon Fund
Delaware Group Equity Funds IV, Inc.
Capital Appreciation Fund (New)
DelCap Fund
Delaware Group Equity Funds V, Inc.
Retirement Income Fund (New)
Value Fund
*Except as otherwise noted, all Portfolios included on this Schedule A
are Existing Portfolios for purposes of the compensation described on Schedule B
to that Fund Accounting Agreement between Delaware Service Company, Inc. and the
Delaware Group of Funds dated as of August 19, 1996 ("Agreement"). All
portfolios added to this Schedule A by amendment executed by a Company on behalf
of such Portfolio hereof shall be a New Portfolio for purposes of Schedule B to
the Agreement.
1
<PAGE>
Delaware Group Global & International Funds, Inc.
Emerging Markets Fund (New)
Global Assets Fund
Global Bond Fund
International Equity Fund
Delaware Group Government Fund, Inc.
Delaware Group Income Funds, Inc.
Delchester Fund
Strategic Income Fund (New)
Delaware Group Limited-Term Government Funds, Inc.
Limited-Term Government Fund
U.S. Government Money Fund
Delaware Group Premium Fund, Inc.
Capital Reserves Series
Emerging Growth Series
Equity/Income Series
Global Bond Series (New)
Growth Series
High Yield Series
International Equity Series
Money Market Series
Multiple Strategy Series
Value Series
Delaware Group Tax-Free Fund, Inc.
Tax-Free Insured Fund
Tax-Free USA Fund
Tax-Free USA Intermediate Fund
Delaware Group Tax-Free Money Fund, Inc.
Delaware Group Trend Fund, Inc.
2
<PAGE>
Delaware Pooled Trust, Inc.
The Aggressive Growth Portfolio
The Defensive Equity Portfolio
The Defensive Equity Small/Mid-Cap Portfolio (New) The Fixed
Income Portfolio The Global Fixed Income Portfolio The
High-Yield Bond Portfolio (New) The International Equity
Portfolio The International Fixed Income Portfolio (New) The
Labor Select International Equity Portfolio The Limited-Term
Maturity Portfolio (New) The Real Estate Investment Trust
Portfolio
DMC Tax-Free Income Trust - Pennsylvania
3
<PAGE>
Dated as of: November 29, 1996
-------------------
DELAWARE SERVICE COMPANY, INC.
By: /s/David K. Downes
------------------
David K. Downes
Senior Vice President/
Chief Administrative Officer/
Chief Financial Officer
DELAWARE GROUP ADVISER FUNDS, INC.
DELAWARE GROUP CASH RESERVE, INC.
DELAWARE GROUP DECATUR FUND, INC.
DELAWARE GROUP DELAWARE FUND, INC.
DELAWARE GROUP EQUITY FUNDS IV, INC.
DELAWARE GROUP EQUITY FUNDS V, INC.
DELAWARE GROUP GLOBAL & INTERNATIONAL
FUNDS, INC.
DELAWARE GROUP GOVERNMENT FUND, INC.
DELAWARE GROUP INCOME FUNDS, INC.
DELAWARE GROUP LIMITED-TERM GOVERNMENT
FUNDS, INC.
DELAWARE GROUP PREMIUM FUND, INC.
DELAWARE GROUP TAX-FREE FUND, INC.
DELAWARE GROUP TAX-FREE MONEY FUND, INC.
DELAWARE GROUP TREND FUND, INC.
DMC TAX-FREE INCOME TRUST-PENNSYLVANIA
By: /s/ Wayne A. Stork
-------------------------
Wayne A. Stork
Chairman, President and
Chief Executive Officer
DELAWARE POOLED TRUST, INC.
By: /s/ Wayne A. Stork
-------------------------
Wayne A. Stork
Chairman
4
<PAGE>
AMENDMENT NO.3 TO
SCHEDULE A
TO DELAWARE GROUP OF FUNDS*
FUND ACCOUNTING AGREEMENT
Delaware Group Cash Reserve, Inc.
Delaware Group Decatur Fund, Inc.
Decatur Income Fund
Decatur Total Return Fund
Delaware Group Delaware Fund, Inc.
Delaware Fund
Devon Fund
Delaware Group Tax-Free Money Fund, Inc.
Delaware Group Tax-Free Fund, Inc.
Tax-Free USA Fund
Tax-Free Insured Fund
Tax-Free USA Intermediate Fund
Delaware Group Limited-Term Government Funds, Inc.
Limited-Term Government Fund
U.S. Government Money Fund
Delaware Group Trend Fund, Inc.
Delaware Group Income Funds, Inc.
Delchester Fund
Strategic Income Fund (New)
*Except as otherwise noted, all Portfolios included on this Schedule A
are Existing Portfolios for purposes of the compensation described on Schedule B
to that Fund Accounting Agreement between Delaware Service Company, Inc. and the
Delaware Group of Funds dated as of August 19, 1996 ("Agreement"). All
portfolios added to this Schedule A by amendment executed by a Company on behalf
of such Portfolio hereof shall be a New Portfolio for purposes of Schedule B to
the Agreement.
1
<PAGE>
DMC Tax-Free Income Trust - Pennsylvania
Delaware Group Value Fund, Inc.
Value Fund
Retirement Income Fund (New)
Delaware Group Global & International Funds, Inc.
International Equity Fund
Global Bond Fund
Global Assets Fund
Emerging Markets Fund (New)
Delaware Group Equity Funds IV, Inc.
DelCap Fund
Multi-Cap Equity Fund (New)
Delaware Pooled Trust, Inc.
The Defensive Equity Portfolio
The Aggressive Growth Portfolio
The International Equity Portfolio
The Defensive Equity Small/Mid-Cap Portfolio (New)
The Defensive Equity Utility Portfolio (New)
The Labor Select International Equity Portfolio
The Real Estate Investment Trust Portfolio
The Fixed Income Portfolio
The Limited-Term Maturity Portfolio (New)
The Global Fixed Inome Portfolio
The International Fixed Income Portfolio (New)
The High-Yield Bond Portfolio (New)
Delaware Group Premium Fund, Inc.
Equity/Income Series
High Yield Series
Capital Reserves Series
Money Market Series
Growth Series
Multiple Strategy Series
International Equity Series
Value Series
Emerging Growth Series
Global Bond Series (New)
Delaware Group Government Fund, Inc.
2
<PAGE>
Delaware Group Adviser Funds, Inc.
Enterprise Fund
U.S. Growth Fund
World Growth Fund
New Pacific Fund
Federal Bond Fund
Corporate Income Fund
Dated as of: December 27, 1996
DELAWARE SERVICE COMPANY, INC.
By: /s/David K. Downes
----------------------------
David K. Downes
Senior Vice President/Chief
Administrative Officer/Chief
Financial Officer
DELAWARE GROUP CASH RESERVE, INC.
DELAWARE GROUP DECATUR FUND, INC.
DELAWARE GROUP DELAWARE FUND, INC.
DELAWARE GROUP TAX-FREE FUND, INC.
DELAWARE GROUP TAX-FREE MONEY FUND,INC.
DELAWARE GROUP LIMITED-TERM GOVERNMENT
FUNDS, INC.
DELAWARE GROUP TREND FUND, INC.
DELAWARE GROUP INCOME FUNDS, INC.
DMC TAX-FREE INCOME TRUST - PENNSYLVANIA
DELAWARE GROUP VALUE FUND, INC.
DELAWARE GROUP GLOBAL & INTERNATIONAL
FUNDS, INC.
DELAWARE GROUP DELCAP FUND, INC.
DELAWARE GROUP PREMIUM FUND, INC.
DELAWARE GROUP GOVERNMENT FUND, INC.
DELAWARE GROUP ADVISER FUNDS, INC.
By: /s/ Wayne A. Stork
----------------------------------
Wayne A. Stork
Chairman, President and
Chief Executive Officer
DELAWARE POOLED TRUST, INC.
By: /s/ Wayne A. Stork
----------------------------------
Wayne A. Stork
Chairman
3
<PAGE>
Consent of Independent Auditors
We consent to the references to our firm under the captions "Financial
Highlights" in the Prospectuses and "Financial Statements" in the Statement of
Additional Information and to the incorporation by reference in this
Post-Effective Amendment No. 107 to the Registration Statement (Form N-1A)
(No.2-13017) of Delaware Group Equity Funds II, Inc. of our report dated January
6, 1997, included in the 1996 Annual Report to Shareholders of Decatur Income
Fund and Decatur Total Return Fund.
/s/ ERNST & YOUNG LLP
-------------------------------------
ERNST & YOUNG LLP
Philadelphia, Pennsylvania
February 18, 1997
<PAGE>
DELAWARE GROUP DECATUR INCOME FUND C
ANNUALIZED RATE OF RETURN
FOR FISCAL YEAR ENDING 1996
- --------------------------------------------------------------------------------
Average Annual Compounded Rate of Return:
n
P(1 + T) = ERV
ONE
YEAR
- --------------
1
$1000(1 - T) = $1,224.69
T = 22.47%
LIFE
OF FUND
- --------------
1.00547945
$1000(1 - T) = $1,233.68
T = 23.23%
<PAGE>
DELAWARE GROUP DECATUR INCOME FUND C
ANNUALIZED RATE OF RETURN
FOR FISCAL YEAR ENDING 1996
- --------------------------------------------------------------------------------
Average Annual Compounded Rate of Return:
n
P(1 + T) = ERV
ONE
YEAR
- ---------------
1
$1000(1 - T) = $1,234.69
T = 23.47%
LIFE
OF FUND
- ---------------
1.00547945
$1000(1 - T) = $1,233.68
T = 23.23%
<PAGE>
DELAWARE GROUP DECATUR INCOME FUND C
TOTAL RETURN PERFORMANCE
THREE MONTHS (INCLUDING CDSC)
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $19.11
Initial Shares 52.329
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1996 52.329 $0.135 0.000 52.675
- --------------------------------------------------------------------------------
Ending Shares 52.675
Ending NAV x $21.33
---------
$1,123.56
Less CDSC $10.00
---------
Investment Return $1,113.56
Total Return Performance
- ------------------------
Investment Return $1,113.56
Less Initial Investment $1,000.00
---------
$113.56 / $1,000.00 x 100
Total Return: 11.36%
<PAGE>
DELAWARE GROUP DECATUR INCOME FUND C
TOTAL RETURN PERFORMANCE
THREE MONTHS (EXCLUDING CDSC)
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $19.11
Initial Shares 52.329
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1996 52.329 $0.135 0.000 52.675
- --------------------------------------------------------------------------------
Ending Shares 52.675
Ending NAV x $21.33
---------
Investment Return $1,123.56
Total Return Performance
- ------------------------
Investment Return $1,123.56
Less Initial Investment $1,000.00
---------
$123.56 / $1,000.00 x 100
Total Return: 12.36%
<PAGE>
DELAWARE GROUP DECATUR INCOME FUND C
TOTAL RETURN PERFORMANCE
SIX MONTHS (INCLUDING CDSC)
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $19.30
Initial Shares 51.813
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1996 51.813 $0.270 0.000 52.528
- --------------------------------------------------------------------------------
Ending Shares 52.528
Ending NAV x $21.33
---------
$1,120.42
Less CDSC $10.00
---------
Investment Return $1,110.42
Total Return Performance
- ------------------------
Investment Return $1,110.42
Less Initial Investment $1,000.00
---------
$110.42 / $1,000.00 x 100
Total Return: 11.04%
<PAGE>
DELAWARE GROUP DECATUR INCOME FUND C
TOTAL RETURN PERFORMANCE
SIX MONTHS (EXCLUDING CDSC)
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $19.30
Initial Shares 51.813
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1996 51.813 $0.270 0.000 52.528
------------------------------------------------------------------------------
Ending Shares 52.528
Ending NAV x $21.33
---------
Investment Return $1,120.42
Total Return Performance
------------------------
Investment Return $1,120.42
Less Initial Investment $1,000.00
---------
$120.42 / $1,000.00 x 100
Total Return: 12.04%
<PAGE>
DELAWARE GROUP DECATUR INCOME FUND C
TOTAL RETURN PERFORMANCE
NINE MONTHS (EXCLUDING CDSC)
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $18.76
Initial Shares 53.305
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1996 53.305 $0.405 0.000 54.424
- --------------------------------------------------------------------------------
Ending Shares 54.424
Ending NAV x $21.33
---------
Investment Return $1,160.86
Total Return Performance
- ------------------------
Investment Return $1,160.86
Less Initial Investment $1,000.00
---------
$160.86 / $1,000.00 x 100
Total Return: 16.09%
<PAGE>
DELAWARE GROUP DECATUR INCOME FUND C
TOTAL RETURN PERFORMANCE
NINE MONTHS (INCLUDING CDSC)
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $18.76
Initial Shares 53.305
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1996 53.305 $0.405 0.000 54.424
- --------------------------------------------------------------------------------
Ending Shares 54.424
Ending NAV x $21.33
----------
$1,160.86
Less CDSC $10.00
----------
Investment Return $1,150.86
Total Return Performance
- ------------------------
Investment Return $1,150.86
Less Initial Investment $1,000.00
----------
$150.86 / $1,000.00 x 100
Total Return: 15.09%
<PAGE>
DELAWARE GROUP DECATUR INCOME FUND C
TOTAL RETURN PERFORMANCE
ONE YEAR (INCLUDING CDSC)
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $18.76
Initial Shares 53.305
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1996 53.305 $1.890 0.000 57.885
- -------------------------------------------------------------------------------
Ending Shares 57.885
Ending NAV x $21.33
----------
$1,234.69
Less CDSC $10.00
----------
Investment Return $1,224.69
Total Return Performance
- ------------------------
Investment Return $1,224.69
Less Initial Investment $1,000.00
----------
$224.69 / $1,000.00 x 100
Total Return: 22.47%
<PAGE>
DELAWARE GROUP DECATUR INCOME FUND C
TOTAL RETURN PERFORMANCE
ONE YEAR (EXCLUDING CDSC)
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $18.76
Initial Shares 53.305
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1996 53.305 $1.890 0.000 57.885
- --------------------------------------------------------------------------------
Ending Shares 57.885
Ending NAV x $21.33
---------
Investment Return $1,234.69
Total Return Performance
- ------------------------
Investment Return $1,234.69
Less Initial Investment $1,000.00
---------
$234.69 / $1,000.00 x 100
Total Return: 23.47%
<PAGE>
DELAWARE GROUP DECATUR INCOME FUND C
TOTAL RETURN PERFORMANCE
LIFE OF FUND (INCLUDING CDSC)
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $19.15
Initial Shares 52.219
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1995 52.219 $0.045 0.000 52.342
- --------------------------------------------------------------------------------
1996 52.342 $1.890 0.000 57.838
- --------------------------------------------------------------------------------
Ending Shares 57.838
Ending NAV x $21.33
---------
$1,233.68
---------
Less CDSC $0.00
---------
Investment Return $1,233.68
Total Return Performance
- ------------------------
Investment Return $1,233.68
Less Initial Investment $1,000.00
---------
$233.68 / $1,000.00 x 100
Total Return: 23.37%
<PAGE>
DELAWARE GROUP DECATUR INCOME FUND C
TOTAL RETURN PERFORMANCE
LIFE OF FUND (EXCLUDING CDSC)
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $19.15
Initial Shares 52.219
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1996 52.219 $0.045 0.000 52.342
- --------------------------------------------------------------------------------
1996 52.342 $1.890 0.000 57.838
- --------------------------------------------------------------------------------
Ending Shares 57.838
Ending NAV x $21.33
---------
Investment Return $1,233.68
Total Return Performance
- ------------------------
Investment Return $1,233.68
Less Initial Investment $1,000.00
---------
$233.68 / $1,000.00 x 100
Total Return: 23.37%
<PAGE>
DELAWARE GROUP DECATUR TOTAL RETURN FUND C
ANNUALIZED RATE OF RETURN
FOR FISCAL YEAR ENDING 1996
- --------------------------------------------------------------------------------
Average Annual Compounded Rate of Return:
n
P(1 + T) = ERV
ONE
YEAR
- --------------
1
$1000(1 - T) = $1,230.42
T = 23.04%
LIFE
OF FUND
- --------------
1.00547945
$1000(1 - T) = $1,240.42
T = 23.90%
<PAGE>
DELAWARE GROUP DECATUR TOTAL RETURN FUND C
ANNUALIZED RATE OF RETURN
FOR FISCAL YEAR ENDING 1996
- --------------------------------------------------------------------------------
Average Annual Compounded Rate of Return:
n
P(1 + T) = ERV
ONE
YEAR
- ---------------
1
$1000(1 - T) = $1,240.42
T = 24.04%
LIFE
OF FUND
- ---------------
1.00547945
$1000(1 - T) = $1,240.42
T = 23.90%
<PAGE>
DELAWARE GROUP DECATUR TOTAL RETURN INSTITUTIONAL
ANNUALIZED RATE OF RETURN
FOR FISCAL YEAR ENDING 1996
- --------------------------------------------------------------------------------
Average Annual Compounded Rate of Return:
n
P(1 + T) = ERV
TEN
YEARS
- ---------------
10
$1000(1 - T) = $3,452.91
T = 13.19%
<PAGE>
DELAWARE GROUP DECATUR TOTAL RETURN FUND A
ANNUALIZED RATE OF RETURN
FOR FISCAL YEAR ENDING 1996
- --------------------------------------------------------------------------------
Average Annual Compounded Rate of Return:
n
P(1 + T) = ERV
TEN
YEARS
- ----------------
10
$1000(1 - T) = $3,419.06
T = 13.08%
<PAGE>
DELAWARE GROUP DECATUR TOTAL RETURN FUND A
ANNUALIZED RATE OF RETURN
FOR FISCAL YEAR ENDING 1996
- --------------------------------------------------------------------------------
Average Annual Compounded Rate of Return:
n
P(1 + T) = ERV
TEN
YEARS
- --------------
10
$1000(1 - T) = $3,257.65
T = 12.54%
<PAGE>
DELAWARE GROUP DECATUR TOTAL RETURN FUND C
TOTAL RETURN PERFORMANCE
THREE MONTHS (EXCLUDING CDSC)
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $15.43
Initial Shares 64.809
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1996 64.809 $0.060 0.000 65.052
- --------------------------------------------------------------------------------
Ending Shares 65.052
Ending NAV x $17.43
---------
Investment Return $1,133.86
Total Return Performance
- ------------------------
Investment Return $1,133.86
Less Initial Investment $1,000.00
---------
$133.86 / $1,000.00 x 100
Total Return: 13.39%
<PAGE>
DELAWARE GROUP DECATUR TOTAL RETURN FUND C
TOTAL RETURN PERFORMANCE
THREE MONTHS (INCLUDING CDSC)
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $15.43
Initial Shares 64.809
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1996 64.809 $0.060 0.000 65.052
- --------------------------------------------------------------------------------
Ending Shares 65.052
Ending NAV x $17.43
---------
$1,133.86
Less CDSC $10.00
---------
Investment Return $1,123.86
Total Return Performance
- ------------------------
Investment Return $1,123.86
Less Initial Investment $1,000.00
---------
$123.86 / $1,000.00 x 100
Total Return: 12.39%
<PAGE>
DELAWARE GROUP DECATUR TOTAL RETURN FUND C
TOTAL RETURN PERFORMANCE
SIX MONTHS (EXCLUDING CDSC)
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $15.57
Initial Shares 64.226
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1996 64.226 $0.120 0.000 64.718
- --------------------------------------------------------------------------------
Ending Shares 64.718
Ending NAV x $17.43
---------
Investment Return $1,128.03
Total Return Performance
- ------------------------
Investment Return $1,128.03
Less Initial Investment $1,000.00
---------
$128.03 / $1,000.00 x 100
Total Return: 12.80%
<PAGE>
DELAWARE GROUP DECATUR TOTAL RETURN FUND C
TOTAL RETURN PERFORMANCE
SIX MONTHS (INCLUDING CDSC)
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $15.57
Initial Shares 64.226
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1996 64.226 $0.120 0.000 64.718
- --------------------------------------------------------------------------------
Ending Shares 64.718
Ending NAV x $17.43
----------
$1,128.03
Less CDSC $10.00
----------
Investment Return $1,118.03
Total Return Performance
- ------------------------
Investment Return $1,118.03
Less Initial Investment $1,000.00
----------
$118.03 / $1,000.00 x 100
Total Return: 11.80%
<PAGE>
DELAWARE GROUP DECATUR TOTAL RETURN FUND C
TOTAL RETURN PERFORMANCE
NINE MONTHS (EXCLUDING CDSC)
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $15.11
Initial Shares 66.181
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1996 66.181 $0.180 0.000 66.951
- --------------------------------------------------------------------------------
Ending Shares 66.951
Ending NAV x $17.43
---------
Investment Return $1,166.96
Total Return Performance
- ------------------------
Investment Return $1,166.96
Less Initial Investment $1,000.00
---------
$166.96 / $1,000.00 x 100
Total Return: 16.70%
<PAGE>
DELAWARE GROUP DECATUR TOTAL RETURN FUND C
TOTAL RETURN PERFORMANCE
NINE MONTHS (INCLUDING CDSC)
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $15.11
Initial Shares 66.181
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1996 66.181 $0.180 0.000 66.951
- --------------------------------------------------------------------------------
Ending Shares 66.951
Ending NAV x $17.43
----------
$1,166.96
Less CDSC $10.00
----------
Investment Return $1,156.96
Total Return Performance
- ------------------------
Investment Return $1,156.96
Less Initial Investment $1,000.00
----------
$156.96 / $1,000.00 x 100
Total Return: 15.70%
<PAGE>
DELAWARE GROUP DECATUR TOTAL RETURN FUND C
TOTAL RETURN PERFORMANCE
ONE YEAR (EXCLUDING CDSC)
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $15.61
Initial Shares 64.061
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1996 64.061 $1.605 0.000 71.166
- --------------------------------------------------------------------------------
Ending Shares 71.166
Ending NAV x $17.43
---------
Investment Return $1,240.42
Total Return Performance
- ------------------------
Investment Return $1,240.42
Less Initial Investment $1,000.00
---------
$240.42 / $1,000.00 x 100
Total Return: 24.04%
<PAGE>
DELAWARE GROUP DECATUR TOTAL RETURN FUND C
TOTAL RETURN PERFORMANCE
ONE YEAR (INCLUDING CDSC)
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $15.61
Initial Shares 64.061
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1996 64.061 $1.605 0.000 71.166
- --------------------------------------------------------------------------------
Ending Shares 71.166
Ending NAV x $17.43
---------
$1,240.42
Less CDSC $10.00
---------
Investment Return $1,230.42
Total Return Performance
- ------------------------
Investment Return $1,230.42
Less Initial Investment $1,000.00
---------
$230.42 / $1,000.00 x 100
Total Return: 23.04%
<PAGE>
DELAWARE GROUP DECATUR TOTAL RETURN FUND C
TOTAL RETURN PERFORMANCE
LIFE OF FUND (EXCLUDING CDSC)
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $15.61
Initial Shares 64.061
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1996 64.061 $1.605 0.000 71.166
- --------------------------------------------------------------------------------
Ending Shares 71.166
Ending NAV x $17.43
---------
Investment Return $1,240.42
Total Return Performance
- ------------------------
Investment Return $1,240.42
Less Initial Investment $1,000.00
---------
$240.42 / $1,000.00 x 100
Total Return: 24.04%
<PAGE>
DELAWARE GROUP DECATUR TOTAL RETURN FUND C
TOTAL RETURN PERFORMANCE
LIFE OF FUND (INCLUDING CDSC)
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $15.61
Initial Shares 64.061
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1996 64.061 $1.605 0.000 71.166
- --------------------------------------------------------------------------------
Ending Shares 71.166
Ending NAV x $17.43
----------
$1,240.42
Less CDSC $0.00
----------
Investment Return $1,240.42
Total Return Performance
- ------------------------
Investment Return $1,240.42
Less Initial Investment $1,000.00
----------
$240.42 / $1,000.00 x 100
Total Return: 24.04%
<PAGE>
DELAWARE GROUP DECATUR TOTAL RETURN INSTITUTIONAL
TOTAL RETURN PERFORMANCE
TEN YEARS
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $10.29
Initial Shares 97.182
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1987 97.182 $0.260 0.000 99.473
- --------------------------------------------------------------------------------
1988 103.098 $0.370 0.000 103.098
- --------------------------------------------------------------------------------
1989 107.266 $0.490 0.000 107.266
- --------------------------------------------------------------------------------
1990 116.403 $1.070 0.000 116.403
- --------------------------------------------------------------------------------
1991 122.006 $0.580 0.000 122.006
- --------------------------------------------------------------------------------
1992 126.782 $0.520 0.000 126.782
- --------------------------------------------------------------------------------
1993 141.417 $1.500 0.000 141.417
- --------------------------------------------------------------------------------
1994 165.210 $2.110 0.000 165.210
- --------------------------------------------------------------------------------
1995 176.171 $0.820 0.000 176.171
- --------------------------------------------------------------------------------
1996 196.523 $1.675 0.000 196.523
- --------------------------------------------------------------------------------
Ending Shares 196.523
Ending NAV x $17.57
---------
Investment Return $3,452.91
Total Return Performance
- ------------------------
Investment Return $3,452.91
Less Initial Investment $1,000.00
---------
$2,452.91 / $1,000.00 x 100
Total Return: 245.29%
<PAGE>
DELAWARE GROUP DECATUR TOTAL RETURN FUND A
TOTAL RETURN PERFORMANCE
TEN YEARS
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning NAV $10.29
Initial Shares 97.182
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1987 97.182 $0.260 0.000 99.473
- --------------------------------------------------------------------------------
1988 103.098 $0.370 0.000 103.098
- --------------------------------------------------------------------------------
1989 107.266 $0.490 0.000 107.266
- --------------------------------------------------------------------------------
1990 116.403 $1.070 0.000 116.403
- --------------------------------------------------------------------------------
1991 122.006 $0.580 0.000 122.006
- --------------------------------------------------------------------------------
1992 126.782 $0.520 0.000 126.782
- --------------------------------------------------------------------------------
1993 141.418 $1.500 0.000 141.418
- --------------------------------------------------------------------------------
1994 164.989 $2.090 0.000 164.989
- --------------------------------------------------------------------------------
1995 175.377 $0.780 0.000 175.377
- --------------------------------------------------------------------------------
1996 195.152 $1.635 0.000 195.152
- --------------------------------------------------------------------------------
Ending Shares 195.152
Ending NAV x $17.52
---------
Investment Return $3,419.06
Total Return Performance
- ------------------------
Investment Return $3,419.06
Less Initial Investment $1,000.00
---------
$2,419.06 / $1,000.00 x 100
Total Return: 241.91%
<PAGE>
DELAWARE GROUP DECATUR TOTAL RETURN FUND A
TOTAL RETURN PERFORMANCE
TEN YEARS
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $10.80
Initial Shares 92.593
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1987 92.593 $0.260 0.000 94.777
- --------------------------------------------------------------------------------
1988 98.232 $0.370 0.000 98.232
- --------------------------------------------------------------------------------
1989 102.202 $0.490 0.000 102.202
- --------------------------------------------------------------------------------
1990 110.908 $1.070 0.000 110.908
- --------------------------------------------------------------------------------
1991 116.246 $0.580 0.000 116.246
- --------------------------------------------------------------------------------
1992 120.796 $0.520 0.000 120.796
- --------------------------------------------------------------------------------
1993 134.741 $1.500 0.000 134.741
- --------------------------------------------------------------------------------
1994 157.200 $2.090 0.000 157.200
- --------------------------------------------------------------------------------
1995 167.097 $0.780 0.000 167.097
- --------------------------------------------------------------------------------
1996 185.939 $1.635 0.000 185.939
- --------------------------------------------------------------------------------
Ending Shares 185.939
Ending NAV x $17.52
----------
Investment Return $3,257.65
Total Return Performance
- ------------------------
Investment Return $3,257.65
Less Initial Investment $1,000.00
----------
$2,257.65 / $1,000.00 x 100
Total Return: 225.77%
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000027574
<NAME> DELAWARE GROUP DECATUR FUND, INC.
<SERIES>
<NUMBER> 011
<NAME> DECATUR INCOME FUND A CLASS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-END> NOV-30-1996
<INVESTMENTS-AT-COST> 1,649,725,408
<INVESTMENTS-AT-VALUE> 1,920,587,775
<RECEIVABLES> 21,428,243
<ASSETS-OTHER> 26,104
<OTHER-ITEMS-ASSETS> 1,123,286
<TOTAL-ASSETS> 1,943,165,408
<PAYABLE-FOR-SECURITIES> 14,771,481
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,509,259
<TOTAL-LIABILITIES> 17,280,740
<SENIOR-EQUITY> 90,330,046
<PAID-IN-CAPITAL-COMMON> 1,324,375,480
<SHARES-COMMON-STOCK> 75,797,541
<SHARES-COMMON-PRIOR> 72,488,322
<ACCUMULATED-NII-CURRENT> 480,076
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 239,836,699
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 270,862,367
<NET-ASSETS> 1,616,314,641
<DIVIDEND-INCOME> 53,922,649
<INTEREST-INCOME> 19,132,902
<OTHER-INCOME> 0
<EXPENSES-NET> 14,608,969
<NET-INVESTMENT-INCOME> 58,446,582
<REALIZED-GAINS-CURRENT> 244,728,187
<APPREC-INCREASE-CURRENT> 79,097,926
<NET-CHANGE-FROM-OPS> 382,272,695
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 52,522,453
<DISTRIBUTIONS-OF-GAINS> 96,711,467
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,444,653
<NUMBER-OF-SHARES-REDEEMED> 8,247,706
<SHARES-REINVESTED> 7,112,272
<NET-CHANGE-IN-ASSETS> 312,113,075
<ACCUMULATED-NII-PRIOR> 3,740,547
<ACCUMULATED-GAINS-PRIOR> 108,264,711
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 8,397,639
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 14,608,969
<AVERAGE-NET-ASSETS> 1,463,524,017
<PER-SHARE-NAV-BEGIN> 19.070
<PER-SHARE-NII> 0.65
<PER-SHARE-GAIN-APPREC> 3.63
<PER-SHARE-DIVIDEND> 0.69
<PER-SHARE-DISTRIBUTIONS> 1.34
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 21.32
<EXPENSE-RATIO> 0.85
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000027574
<NAME> DELAWARE GROUP DECATUR FUND, INC.
<SERIES>
<NUMBER> 012
<NAME> DECATUR INCOME FUND B CLASS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-END> NOV-30-1996
<INVESTMENTS-AT-COST> 1,649,725,408
<INVESTMENTS-AT-VALUE> 1,920,587,775
<RECEIVABLES> 21,428,243
<ASSETS-OTHER> 26,104
<OTHER-ITEMS-ASSETS> 1,123,286
<TOTAL-ASSETS> 1,943,165,408
<PAYABLE-FOR-SECURITIES> 14,771,481
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,509,259
<TOTAL-LIABILITIES> 17,280,740
<SENIOR-EQUITY> 90,330,046
<PAID-IN-CAPITAL-COMMON> 1,324,375,480
<SHARES-COMMON-STOCK> 2,855,222
<SHARES-COMMON-PRIOR> 1,033,579
<ACCUMULATED-NII-CURRENT> 480,076
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 239,836,699
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 270,862,367
<NET-ASSETS> 60,689,085
<DIVIDEND-INCOME> 53,922,649
<INTEREST-INCOME> 19,132,902
<OTHER-INCOME> 0
<EXPENSES-NET> 14,608,969
<NET-INVESTMENT-INCOME> 58,446,582
<REALIZED-GAINS-CURRENT> 244,728,187
<APPREC-INCREASE-CURRENT> 79,097,926
<NET-CHANGE-FROM-OPS> 382,272,695
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,060,507
<DISTRIBUTIONS-OF-GAINS> 1,466,813
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,879,641
<NUMBER-OF-SHARES-REDEEMED> 172,677
<SHARES-REINVESTED> 114,679
<NET-CHANGE-IN-ASSETS> 312,113,075
<ACCUMULATED-NII-PRIOR> 3,740,547
<ACCUMULATED-GAINS-PRIOR> 108,264,711
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 8,397,639
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 14,608,969
<AVERAGE-NET-ASSETS> 36,635,802
<PER-SHARE-NAV-BEGIN> 19.030
<PER-SHARE-NII> 0.50
<PER-SHARE-GAIN-APPREC> 3.61
<PER-SHARE-DIVIDEND> 0.54
<PER-SHARE-DISTRIBUTIONS> 1.34
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 21.26
<EXPENSE-RATIO> 1.69
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000027574
<NAME> DELAWARE GROUP DECATUR FUND, INC.
<SERIES>
<NUMBER> 013
<NAME> DECATUR INCOME FUND C CLASS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-END> NOV-30-1996
<INVESTMENTS-AT-COST> 1,649,725,408
<INVESTMENTS-AT-VALUE> 1,920,587,775
<RECEIVABLES> 21,428,243
<ASSETS-OTHER> 26,104
<OTHER-ITEMS-ASSETS> 1,123,286
<TOTAL-ASSETS> 1,943,165,408
<PAYABLE-FOR-SECURITIES> 14,771,481
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,509,259
<TOTAL-LIABILITIES> 17,280,740
<SENIOR-EQUITY> 90,330,046
<PAID-IN-CAPITAL-COMMON> 1,324,375,480
<SHARES-COMMON-STOCK> 226,637
<SHARES-COMMON-PRIOR> 263
<ACCUMULATED-NII-CURRENT> 480,076
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 239,836,699
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 270,862,367
<NET-ASSETS> 4,833,437
<DIVIDEND-INCOME> 53,922,649
<INTEREST-INCOME> 19,132,902
<OTHER-INCOME> 0
<EXPENSES-NET> 14,608,969
<NET-INVESTMENT-INCOME> 58,446,582
<REALIZED-GAINS-CURRENT> 244,728,187
<APPREC-INCREASE-CURRENT> 79,097,926
<NET-CHANGE-FROM-OPS> 382,272,695
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 51,387
<DISTRIBUTIONS-OF-GAINS> 4,214
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 251,293
<NUMBER-OF-SHARES-REDEEMED> 27,179
<SHARES-REINVESTED> 2,260
<NET-CHANGE-IN-ASSETS> 312,113,075
<ACCUMULATED-NII-PRIOR> 3,740,547
<ACCUMULATED-GAINS-PRIOR> 108,264,711
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 8,397,639
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 14,608,969
<AVERAGE-NET-ASSETS> 1,674,929
<PER-SHARE-NAV-BEGIN> 19.080
<PER-SHARE-NII> 0.51
<PER-SHARE-GAIN-APPREC> 3.63
<PER-SHARE-DIVIDEND> 0.55
<PER-SHARE-DISTRIBUTIONS> 1.34
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 21.33
<EXPENSE-RATIO> 1.69
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000027574
<NAME> DELAWARE GROUP DECATUR FUND, INC.
<SERIES>
<NUMBER> 014
<NAME> DECATUR INCOME FUND INSTITUTIONAL CLASS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-END> NOV-30-1996
<INVESTMENTS-AT-COST> 1,649,725,408
<INVESTMENTS-AT-VALUE> 1,920,587,775
<RECEIVABLES> 21,428,243
<ASSETS-OTHER> 26,104
<OTHER-ITEMS-ASSETS> 1,123,286
<TOTAL-ASSETS> 1,943,165,408
<PAYABLE-FOR-SECURITIES> 14,771,481
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,509,259
<TOTAL-LIABILITIES> 17,280,740
<SENIOR-EQUITY> 90,330,046
<PAID-IN-CAPITAL-COMMON> 1,324,375,480
<SHARES-COMMON-STOCK> 11,450,646
<SHARES-COMMON-PRIOR> 11,091,788
<ACCUMULATED-NII-CURRENT> 480,076
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 239,836,699
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 270,862,367
<NET-ASSETS> 244,047,505
<DIVIDEND-INCOME> 53,922,649
<INTEREST-INCOME> 19,132,902
<OTHER-INCOME> 0
<EXPENSES-NET> 14,608,969
<NET-INVESTMENT-INCOME> 58,446,582
<REALIZED-GAINS-CURRENT> 244,728,187
<APPREC-INCREASE-CURRENT> 79,097,926
<NET-CHANGE-FROM-OPS> 382,272,695
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 8,072,706
<DISTRIBUTIONS-OF-GAINS> 14,913,705
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,114,417
<NUMBER-OF-SHARES-REDEEMED> 2,978,039
<SHARES-REINVESTED> 1,222,480
<NET-CHANGE-IN-ASSETS> 312,113,075
<ACCUMULATED-NII-PRIOR> 3,740,547
<ACCUMULATED-GAINS-PRIOR> 108,264,711
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 8,397,639
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 14,608,969
<AVERAGE-NET-ASSETS> 216,541,695
<PER-SHARE-NAV-BEGIN> 19.060
<PER-SHARE-NII> 0.69
<PER-SHARE-GAIN-APPREC> 3.62
<PER-SHARE-DIVIDEND> 0.72
<PER-SHARE-DISTRIBUTIONS> 1.34
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 21.31
<EXPENSE-RATIO> 0.69
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000027574
<NAME> DELAWARE GROUP DECATUR FUND, INC.
<SERIES>
<NUMBER> 021
<NAME> DECATUR TOTAL RETURN FUND A CLASS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-END> NOV-30-1996
<INVESTMENTS-AT-COST> 649,607,369
<INVESTMENTS-AT-VALUE> 777,165,047
<RECEIVABLES> 7,896,618
<ASSETS-OTHER> 36,773
<OTHER-ITEMS-ASSETS> 3,025
<TOTAL-ASSETS> 785,101,463
<PAYABLE-FOR-SECURITIES> 6,417,258
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 755,904
<TOTAL-LIABILITIES> 7,173,162
<SENIOR-EQUITY> 44,406,530
<PAID-IN-CAPITAL-COMMON> 520,199,138
<SHARES-COMMON-STOCK> 38,293,331
<SHARES-COMMON-PRIOR> 34,229,185
<ACCUMULATED-NII-CURRENT> 3,767,293
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 81,997,658
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 127,557,680
<NET-ASSETS> 670,912,437
<DIVIDEND-INCOME> 20,818,504
<INTEREST-INCOME> 676,670
<OTHER-INCOME> 0
<EXPENSES-NET> 7,434,787
<NET-INVESTMENT-INCOME> 14,060,387
<REALIZED-GAINS-CURRENT> 82,430,018
<APPREC-INCREASE-CURRENT> 50,905,768
<NET-CHANGE-FROM-OPS> 147,396,173
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 12,795,454
<DISTRIBUTIONS-OF-GAINS> 44,125,949
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7,556,314
<NUMBER-OF-SHARES-REDEEMED> 7,166,570
<SHARES-REINVESTED> 3,674,402
<NET-CHANGE-IN-ASSETS> 217,316,695
<ACCUMULATED-NII-PRIOR> 3,344,456
<ACCUMULATED-GAINS-PRIOR> 47,667,550
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,801,697
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 7,434,787
<AVERAGE-NET-ASSETS> 585,274,351
<PER-SHARE-NAV-BEGIN> 15.61
<PER-SHARE-NII> 0.35
<PER-SHARE-GAIN-APPREC> 3.20
<PER-SHARE-DIVIDEND> 0.35
<PER-SHARE-DISTRIBUTIONS> 1.29
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 17.52
<EXPENSE-RATIO> 1.13
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000027574
<NAME> DELAWARE GROUP DECATUR FUND, INC.
<SERIES>
<NUMBER> 022
<NAME> DECATUR TOTAL RETURN FUND B CLASS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-END> NOV-30-1996
<INVESTMENTS-AT-COST> 649,607,369
<INVESTMENTS-AT-VALUE> 777,165,047
<RECEIVABLES> 7,896,618
<ASSETS-OTHER> 36,773
<OTHER-ITEMS-ASSETS> 3,025
<TOTAL-ASSETS> 785,101,463
<PAYABLE-FOR-SECURITIES> 6,417,258
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 755,904
<TOTAL-LIABILITIES> 7,173,162
<SENIOR-EQUITY> 44,406,530
<PAID-IN-CAPITAL-COMMON> 520,199,138
<SHARES-COMMON-STOCK> 3,061,684
<SHARES-COMMON-PRIOR> 947,553
<ACCUMULATED-NII-CURRENT> 3,767,293
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 81,997,658
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 127,557,680
<NET-ASSETS> 53,467,292
<DIVIDEND-INCOME> 20,818,504
<INTEREST-INCOME> 676,670
<OTHER-INCOME> 0
<EXPENSES-NET> 7,434,787
<NET-INVESTMENT-INCOME> 14,060,387
<REALIZED-GAINS-CURRENT> 82,430,018
<APPREC-INCREASE-CURRENT> 50,905,768
<NET-CHANGE-FROM-OPS> 147,396,173
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 433,825
<DISTRIBUTIONS-OF-GAINS> 1,305,455
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,178,072
<NUMBER-OF-SHARES-REDEEMED> 174,170
<SHARES-REINVESTED> 110,229
<NET-CHANGE-IN-ASSETS> 217,316,695
<ACCUMULATED-NII-PRIOR> 3,344,456
<ACCUMULATED-GAINS-PRIOR> 47,667,550
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,801,697
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 7,434,787
<AVERAGE-NET-ASSETS> 29,841,192
<PER-SHARE-NAV-BEGIN> 15.56
<PER-SHARE-NII> 0.24
<PER-SHARE-GAIN-APPREC> 3.19
<PER-SHARE-DIVIDEND> 0.24
<PER-SHARE-DISTRIBUTIONS> 1.29
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 17.46
<EXPENSE-RATIO> 1.81
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000027574
<NAME> DELAWARE GROUP DECATUR FUND, INC.
<SERIES>
<NUMBER> 023
<NAME> DECATUR TOTAL RETURN FUND C CLASS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-END> NOV-30-1996
<INVESTMENTS-AT-COST> 649,607,369
<INVESTMENTS-AT-VALUE> 777,165,047
<RECEIVABLES> 7,896,618
<ASSETS-OTHER> 36,773
<OTHER-ITEMS-ASSETS> 3,025
<TOTAL-ASSETS> 785,101,463
<PAYABLE-FOR-SECURITIES> 6,417,258
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 755,904
<TOTAL-LIABILITIES> 7,173,162
<SENIOR-EQUITY> 44,406,530
<PAID-IN-CAPITAL-COMMON> 520,199,138
<SHARES-COMMON-STOCK> 435,461
<SHARES-COMMON-PRIOR> 322
<ACCUMULATED-NII-CURRENT> 3,767,293
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 81,997,658
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 127,557,680
<NET-ASSETS> 7,590,607
<DIVIDEND-INCOME> 20,818,504
<INTEREST-INCOME> 676,670
<OTHER-INCOME> 0
<EXPENSES-NET> 7,434,787
<NET-INVESTMENT-INCOME> 14,060,387
<REALIZED-GAINS-CURRENT> 82,430,018
<APPREC-INCREASE-CURRENT> 50,905,768
<NET-CHANGE-FROM-OPS> 147,396,173
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 40,493
<DISTRIBUTIONS-OF-GAINS> 14,393
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 441,779
<NUMBER-OF-SHARES-REDEEMED> 9,857
<SHARES-REINVESTED> 3,217
<NET-CHANGE-IN-ASSETS> 217,316,695
<ACCUMULATED-NII-PRIOR> 3,344,456
<ACCUMULATED-GAINS-PRIOR> 47,667,550
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,801,697
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 7,434,787
<AVERAGE-NET-ASSETS> 2,970,785
<PER-SHARE-NAV-BEGIN> 15.61
<PER-SHARE-NII> 0.24
<PER-SHARE-GAIN-APPREC> 3.19
<PER-SHARE-DIVIDEND> 0.32
<PER-SHARE-DISTRIBUTIONS> 1.29
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 17.43
<EXPENSE-RATIO> 1.81
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000027574
<NAME> DELAWARE GROUP DECATUR FUND, INC.
<SERIES>
<NUMBER> 024
<NAME> DECATUR TOTAL RETURN FUND INSTITUTIONAL CLASS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-END> NOV-30-1996
<INVESTMENTS-AT-COST> 649,607,369
<INVESTMENTS-AT-VALUE> 777,165,047
<RECEIVABLES> 7,896,618
<ASSETS-OTHER> 36,773
<OTHER-ITEMS-ASSETS> 3,025
<TOTAL-ASSETS> 785,101,463
<PAYABLE-FOR-SECURITIES> 6,417,258
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 755,904
<TOTAL-LIABILITIES> 7,173,162
<SENIOR-EQUITY> 44,406,530
<PAID-IN-CAPITAL-COMMON> 520,199,138
<SHARES-COMMON-STOCK> 2,616,053
<SHARES-COMMON-PRIOR> 736,281
<ACCUMULATED-NII-CURRENT> 3,767,293
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 81,997,658
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 127,557,680
<NET-ASSETS> 45,957,963
<DIVIDEND-INCOME> 20,818,504
<INTEREST-INCOME> 676,670
<OTHER-INCOME> 0
<EXPENSES-NET> 7,434,787
<NET-INVESTMENT-INCOME> 14,060,387
<REALIZED-GAINS-CURRENT> 82,430,018
<APPREC-INCREASE-CURRENT> 50,905,768
<NET-CHANGE-FROM-OPS> 147,396,173
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 486,096
<DISTRIBUTIONS-OF-GAINS> 953,579
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,969,432
<NUMBER-OF-SHARES-REDEEMED> 186,654
<SHARES-REINVESTED> 96,994
<NET-CHANGE-IN-ASSETS> 217,316,695
<ACCUMULATED-NII-PRIOR> 3,344,456
<ACCUMULATED-GAINS-PRIOR> 47,667,550
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,801,697
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 7,434,787
<AVERAGE-NET-ASSETS> 24,676,382
<PER-SHARE-NAV-BEGIN> 15.65
<PER-SHARE-NII> 0.39
<PER-SHARE-GAIN-APPREC> 3.21
<PER-SHARE-DIVIDEND> 0.39
<PER-SHARE-DISTRIBUTIONS> 1.29
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 17.57
<EXPENSE-RATIO> 0.81
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
APPENDIX A
List of Funds and Their Classes
1. Delaware Group Delaware Fund, Inc.
Delaware Fund
Delaware Fund A Class
Delaware Fund B Class
Delaware Fund C Class
Delaware Fund Institutional Class
Devon Fund
Devon Fund A Class
Devon Fund B Class
Devon Fund C Class
Devon Fund Institutional Class
2. Delaware Group Trend Fund, Inc.
Trend Fund A Class
Trend Fund B Class
Trend Fund C Class
Trend Fund Institutional Class
3. Delaware Group Equity Funds IV, Inc.
DelCap Fund
DelCap Fund A Class
DelCap Fund B Class
DelCap Fund C Class
DelCap Fund Institutional Class
Capital Appreciation Fund (Added November 29, 1996)
Capital Appreciation Fund A Class
Capital Appreciation Fund B Class
Capital Appreciation Fund C Class
Capital Appreciation Fund Institutional Class
4. Delaware Group Equity Funds V, Inc.
Value Fund
Value Fund A Class
Value Fund B Class
Value Fund C Class
Value Fund Institutional Class
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Retirement Income Fund (Added November 29, 1996)
Retirement Income Fund A Class
Retirement Income Fund B Class
Retirement Income Fund C Class
Retirement Income Fund Institutional Class
5. Delaware Group Decatur Fund, Inc.
Decatur Income Fund
Decatur Income Fund A Class
Decatur Income Fund B Class
Decatur Income Fund C Class
Decatur Income Fund Institutional Class
Decatur Total Return Fund
Decatur Total Return Fund A Class
Decatur Total Return Fund B Class
Decatur Total Return Fund C Class
Decatur Total Return Fund Institutional Class
6. Delaware Group Global & International Funds, Inc.
International Equity Series
International Equity Fund A Class
International Equity Fund B Class
International Equity Fund C Class
International Equity Fund Institutional Class
Global Bond Series
Global Bond Fund A Class
Global Bond Fund B Class
Global Bond Fund C Class
Global Bond Fund Institutional Class
Global Assets Series
Global Assets Fund A Class
Global Assets Fund B Class
Global Assets Fund C Class
Global Assets Fund Institutional Class
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Emerging Markets Series (Added May 1, 1996)
Emerging Markets Fund A Class
Emerging Markets Fund B Class
Emerging Markets Fund C Class
Emerging Markets Fund Institutional Class
7. Delaware Group Income Funds, Inc.
Strategic Income Fund (Added September 30, 1996)
Strategic Income Fund A Class
Strategic Income Fund B Class
Strategic Income Fund C Class
Strategic Income Fund Institutional Class
