<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
File No. 2-13017
File No. 811-750
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No.____ [ ]
Post-Effective Amendment No. 109 [X]
---
AND
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 109
---
DELAWARE GROUP EQUITY FUNDS II, INC.
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(formerly known as Delaware Group Decatur Fund, Inc.)
(Exact Name of Registrant as Specified in Charter)
1818 Market Street, Philadelphia, Pennsylvania 19103
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (215) 751-2923
--------------
George M. Chamberlain, Jr., 1818 Market Street, Philadelphia, PA 19103
- --------------------------------------------------------------------------------
(Name and Address of Agent for Service)
Approximate Date of Public Offering: January 30, 1998
----------------
It is proposed that this filing will become effective:
____ immediately upon filing pursuant to paragraph (b)
_X__ on January 30, 1998 pursuant to paragraph (b)
____ 60 days after filing pursuant to paragraph (a)(1)
____ on (date) pursuant to paragraph (a)(1)
____ 75 days after filing pursuant to paragraph (a)(2)
____ on (date) pursuant to paragraph (a)(2) of Rule 485
Title of Securities Being Registered
------------------------------------
Decatur Income Fund A Class, Decatur Income Fund B Class, Decatur Income Fund C
Class, Decatur Income Fund Institutional Class, Decatur Total Return Fund A
Class, Decatur Total Return Fund B Class, Decatur Total Return Fund C Class,
Decatur Total Return Fund Institutional Class, Blue Chip Fund A Class, Blue Chip
Fund B Class, Blue Chip Fund C Class, Blue Chip Fund Institutional Class, Social
Awareness Fund A Class, Social Awareness Fund B Class, Social Awareness Fund C
Class and Social Awareness Fund Institutional Class
<PAGE>
--- C O N T E N T S ---
This Post-Effective Amendment No. 109 to Registration File No. 2-13017 includes
the following:
1. Facing Page
2. Contents Page
3. Cross-Reference Sheet*
4. Part A - Prospectuses and Supplements
5. Part B - Statement of Additional Information
6. Part C - Other Information
7. Signatures
* This Post-Effective Amendment relates to the Registrant's four series of
shares and their classes: Decatur Income Fund - Decatur Income Fund A Class,
Decatur Income Fund B Class, Decatur Income Fund C Class and Decatur Income
Fund Institutional Class; Decatur Total Return Fund - Decatur Total Return
Fund A Class, Decatur Total Return Fund B Class, Decatur Total Return Fund C
Class and Decatur Total Return Fund Institutional Class; Blue Chip Fund -
Blue Chip Fund A Class, Blue Chip Fund B Class, Blue Chip Fund C Class and
Blue Chip Fund Institutional Class; and Social Awareness Fund - Social
Awareness Fund A Class, Social Awareness Fund B Class, Social Awareness Fund
C Class and Social Awareness Fund Institutional Class. 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 Social Awareness 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 A
------
<TABLE>
<CAPTION>
Location in
Item No. Description Prospectuses
- -------- ----------- ------------
Decatur Income Fund
Decatur Total Return
Fund
<S> <C> <C>
A Classes/
B Classes/ Institutional
C Classes Classes
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
Social Awareness Fund
<S> <C> <C>
A Classes/
B Classes/ Institutional
C Classes Classes
1 Cover Page............................................. Cover Cover
2 Synopsis............................................... Synopsis; Summary Synopsis; Summary
of Expensesof 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 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>
<TABLE>
<CAPTION>
PART C
------
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>
DECATUR INCOME FUND PROSPECTUS
DECATUR TOTAL RETURN FUND JANUARY 30, 1998
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 800-659-2265
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 investment 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 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.
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 January 30, 1998,
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
("SEC"). 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. The SEC also maintains a Web site (http://www.sec.gov) that contains
Part B, material
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<PAGE>
incorporated by reference into Equity Funds II, Inc.'s registration statement,
and other information regarding registrants that electronically file with the
SEC.
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.
TABLE OF CONTENTS
COVER PAGE........................................ 1
SYNOPSIS.......................................... 2
SUMMARY OF EXPENSES............................... 4
FINANCIAL HIGHLIGHTS ............................. 8
INVESTMENT OBJECTIVES AND POLICIES
Suitability..................................... 10
Investment Strategy............................. 10
THE DELAWARE DIFFERENCE
Plans and Services.............................. 12
CLASSES OF SHARES................................ 14
HOW TO BUY SHARES................................ 21
REDEMPTION AND EXCHANGE.......................... 25
DIVIDENDS AND DISTRIBUTIONS...................... 30
TAXES............................................ 31
CALCULATION OF OFFERING PRICE AND
NET ASSET VALUE PER SHARE....................... 33
MANAGEMENT OF THE FUNDS.......................... 34
OTHER INVESTMENT POLICIES AND
SPECIAL RISK CONSIDERATIONS...................... 37
APPENDIX A--RATINGS.............................. 42
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 THE PRINCIPAL AMOUNT INVESTED. SHARES OF
THE FUNDS ARE NOT BANK OR CREDIT UNION DEPOSITS.
-2-
<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 Policies 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.
Each Fund may invest up to 20% of its assets in foreign securities,
although neither Fund presently anticipates doing so 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 Transfer 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. The front-end 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 (subject to a CDSC
of 1% if shares are redeemed within 12 months of purchase and a dealer
commission was paid in
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<PAGE>
connection with such purchase). Class A Shares are subject to annual 12b-1 Plan
expenses for the life of the investment.
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.
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.
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<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>
Decatur Income Fund
-----------------------------------------------
Class A Class B Class C
Shareholder Transaction Expenses Shares Shares Shares
- -------------------------------- ------- ------- -------
<S> <C> <C> <C>
Maximum Sales Charge Imposed on
Purchases (as a percentage of
offering price) ....................... 4.75% None None
Maximum Sales Charge Imposed on
Reinvested Dividends (as a percentage
of offering price) .................... 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%*
Redemption Fees ........................ None** None** None**
Decatur Income Fund
Annual Operating Expenses -----------------------------------------------
(as a percentage of average Class A Class B Class C
daily net assets) Shares Shares Shares
- ---------------------------- ------- ------- -------
Management Fees ........................ 0.49% 0.49% 0.49%
12b-1 Plan Expenses
(including service fees) .............. 0.20%***+ 1.00%+ 1.00%+
Other Operating Expenses ............... 0.19% 0.19% 0.19%
------- ------ ------
Total Operating Expenses ............... 0.88% 1.68% 1.68%
======= ====== ======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Decatur Total Return Fund
-----------------------------------------------
Class A Class B Class C
Shareholder Transaction Expenses Shares Shares Shares
- -------------------------------- ------- ------- -------
<S> <C> <C> <C>
Maximum Sales Charge Imposed on
Purchases (as a percentage of
offering price) ....................... 4.75% None None
Maximum Sales Charge Imposed on
Reinvested Dividends (as a percentage
of offering price) .................... 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%*
Redemption Fees ........................ None** None** None**
Decatur Total Return Fund
Annual Operating Expenses -----------------------------------------------
(as a percentage of average Class A Class B Class C
daily net assets) Shares Shares Shares
- ---------------------------- ------- ------- -------
Management Fees ........................ 0.58% 0.58% 0.58%
12b-1 Plan Expenses
(including service fees) .............. 0.30%+ 1.00%+ 1.00%+
Other Operating Expenses ............... 0.25% 0.25% 0.25%
------ ------ ------
Total Operating Expenses ............... 1.13% 1.83% 1.83%
====== ====== ======
</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"). Additional Class A purchase options involving
the imposition of a CDSC may be permitted as described in the Prospectus
from time to time. Class B Shares are subject to a CDSC of: (i) 4% if
shares are redeemed
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<PAGE>
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.
*** 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.
Investors utilizing the Delaware Group Asset Planner asset allocation
service also typically incur an annual maintenance fee of $35 per Strategy.
However, effective November 1, 1996, the annual maintenance fee is waived until
further notice. Investors who utilize the Asset Planner for an Individual
Retirement Account ("IRA") will pay an annual IRA fee of $15 per Social Security
number. See Delaware Group Asset Planner in Part B.
For expense information about Decatur Income Fund Institutional Class and
Decatur Total Return Fund Institutional Class, see the separate prospectus
relating to those classes.
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<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) with respect to Class B Shares and Class C shares, payment of a CDSC at the
time of redemption, if applicable.
<TABLE>
<CAPTION>
Decatur Income Fund 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 $561 $74 $ 94 $151 $56 $74 $94 $ 151
Class B Shares $ 57 $83 $111 $177 $17 $53 $91 $1772
Class C Shares $ 27 $53 $ 91 $199 $17 $53 $91 $ 199
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
-------- --------- --------- ---------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A Shares $581 $82 $107 $178 $58 $82 $107 $ 178
Class B Shares $ 59 $88 $119 $196 $19 $58 $ 99 $1962
Class C Shares $ 29 $58 $ 99 $215 $19 $58 $ 99 $ 215
</TABLE>
(1) Generally, no redemption charge is assessed upon redemption of Class A
Shares. Under certain circumstances, however, a Limited CDSC or other CDSC,
which has not been reflected in this calculation, may be imposed on certain
redemptions. 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. The ten year
expense numbers for Class B Shares reflect the expenses of Class B Shares
for year eight and the expenses of Class A Shares for years nine and ten.
See Automatic Conversion of Class B Shares under Classes of Shares for a
description of the automatic conversion feature.
This example should not be considered a representation of past or future
expenses or performance. Actual expenses may be greater or less than those
shown.
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.
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<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. 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 its Annual Report to
shareholders. A copy of each Fund's Annual Report (including the report of Ernst
& Young LLP) may be obtained from Equity Funds II, Inc. upon request at no
charge.
- -------------------------------------------------------------------------------
-8-
<PAGE>
<TABLE>
<CAPTION>
Decatur Income Fund
Class A Shares
---------------------------------------------------------------
11/30/97 11/30/96 11/30/95 11/30/94
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period ............................. $ 21.32 $ 19.07 $ 15.57 $ 18.24
Income From Investment
Operations
Net Investment Income ............... 0.60 0.65 0.70 0.67
Net Gains (Losses) on Securities
(both realized and unrealized) 3.94 3.63 3.91 (0.73)
-------- --------- --------- ---------
Total From Investment
Operations ........................ 4.54 4.28 4.61 (0.06)
-------- --------- --------- ---------
Less Distributions
Dividends from Net Investment
Income ............................. (0.60) (0.69) (0.69) (0.86)
Distributions from Capital Gains .... (2.68) (1.34) (0.42) (1.75)
-------- --------- --------- ---------
Total Distributions ................ (3.28) (2.03) (1.11) (2.61)
-------- --------- --------- ---------
Net Asset Value, End of Period....... $ 22.58 $ 21.32 $ 19.07 $ 15.57
======== ========= ========= =========
- -----------
Total Return(2)...................... 24.78% 24.47% 31.02% (0.57%)
- -----------
Ratios/Supplemental Data
Net Assets, End of Period (000's
omitted) ........................... $1,906,726 $1,616,315 $1,382,693 $1,153,884
Ratio of Expenses to Average
Daily Net Assets ................... 0.88% 0.85% 0.87% 0.81%
Ratio of Net Investment Income
to Average Daily Net Assets......... 2.87% 3.40% 4.03% 3.92%
Portfolio Turnover Rate ............. 90% 101% 74% 92%
Average Commission Rate
Paid (3)............................ $ 0.060 $ 0.060 N/A N/A
<CAPTION>
11/30/93(1) 11/30/92(1) 11/30/91(1) 11/30/90(1) 11/30/89(1)
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period ............................. $ 17.20 $ 15.76 $ 14.53 $ 19.07 $ 16.89
Income From Investment
Operations
Net Investment Income ............... 0.78 0.78 0.83 0.93 1.00
Net Gains (Losses) on Securities
(both realized and unrealized) 1.79 1.47 1.37 (2.93) 2.25
--------- --------- --------- --------- ---------
Total From Investment
Operations ........................ 2.57 2.25 2.20 (2.00) 3.25
--------- --------- --------- --------- ---------
Less Distributions
Dividends from Net Investment
Income ............................. (0.68) (0.81) (0.97) (1.05) (0.81)
Distributions from Capital Gains (0.85) none none (1.49) (0.26)
---------- --------- ---------- --------- ---------
Total Distributions ................ (1.53) (0.81) (0.97) (2.54) (1.07)
---------- --------- ---------- --------- ---------
Net Asset Value, End of Period....... $ 18.24 $ 17.20 $ 15.76 $ 14.53 $ 19.07
========== ========= ========== ========= =========
- -----------
Total Return(2)...................... 15.85% 14.55% 15.46% (12.04%) 19.84%
- -----------
Ratios/Supplemental Data
Net Assets, End of Period (000's
omitted) ........................... $1,512,194 $1,508,206 $1,579,521 $1,560,641 $1,848,129
Ratio of Expenses to Average
Daily Net Assets ................... 0.71% 0.72% 0.70% 0.70% 0.67%
Ratio of Net Investment Income
to Average Daily Net Assets......... 4.34% 4.55% 5.18% 5.78% 5.48%
Portfolio Turnover Rate ............. 80% 79% 78% 44% 38%
Average Commission Rate
Paid (3)............................ N/A N/A N/A N/A N/A
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
11/30/88(1)
<S> <C>
Net Asset Value, Beginning of
Period ............................. $ 15.86
Income From Investment
Operations
Net Investment Income ............... 0.76
Net Gains (Losses) on Securities
(both realized and unrealized) 2.75
---------
Total From Investment
Operations ........................ 3.51
---------
Less Distributions
Dividends from Net Investment
Income ............................. (0.73)
Distributions from Capital Gains (1.75)
----------
Total Distributions ................ (2.48)
----------
Net Asset Value, End of Period....... $ 16.89
==========
- -----------
Total Return(2) ..................... 25.20%
- -----------
Ratios/Supplemental Data
Net Assets, End of Period (000's
omitted) ........................... $1,517,445
Ratio of Expenses to Average
Daily Net Assets ................... 0.73%
Ratio of Net Investment Income
to Average Daily Net Assets......... 4.80%
Portfolio Turnover Rate ............. 39%
Average Commission Rate
Paid (3)............................ 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.
(3) Computed by dividing the total amount of commissions paid by the total
number of shares purchased and sold during the period for which there was a
commission charged.
-54-
<PAGE>
<TABLE>
<CAPTION>
Decatur Income Fund
Class B Shares
---------------------------------------------------------
Period
9/6/94(1)
Year Ended through
11/30/97 11/30/96 11/30/95 11/30/94
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period .............. $ 21.26 $ 19.03 $ 15.55 $ 16.59
Income From Investment Operations
Net Investment Income ............................. 0.45 0.50 0.56 0.15
Net Gains (Losses) on Securities (both realized
and unrealized) .................................. 3.90 3.61 3.89 (1.02)
------- -------- -------- --------
Total From Investment Operations ................ 4.35 4.11 4.45 (0.87)
------- -------- -------- --------
Less Distributions
Dividends from Net Investment Income .............. (0.45) (0.54) (0.55) (0.17)
Distributions from Capital Gains .................. (2.68) (1.34) (0.42) none
------- -------- -------- --------
Total Distributions ............................. (3.13) (1.88) (0.97) (0.17)
------- -------- -------- --------
Net Asset Value, End of Period .................... $ 22.48 $ 21.26 $ 19.03 $ 15.55
======= ======== ======== ========
- -------------
Total Return ...................................... 23.73%(3) 23.43%(3) 29.85%(3) (5.27%)(3)
- -------------
Ratios/Supplemental Data
Net Assets, End of Period (000's omitted) ......... $123,180 $ 60,689 $ 19,665 $ 2,765
Ratio of Expenses to Average Daily Net Assets...... 1.68% 1.69% 1.74% 1.70%
Ratio of Net Investment Income to Average
Daily Net Assets ................................. 2.07% 2.56% 3.16% 3.03%
Portfolio Turnover Rate ........................... 90% 101% 74% 92%
Average Commission Rate Paid(5).................... $ 0.060 $ 0.060 N/A N/A
Class C Shares
--------------------------------------
Period
11/29/95(2)
Year Ended through
11/30/97 11/30/96 11/30/95
<S> <C> <C> <C>
Net Asset Value, Beginning of Period .............. $ 21.33 $ 19.08 $ 19.15
Income From Investment Operations
Net Investment Income ............................. 0.46 0.51 0.04
Net Gains (Losses) on Securities (both realized
and unrealized) .................................. 3.91 3.63 (0.06)
-------- -------- --------
Total From Investment Operations ................ 4.37 4.14 (0.02)
-------- -------- --------
Less Distributions
Dividends from Net Investment Income .............. (0.45) (0.55) (0.05)
Distributions from Capital Gains .................. (2.68) (1.34) none
--------- --------- --------
Total Distributions ............................. (3.13) (1.89) (0.05)
--------- --------- --------
Net Asset Value, End of Period .................... $ 22.57 $ 21.33 $ 19.08
========= ========= ========
- -------------
Total Return ...................................... 23.75%(3) 23.47%(3) (4)
- -------------
Ratios/Supplemental Data
Net Assets, End of Period (000's omitted) ......... $ 15,343 $ 4,833 $ 5
Ratio of Expenses to Average Daily Net Assets...... 1.68% 1.69% (4)
Ratio of Net Investment Income to Average
Daily Net Assets ................................. 2.07% 2.56% (4)
Portfolio Turnover Rate ........................... 90% 101% (4)
Average Commission Rate Paid(5).................... $ 0.060 $ 0.060 N/A
</TABLE>
<PAGE>
(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.
(5) Computed by dividing the total amount of commissions paid by the total
number of shares purchased and sold during the period for which there was a
commission charged.
<PAGE>
<TABLE>
<CAPTION>
Decatur Total Return Fund
Class A Shares
------------------------------------------------------
Year Ended
11/30/97 11/30/96 11/30/95 11/30/94
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period ............................ $17.52 $15.61 $12.32 $14.38
Income From Investment
Operations
Net Investment Income .............. 0.28 0.34 0.37 0.37
Net Gains (Losses) on Securities
(both realized and unrealized) .... 3.61 3.21 3.70 (0.34)
------ ------ ------ -------
Total From Investment
Operations ....................... 3.89 3.55 4.07 0.03
------ ------ ------ -------
Less Distributions
Dividends from Net Investment
Income ........................... (0.33) (0.35) (0.36) (0.43)
Distributions from Capital
Gains ............................ (1.85) (1.29) (0.42) (1.66)
------ ------ ------ -------
Total Distributions .............. (2.18) (1.64) (0.78) (2.09)
------ ------ ------ -------
Net Asset Value, End of
Period ........................... $19.23 $17.52 $15.61 $12.32
====== ====== ====== ======
--------------
Total Return(1).................... 25.26% 24.89% 34.68% (0.04%)
- ---------------
Ratios/Supplemental Data
Net Assets, End of Period
(000's omitted) .................. $863,855 $670,912 $534,342 $402,849
Ratio of Expenses to Average
Daily Net Assets ................. 1.13% 1.11% 1.19% 1.26%
Ratio of Net Investment
Income to Average Daily
Net Assets ....................... 1.60% 2.21% 2.72% 2.88%
Portfolio Turnover Rate ........... 69% 87% 81% 74%
Average Commission Rate
Paid (2).......................... $ 0.060 $ 0.060 N/A N/A
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
11/30/93 11/30/92 11/30/91 11/30/90 11/30/89 11/30/88
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period ............................ $ 13.98 $ 12.73 $ 11.71 $ 13.64 $ 11.47 $ 9.04
Income From Investment
Operations
Net Investment Income .............. 0.45 0.47 0.53 0.58 0.54 0.50
Net Gains (Losses) on Securities
(both realized and unrealized) .... 1.45 1.30 1.07 (1.44) 2.12 2.30
------- ------- ------- ------- ------- -------
Total From Investment
Operations ....................... 1.90 1.77 1.60 (0.86) 2.66 2.80
------- ------- ------- ------- ------- -------
Less Distributions
Dividends from Net Investment
Income ........................... (0.45) (0.52) (0.58) (0.60) (0.49) (0.37)
Distributions from Capital
Gains ............................ (1.05) none none (0.47) none none
------- ------- ------- ------- ------- -------
Total Distributions .............. (1.50) (0.52) (0.58) (1.07) (0.49) (0.37)
------- ------- ------- ------- ------- -------
Net Asset Value, End of
Period ........................... $ 14.38 $ 13.98 $ 12.73 $ 11.71 $ 13.64 $ 11.47
======= ======= ======= ======= ======= =======
- ---------------
Total Return(1).................... 14.74% 14.12% 13.94% (6.84%) 23.73% 31.51%
- ---------------
Ratios/Supplemental Data
Net Assets, End of Period
(000's omitted) .................. $431,638 $408,986 $394,338 $357,139 $318,871 $200,085
Ratio of Expenses to Average
Daily Net Assets ................. 1.22% 1.23% 1.23% 1.23% 1.24% 1.28%
Ratio of Net Investment
Income to Average Daily
Net Assets ....................... 3.15% 3.44% 4.20% 4.87% 4.60% 4.77%
Portfolio Turnover Rate ........... 119% 98% 67% 54% 60% 69%
Average Commission Rate
Paid (2).......................... N/A N/A N/A N/A N/A N/A
</TABLE>
<PAGE>
(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.
(2) Computed by dividing the total amount of commissions paid by the total
number of shares purchased and sold during the period for which there was a
commission charged.
<PAGE>
<TABLE>
<CAPTION>
Decatur Total Return Fund
Class B
---------------------------------------------------------
Period
9/6/94(1)
Year Ended through
11/30/97 11/30/96 11/30/95 11/30/94
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period .............. $ 17.46 $ 15.56 $ 12.31 $ 13.11
Income From Investment Operations
Net Investment Income ............................. 0.17 0.23 0.30 0.12
Net Gains (Losses) on Securities (both realized
and unrealized) .................................. 3.60 3.20 3.67 (0.82)
------- -------- -------- --------
Total From Investment Operations ................ 3.77 3.43 3.97 (0.70)
------- -------- -------- --------
Less Distributions
Dividends from Net Investment Income .............. (0.18) (0.24) (0.30) (0.10)
Distributions from Capital Gains .................. (1.85) (1.29) (0.42) none
------- -------- -------- --------
Total Distributions ............................. (2.03) (1.53) (0.72) (0.10)
------- -------- -------- --------
Net Asset Value, End of Period .................... $ 19.20 $ 17.46 $ 15.56 $ 12.31
======= ======== ======== ========
- -----------
Total Return ...................................... 24.45%(3) 24.01%(3) 33.79%(3) (5.37%)(3)
- -------------
Ratios/Supplemental Data
Net Assets, End of Period (000's omitted) ......... $135,737 $ 53,467 $ 14,745 $ 1,738
Ratio of Expenses to Average Daily Net Assets...... 1.83% 1.81% 1.89% 1.96%
Ratio of Net Investment Income to Average
Daily Net Assets ................................. 0.90% 1.53% 2.02% 2.18%
Portfolio Turnover Rate ........................... 69% 87% 81% 74%
Average Commission Rate Paid(5).................... $ 0.060 $ 0.060 N/A N/A
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Shares Class C Shares
--------------------------------------
Period
11/29/95(2)
Year Ended through
11/30/97 11/30/96 11/30/95
<S> <C> <C> <C>
Net Asset Value, Beginning of Period .............. $ 17.43 $ 15.61 $ 15.61
Income From Investment Operations
Net Investment Income ............................. 0.17 0.33 none
Net Gains (Losses) on Securities (both realized
and unrealized) .................................. 3.59 3.10 none
-------- -------- -------
Total From Investment Operations ................ 3.76 3.43 none
-------- -------- -------
Less Distributions
Dividends from Net Investment Income .............. (0.18) (0.32) none
Distributions from Capital Gains .................. (1.85) (1.29) none
--------- --------- -------
Total Distributions ............................. (2.03) (1.61) none
--------- --------- -------
Net Asset Value, End of Period .................... $ 19.16 $ 17.43 $ 15.61
========= ========= =======
- -------------
Total Return ...................................... 24.44%(3) 24.04%(3) (4)
- -------------
Ratios/Supplemental Data
Net Assets, End of Period (000's omitted) ......... $ 26,231 $ 7,591 $ 5
Ratio of Expenses to Average Daily Net Assets...... 1.83% 1.81% (4)
Ratio of Net Investment Income to Average
Daily Net Assets ................................. 0.90% 1.53% (4)
Portfolio Turnover Rate ........................... 69% 87% (4)
Average Commission Rate Paid(5).................... $ 0.060 $ 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.
(5) Computed by dividing the total amount of commissions paid by the total
number of shares purchased and sold during the period for which there was a
commission charged.
<PAGE>
Investment Objectives and Policies
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 investment 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
-9-
<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, Global and European Depositary
Receipts), are under continuous study, and the management regularly transfers
investments between securities or types of securities in carrying out its
investment policy. Although the Fund may invest up to 20% of its total assets in
foreign securities, the Manager has no present intention of doing so. See
Foreign Securities 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 Option under Other Investment Policies and Risk Considerations.
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. 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.
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(R) Composite Stock Price
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
up to 20% of its total assets in foreign securities (which may include American,
Global and European Depositary Receipts), although the Manager has no present
intention of doing so. See Foreign Securities under Other Investment Policies
and Risk Considerations.
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.
The Fund may enter into options and futures transactions for hedging
purposes to attempt to counterbalance portfolio volatility. See Futures
Contracts and Option under Other Investment Policies and Risk Considerations.
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. To the extent the Fund engages in
short-term trading in attempting to achieve its objective, it may increase
turnover rate and incur brokerage commissions and other expenses that might
otherwise be the case.
-10-
<PAGE>
* * *
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.
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. 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.
Dividend Payments
Dividends, capital gains and other distributions, if any, 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.
-12-
<PAGE>
MoneyLine(SM) Services
Delaware Group offers the following services for fast and convenient
transfer of funds between your personal bank account and your Delaware Group
fund account:
1. MoneyLine(SM) 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(SM) 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. This service is not
available for certain retirement plans.
2. MoneyLine(SM) On Demand
You or your investment dealer may request purchases and redemptions of
Fund shares by using MoneyLine(SM) On Demand. When you authorize the Fund to
accept such requests from you or your investment dealer, funds will be
withdrawn from (for share purchases) or deposited to (for share redemptions)
your predesignated bank account. Your request will be processed the same day
if you call prior to 4 p.m., Eastern time. There is a $25 minimum and a
$50,000 maximum limit for MoneyLine(SM) On Demand transactions. This service
is not available for retirement plans, except for purchases of shares by
IRAs.
For each MoneyLine(SM) Service, it may take up to four business days for
the transactions to be completed. You can initiate either service by completing
an Account Services form. 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 Fund does not charge a fee for any
MoneyLine(SM) Service; however, your bank may charge a fee. Please call the
Shareholder Service Center for additional information about these services.
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.
-13-
<PAGE>
Retirement Planning
An investment in the Funds may be a suitable investment option for
tax-deferred retirement plans. Delaware Group offers a full spectrum of
qualified and non-qualified retirement plans, including the popular 401(k)
deferred compensation plan, IRA, and the new Roth IRA. Just call the Delaware
Group at 1-800-5230-1918 for more information.
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
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.
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>
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 such
-15-
<PAGE>
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 duration of the annual 12b-1 Plan
expenses to which each of these classes is subject and the desirability of an
automatic conversion feature, which is available only for Class B Shares.
For the distribution and related services provided to, and the expenses
borne on behalf of, the Funds, the Distributor and others will be paid, in the
case of Class A Shares, from the proceeds of the front-end sales charge and
12b-1 Plan fees and, in the case of Class B Shares and Class C Shares, from the
proceeds of the 12b-1 Plan fees and, if applicable, the CDSC incurred upon
redemption. Financial advisers may receive different compensation for selling
Class A, 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, if any, 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.
<TABLE>
<CAPTION>
Decatur Income Fund A Class
Decatur Total Return Fund A Class
- ---------------------------------------------------------------------------------------
Dealer's
Front-End Sales Charge Commission***
as % of as % of
Offering Amount Offering
Amount of Purchase Price Invested** Price
- ----------------------------------------------------------------------------------------
Decatur
Decatur Total
Income Return
Fund Fund
<S> <C> <C> <C> <C>
Less than $100,000 4.75% 5.00% 4.99% 4.00%
$100,000 but under $250,000 3.75 3.90 3.90 3.00
$250,000 but under $500,000 2.50 2.57 2.55 2.00
$500,000 but under $1,000,000* 2.00 2.04 2.03 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 of Purchase amount of purchase)
------------------
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
For accounts with assets over $1 million, the dealer commission resets
annually to the highest incremental commission rate on the anniversary of the
first purchase. In determining a financial adviser's eligibility for the
dealer's commission, purchases of Class A Shares of other Delaware 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 as 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. In addition,
assets held by investment advisory clients of the Manager or its affiliates in a
stable value account my 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.
-18-
<PAGE>
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.
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.
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.
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.
The Limited CDSC is applicable to redemptions of net asset value purchases
from an Allied Plan on which a dealer's commission has been paid. Waivers of the
Limited CDSC, as described under Waiver of Limited Contingent Deferred Sales
Charge -- Class A Shares under Redemption and Exchange, apply to redemptions by
participants in Allied Plans except in the case of exchanges between eligible
Delaware Group and non-Delaware Group fund shares. When eligible Delaware Group
fund shares are exchanged into eligible non-Delaware Group fund shares, the
Limited CDSC will be imposed at the time of the exchange, unless the joint
venture agreement specifies that the amount of the Limited CDSC will be paid by
the financial adviser or selling dealer. See Contingent Deferred Sales Charge
for Certain Redemptions of Class A Shares Purchased at Net Asset Value under
Redemption and Exchange.
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<PAGE>
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. 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. Investors may be charged a fee when effecting transactions in Class A
Shares through a broker or agent that offers these special investment products.
Purchases of Class A Shares at net asset value may also be made by the
following: institutions investing for the account of their trust customers if
they are not eligible to purchase shares of the Institutional Class of the Fund;
and any group retirement plan (excluding defined benefit pension plans), or such
plans of the same employer, for which plan participant records are maintained on
the Delaware Investment & Retirement Services, Inc. ("DIRSI") proprietary record
keeping system that (i) has in excess of $500,000 of plan assets invested in
Class A Shares of Delaware Group funds and any stable value account available to
investment advisory clients of the Manager or its affiliates, or (ii) is
sponsored by an employer that has at any point after May 1, 1997 had more than
100 employees while such plan has held Class A Shares of a Delaware Group fund
and such employer has properly represented to DIRSI in writing that it has the
requisite number of employees and has received written confirmation back from
DIRSI. See Group Investment Plan for information regarding the applicability of
the Limited CDSC.
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.
Investors in Delaware-Voyageur Unit Investment Trusts may reinvest monthly
dividend checks and/or repayment of invested capital into Class A Shares of any
funds in the Delaware Group at net asset value.
-20-
<PAGE>
Purchases of Decatur Total Return Fund A Class at net asset value may also
be made by bank sponsored retirement plans that are no longer eligible to
purchase Institutional Class Shares as a result of a change in the distribution
arrangements.
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, SIMPLE IRA, SIMPLE 401(k),
Profit Sharing, Money Purchase Pension, 401(k) Defined Contribution Plans and
403(b)(7) and 457 Deferred Compensation Plan) may benefit from the reduced
front-end sales charges available on Class A Shares 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 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.
The Limited CDSC is applicable to any redemptions of net asset value
purchases made on behalf of any group retirement plan on which a dealer's
commission has been paid only if such redemption is made pursuant to a
withdrawal of the entire plan from Delaware Group funds. See Contingent Deferred
Sales Charge for Certain Redemptions of Class A Shares Purchased at Net Asset
Value under Redemption and Exchange.
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.
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.
-21-
<PAGE>
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.
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%.
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<PAGE>
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.
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
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<PAGE>
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 Conduct Rules, 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 Exchange Commission. It is likely that the NASD's
Conduct Rules 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 Conduct Rules 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 back 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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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. 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 Classes of Shares 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
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
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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, SIMPLE IRA, SIMPLE 401(k) Profit Sharing and Money Purchase
Pension Plans, 401(k) Defined Contribution Plans, or 403(b)(7) or 457 Deferred
Compensation Plans.
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. MoneyLine(SM) On Demand
Through the MoneyLine(SM) On Demand service, you or your investment dealer
may call the Fund to request a transfer of funds from your predesignated bank
account to your Fund account. See MoneyLine(SM) Services under The Delaware
Difference for additional information about this service.
4. 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, SIMPLE IRA, SIMPLE 401(k), Profit Sharing and Money Purchase
Pension Plans, 401(k) Defined Contribution Plans, or 403(b)(7) and 457 Deferred
Compensation Plans.
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5. 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 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. For more information about
reinvestments, call the Shareholder Service Center.
Capital gains and/or dividends for participants in the following retirement
plans are automatically reinvested into the same Delaware Group fund in which
their investments are held: SAR/SEP, SEP/IRA, SIMPLE IRA, SIMPLE 401(k), Profit
Sharing and Money Purchase Pension Plans, 401(k) Defined Contribution Plans,
403(b)(7) or 457 Deferred Compensation Plans.
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 is the date the order is received by the
Fund in which the shares are being purchased its agent or designee. 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
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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 in which you want to invest the proceeds. Exchange
instructions and redemption requests must be signed by the record owner(s)
exactly as the shares are registered. 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(s) 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
certificate(s).
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 proceeds. If you ask for a check, it will normally be mailed the next
business day after receipt of your redemption request to your predesignated bank
account. There are no separate fees for this redemption method, but the mail
time may delay getting funds into your bank account. Simply call the Shareholder
Service Center prior to the time the offering price and net asset value are
determined, as noted above.
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MoneyLine(SM) On Demand
Through the MoneyLine(SM) On Demand service, you or your investment dealer
may call the Fund to request a transfer of funds from your Fund account to your
predesignated bank account. See MoneyLine(SM) Services under The Delaware
Difference for additional information about this service.
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(SM) Direct
Deposit Service. Your funds will normally be credited to your bank account four
business days after the payment date. There are no separate fees for this
redemption method. See MoneyLine(SM) Services 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(SM) 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
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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 shareholder's account if the aggregate net asset
value of the shares held in the account is less than the then-effective minimum
account size; (ii) distributions to participants from a retirement plan
qualified under section 401(a) or 401(k) of the Internal Revenue Code of 1986,
as amended ("the Code"), or due to death of a participant in such a plan; (iii)
redemptions pursuant to the direction of a participant or beneficiary of a
retirement plan qualified under section 401(a) or 401(k) of the Code with
respect to that retirement plan; (iv) periodic distributions from an IRA, SIMPLE
IRA, or 403(b)(7) or 457 Deferred Compensation Plan due to death, disability, or
attainment of age 59 1/2, and IRA distributions qualifying under Section 72(t)
of the Code; (v) returns of excess contributions
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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, SIMPLE IRA, SEP/IRA or 403(b)(7)
or 457 Deferred Compensation Plans; (iii) periodic distributions from an IRA,
SIMPLE IRA, SAR/SEP, SEP/IRA, 403(b)(7) or 457 Deferred Compensation Plan due to
death, disability or attainment of age 59 1/2, and IRA distributions qualifying
under Section 72(t) of the Code; 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, SIMPLE IRA, 403(b)(7) or 457 Deferred
Compensation Plan, Profit Sharing Plan, Money Purchase Pension Plan, or 401(k)
Defined Contribution plan; (iii) periodic distributions from a 403(b)(7) or 457
Deferred Compensation Plan upon attainment of age 59 1/2, Profit Sharing Plan,
Money Purchase Plan, 401(k) Defined Contribution Plan upon attainment of age 70
1/2, and IRA distributions qualifying under Section 72(t) of the Code; (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) periodic distributions from an IRA or SIMPLE IRA on or after
attainment of age 59 1/2; and (vii) distributions from an account if the
redemption results from the death of 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 once a year 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(SM) 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(SM) Services 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.
On August 5, 1997, President Clinton signed into law the Taxpayer Relief
Act of 1997 (the "1997 Act"). This new law makes sweeping changes in the Code.
Because many of these changes are complex, and only indirectly affect each Fund
and its distributions to you, they are discussed in Part B. Changes in the
treatment of capital gains, however, are discussed in this section.
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 and it satisfies certain other requirements relating to the
source of its income and diversification of its assets.
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, 1997, 34% and 51% 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.
The Treatment of Capital Gain Distributions under the Taxpayer Relief Act of
1997
The 1997 Act creates a category of long-term capital gain for individuals
that will be taxed at new lower tax rates. For investors who are in the 28% or
higher federal income tax brackets, these gains will be taxed at a maximum rate
of 20%. For investors who are in the 15% federal income tax bracket, these gains
will be taxed at a maximum rate of 10%. Capital gain distributions will qualify
for these new maximum tax rates, depending on when each Fund's securities were
sold and how long they were held by the Fund before they were sold. Investors
who want more information on holding periods and other qualifying rules relating
to these new rates should review the expanded discussion in Part B, or should
contact their own tax advisers.
Equity Funds II, Inc. will advise you in its annual information reporting
at calendar year end of the amount of its capital gain distributions which will
qualify for these maximum federal tax rates.
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
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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.
In addition to the federal taxes described above, shareholders may or may
not be subject to various state and local taxes. For example, distributions of
interest income and capital gains realized from certain types of U.S. government
securities may be exempt from state personal income taxes. Because investors'
state and local taxes may be different than the federal taxes described above,
investors should consult their own tax advisers.
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, 1997, the Manager and its affiliates
within the Delaware Group, including Delaware International Advisers Ltd., were
managing in the aggregate more than $39 billion in assets in the various
institutional or separately managed (approximately $23,274,532,000) and
investment company (approximately $16,181,491,000) 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, 1997, 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, 1997, investment management fees paid by Decatur Total Return
Fund were 0.58% of its average daily net assets.
The directors of Equity Funds II, Inc. annually review fees paid to the
Manager.
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 27 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
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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. 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 Boards 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%.
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 shares of funds in the Delaware Group of funds in
placing portfolio orders and may place orders with broker/dealers that have
agreed to defray certain expenses of such funds, 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
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
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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 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
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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 Distributor and 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, 1997, 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 0.88% 1.68% 1.68%
Decatur Total Return Fund 1.13% 1.83% 1.83%
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 Social Awareness 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 choose to do so.
Under Maryland law, Equity Funds II, Inc. is not required, and does not intend,
to hold annual meetings of shareholders unless, under certain circumstances, it
is required to do so under the 1940 Act. Shareholders of 10% or more of Equity
Funds II, Inc.'s outstanding shares may request that a special meeting be called
to consider the removal of a director.
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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 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 ("1933 Act"). Rule 144A exempts
many privately placed and legally restricted securities from the registration
requirements of 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 10% 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.
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.
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 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 management for each Fund.
Foreign Securities
Each Fund may invest up to 20% of its assets in foreign securities (which
may include American, Global and European Depositary Receipts), although the
Manager does not presently anticipate doing so. 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. A Fund may also
experience delays in foreign securities settlement.
Depositary Receipts
Each Fund may make foreign investments through the purchase and sale of
sponsored or unsponsored American, European and Global Depositary Receipts
("Depositary Receipts"). Depositary Receipts are receipts typically issued by a
U.S. or foreign bank or trust company which evidence ownership of underlying
securities issued by a foreign corporation. "Sponsored" Depositary Receipts are
issued jointly by the issuer of the underlying security and a depository,
whereas "unsponsored" Depositary Receipts are issued without participation of
the issuer of the deposited security. Holders of unsponsored Depositary Receipts
generally bear all the costs of such facilities and the depository of an
unsponsored facility frequently is under no obligation to distribute shareholder
communications received from the issuer of the deposited security or to pass
through voting rights to the holders of such receipts in respect of the
deposited securities. Therefore, there may not be a correlation between
information concerning the issuer of the security and the market value of an
unsponsored Depositary Receipt. Investments in Depositary Receipts involve risks
similar to those accompanying direct investments in foreign securities.
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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
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
-47-
<PAGE>
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 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
-48-
<PAGE>
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 a Covered Call Option on Securities -- 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 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.
-49-
<PAGE>
* * *
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 normally not be purchased while a
Fund has an outstanding borrowing.
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 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. No more than 10% of each Fund's assets may
be invested in illiquid securities, including repurchase agreements of over
seven days' maturity. 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 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 102% of the repurchase price, including the portion representing the
Fund's yield under such agreements, which is monitored on a daily basis.
* * *
Part B describes certain of these investment policies and risk
considerations. In addition, Part B sets forth other investment policies, risk
considerations and more specific investment restrictions.
-50-
<PAGE>
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 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, 1997. 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-%
Ba/BB 2.67%
B/B 10.46%
Not Rated/Other 0.43%
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.
-51-
<PAGE>
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.
-52-
<PAGE>
The Delaware Group includes funds with a wide range of investment
objectives. Stock funds, income funds, national and state-specific tax-exempt
funds, money market funds, global and international funds and closed-end funds
give investors the ability to create a portfolio that fits their personal
financial goals. For more information, contact your financial adviser or call
Delaware Group at 800-523-4640.
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
[GRAPHIC OMITTED]
[GRAPHIC OMITTED]
Printed in the U.S.A. on recycled paper.
P-143[--] PP1/98
<PAGE>
- ----------------------------------------------
DECATUR INCOME FUND
DECATUR TOTAL RETURN FUND
- ----------------------------------------------
A CLASS
- ----------------------------------------------
B CLASS
- ----------------------------------------------
C CLASS
- ----------------------------------------------
PROSPECTUS
- ----------------------------------------------
JANUARY 30, 1998
DELAWARE
GROUP
--------
<PAGE>
DECATUR INCOME FUND
DECATUR TOTAL RETURN FUND PROSPECTUS
INSTITUTIONAL CLASS SHARES JANUARY 30, 1998
-------------------------------------------------------------
1818 Market Street, Philadelphia, PA 19103
For more information about the
Decatur Income Fund Institutional Class and
the 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 investment 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 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.
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 January 30, 1998, 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 ("SEC"). 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. The SEC also maintains a Web
site (http://www.sec.gov) that contains Part B, material incorporated by
reference into Equity Funds II, Inc.'s registration statement, and other
information regarding registrants that electronically file with the SEC.
-1-
<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.
TABLE OF CONTENTS
Cover Page 1
Synopsis 2
Summary of
Expenses 3
Financial Highlights 5
Investment Objectives and
Policies 6
Suitability 6
Investment Strategy 6
Classes of
Shares 8
How to Buy Shares 9
Redemption and Exchange 10
Dividends and Distributions 11
Taxes 12
Calculation of Net Asset Value Per Share 13
Management of the Funds 13
Other Investment Policies and
Special Risk Considerations 17
Appendix A--Ratings 22
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 THE PRINCIPAL AMOUNT INVESTED. SHARES OF
THE FUNDS ARE NOT BANK OR CREDIT UNION DEPOSITS.
-2-
<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 Policies 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.
Each Fund may invest up to 20% of its assets in foreign securities,
although neither Fund presently anticipates doing so. 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 Transfer 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
-3-
<PAGE>
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
Decatur Decatur Total
Income Fund Return Fund
Institutional Institutional
Shareholder Transaction Expenses Class Class
- -------------------------------------------------------------------------------
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*
Decatur Decatur Total
Annual Operating Expenses Income Fund Return Fund
(as a percentage of Institutional Institutional
average daily net assets) Class Class
- -------------------------------------------------------------------------------
Management Fees ............................. 0.49% 0.58%
12b-1 Fees .................................. None None
Other Operating Expenses .................... 0.19% 0.25%
---- ----
Total Operating Expenses .................... 0.68% 0.83%
==== ====
*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. Equity Funds II,
Inc. charges no redemption fees.
Decatur Income Fund 1 year 3 years 5 years 10 years
--------- ---------- ---------- -----------
Institutional Class $ 7 $ 22 $ 38 $ 85
Decatur Total Return Fund 1 year 3 years 5 years 10 years
--------- ---------- ---------- -----------
Institutional Class $ 8 $ 26 $ 46 $ 103
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>
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.
-7-
<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. 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.
- --------------------------------------------------------------------------------
-8-
<PAGE>
<TABLE>
<CAPTION>
Decatur Income Fund Institutional Class
-------------------------------------------------------------------------
Period
1/13/94
Year Ended through
11/30/97 11/30/96 11/30/95 11/30/94(2) 11/30/94(1)
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period ......................... $21.31 $19.06 $15.59 $16.72 $18.24
Income From Investment
Operations
Net Investment Income .............. 0.65 0.69 0.71 0.59 0.67
Net Gains (Losses) on Securities
(both realized and
unrealized) ....................... 3.93 3.62 3.92 (1.10) (0.73)
------- ------- -------- -------- -------
Total From Investment
Operations ........................ 4.58 4.31 4.63 (0.51) (0.06)
------- ------- -------- -------- --------
Less Distributions
Dividends (from net investment
income) ........................... (0.64) (0.72) (0.74) (0.62) (0.86)
Distributions (from
capital gains) .................... (2.68) (1.34) (0.42) none (1.75)
-------- -------- -------- -------- ---------
Total Distributions ................ (3.32) (2.06) (1.16) (0.62) (2.61)
-------- -------- -------- -------- ---------
Net Asset Value, End of Period...... $22.07 $21.31 $19.06 $15.59 $15.57
======== ======== ======== ======== =========
- --------------------------
Total Return ....................... 25.02% 24.65% 31.14% (0.45%) (0.57%)(3)
- --------------------------
Ratios/Supplemental Data
Net Assets, End of Period
(000's omitted) ................... $278,384 $244,048 $211,409 $182,105 $1,153,884
Ratio of Expenses to Average
Daily Net Assets .................. 0.68% 0.69% 0.74% 0.70% 0.81%
Ratio of Net Investment Income
to Average Daily Net Assets........ 3.07% 3.56% 4.16% 4.03% 3.92%
Portfolio Turnover Rate ............ 90% 101% 74% 92% 92%
Average Commission Rate Paid4 $0.060 $0.060 N/A N/A N/A
<CAPTION>
Year Ended
11/30/93(1) 11/30/92(1) 11/30/91(1) 11/30/90(1) 11/30/89(1)
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period ......................... $17.20 $15.76 $14.53 $19.07 $16.89
Income From Investment
Operations
Net Investment Income .............. 0.78 0.78 0.83 0.93 1.00
Net Gains (Losses) on Securities
(both realized and
unrealized) ....................... 1.79 1.47 1.37 (2.93) 2.25
--------- --------- --------- ---------- ---------
Total From Investment
Operations ........................ 2.57 2.25 2.20 (2.00) 3.25
--------- --------- --------- ---------- ---------
Less Distributions
Dividends (from net investment
income) ........................... (0.68) (0.81) (0.97) (1.05) (0.81)
Distributions (from
capital gains) .................... (0.85) none none (1.49) (0.26)
--------- --------- --------- ---------- ---------
Total Distributions ................ (1.53) (0.81) (0.97) (2.54) (1.07)
--------- --------- --------- ---------- ---------
Net Asset Value, End of Period...... $18.24 $17.20 $15.76 $14.53 $19.07
========= ========= ========= ========== =========
- ----------------------------
Total Return ....................... 15.85%(3) 14.55%(3) 15.46%(3) (12.04%)(3) 19.84%(3)
- ----------------------------
Ratios/Supplemental Data
Net Assets, End of Period
(000's omitted) ................... $1,512,194 $1,508,206 $1,579,521 $1,560,641 $1,848,129
Ratio of Expenses to Average
Daily Net Assets .................. 0.71% 0.72% 0.70% 0.70% 0.67%
Ratio of Net Investment Income
to Average Daily Net Assets........ 4.34% 4.55% 5.18% 5.78% 5.48%
Portfolio Turnover Rate ............ 80% 79% 78% 44% 38%
Average Commission Rate Paid4 N/A N/A N/A N/A N/A
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
11/30/881(1)
<S> <C>
Net Asset Value, Beginning
of Period ......................... $15.86
Income From Investment
Operations
Net Investment Income .............. 0.76
Net Gains (Losses) on Securities
(both realized and
unrealized) ....................... 2.75
---------
Total From Investment
Operations ........................ 3.51
---------
Less Distributions
Dividends (from net investment
income) ........................... (0.73)
Distributions (from
capital gains) .................... (1.75)
---------
Total Distributions ................ (2.48)
---------
Net Asset Value, End of Period...... $16.89
=========
- ------------------------------
Total Return ....................... 25.20%(3)
- ------------------------------
Ratios/Supplemental Data
Net Assets, End of Period
(000's omitted) ................... $1,517,445
Ratio of Expenses to Average
Daily Net Assets .................. 0.73%
Ratio of Net Investment Income
to Average Daily Net Assets........ 4.80%
Portfolio Turnover Rate ............ 39%
Average Commission Rate Paid4 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.
(4) Computed by dividing the total amount of commissions paid by the total
number of shares purchased and sold during the period for which there was a
commission charged.
<PAGE>
<TABLE>
<CAPTION>
Decatur Total Return Fund Institutional Class
--------------------------------------------------------------
Period
7/26/93(2)
Year Ended through
11/30/97 11/30/96 11/30/95 11/30/94 11/30/93
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period ............................ $17.57 $15.65 $12.35 $14.40 $14.10
Income From Investment
Operations
Net Investment Income ................. 0.35 0.37 0.47 0.43 0.15
Net Gains (Losses) on Securities
(both realized and unreal-
ized) ................................ 3.60 3.23 3.65 (0.37) 0.25
------- ------- ------- ------- -------
Total From Investment
Operations .......................... 3.95 3.60 4.12 0.06 0.40
------- ------- ------- ------- -------
Less Distributions
Dividends (from net investment
income) .............................. (0.41) (0.39) (0.40) (0.45) (0.10)
Distributions (from capital gains) (1.85) (1.29) (0.42) (1.66) none
-------- -------- ------- ------- -------
Total Distributions .................. (2.26) (1.68) (0.82) (2.11) (0.10)
-------- -------- ------- ------- -------
Net Asset Value, End of Period......... $19.26 $17.57 $15.65 $12.35 $14.40
======== ======== ======= ======= =======
- ----------------------------
Total Return .......................... 25.65% 25.24% 35.13% 0.19% 14.89%
- ----------------------------
Ratios/Supplemental Data
Net Assets, End of Period
(000's omitted) ...................... $78,813 $45,958 $11,520 $1,376 $1,181
Ratio of Expenses to Average
Daily Net Assets ..................... 0.83% 0.81% 0.89% 0.96% 0.92%
Ratio of Net Investment Income
to Average Daily Net Assets........... 2.73% 2.53% 3.02% 3.18% 3.45%
Portfolio Turnover Rate ............... 69% 87% 81% 74% 119%
Average Commission Rate Paid4 $0.060 $0.060 N/A N/A N/A
<CAPTION>
Year Ended
11/30/93(1) 11/30/92(1) 11/30/91(1) 11/30/90(1) 11/30/89(1) 11/30/88(1)
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period ............................ $13.98 $12.73 $11.71 $13.64 $11.47 $ 9.04
Income From Investment
Operations
Net Investment Income ................. 0.45 0.47 0.53 0.58 0.54 0.50
Net Gains (Losses) on Securities
(both realized and unreal-
ized) ................................ 1.45 1.30 1.07 (1.44) 2.12 2.30
-------- -------- -------- --------- -------- --------
Total From Investment
Operations .......................... 1.90 1.77 1.60 (0.86) 2.66 2.80
-------- -------- -------- --------- -------- --------
Less Distributions
Dividends (from net investment
income) .............................. (0.45) (0.52) (0.58) (0.60) (0.49) (0.37)
Distributions (from capital gains) (1.05) none none (0.47) none none
-------- -------- -------- --------- -------- --------
Total Distributions .................. (1.50) (0.52) (0.58) (1.07) (0.49) (0.37)
-------- -------- -------- --------- -------- --------
Net Asset Value, End of Period......... $14.38 $13.98 $12.73 $11.71 $13.64 $11.47
======== ======== ======== ========= ======== ========
- ------------------------------
Total Return .......................... 14.74%(3) 14.12%(3) 13.94%(3) (6.84%)(3) 23.73%(3) 31.51%(3)
- ------------------------------
Ratios/Supplemental Data
Net Assets, End of Period
(000's omitted) ...................... $431,638 $408,986 $394,338 $357,139 $318,871 $200,085
Ratio of Expenses to Average
Daily Net Assets ..................... 1.22% 1.23% 1.23% 1.23% 1.24% 1.28%
Ratio of Net Investment Income
to Average Daily Net Assets........... 3.15% 3.44% 4.20% 4.87% 4.60% 4.77%
Portfolio Turnover Rate ............... 119% 98% 67% 54% 60% 69%
Average Commission Rate Paid4 N/A N/A N/A N/A N/A N/A
</TABLE>
<PAGE>
- -----------
(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 for
Decatur Total Return Fund A Class.
(4) Computed by dividing the total amount of commissions paid by the total
number of shares purchased and sold during the period for which there was a
commission charged.
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
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 investment 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
-9-
<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, Global and European Depositary
Receipts), are under continuous study, and the management regularly transfers
investments between securities or types of securities in carrying out its
investment policy. Although the Fund may invest up to 20% of its total assets in
foreign securities, the Manager has no present intention of doing so. See
Foreign Securities 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 Option under Other Investment Policies and Risk Considerations.
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. 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.
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(R) Composite Stock Price 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
up to 20% of its total assets in foreign securities (which may include American,
Global and European Depositary Receipts), although the Manager has no present
intention of doing so. See Foreign Securities under Other Investment Policies
and Risk Considerations.
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.
The Fund may enter into options and futures transactions for hedging
purposes to attempt to counterbalance portfolio volatility. See Futures
Contracts and Option under Other Investment Policies and Risk Considerations.
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. To the extent the Fund engages in
short-term trading in attempting to achieve its objective, it may increase
turnover rate and incur brokerage commissions and other expenses that might
otherwise be the case.
-10-
<PAGE>
* * *
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.
Although each Fund will constantly strive to attain its respective
objectives, there can be no assurance that they will be attained.
-11-
<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. 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. Class A Shares,
Class B Shares and Class C Shares may have different sales charges and other
expenses which may affect performance. 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.
-12-
<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.
-13-
<PAGE>
The effective date of a purchase is the date the order is received by the
Fund in which the shares are being purchased, its agent or designee. 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
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.
-14-
<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 in which you want to invest the proceeds.
Exchange instructions and redemption requests must be signed by the record
owner(s) exactly as the shares are registered. 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 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
although, in the case of an exchange, a sales charge may apply. 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.
-15-
<PAGE>
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 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(s)
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 certificate(s).
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.
-16-
<PAGE>
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.
-17-
<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 once a year 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.
-18-
<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.
On August 5, 1997, President Clinton signed into law the Taxpayer Relief
Act of 1997 (the "1997 Act"). This new law makes sweeping changes in the
Internal Revenue Code (the "Code"). Because many of these changes are complex,
and only indirectly affect each Fund and its distributions to you, they are
discussed in Part B. Changes in the treatment of capital gains, however, are
discussed in this section.
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 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, 1997, 34% and 51% 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.
The Treatment of Capital Gain Distributions under the Taxpayer Relief Act of
1997
The 1997 Act creates a category of long-term capital gain for individuals
that will be taxed at new lower tax rates. For investors who are in the 28% or
higher federal income tax brackets, these gains will be taxed at a maximum of
20%. For investors who are in the 15% federal income tax bracket, these gains
will be taxed at a maximum of 10%. Capital gain distributions will qualify for
these new maximum tax rates, depending on when the Fund's securities were sold
and how long they were held by the Fund before they were sold. Investors who
want more information on holding periods and other qualifying rules relating to
these new rates should review the expanded discussion in Part B, or should
contact their own tax advisers.
Equity Funds II, Inc. will advise you in its annual information reporting
at calendar year end of the amount of its capital gain distributions which will
qualify for these maximum federal tax rates.
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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 the federal taxes described above, shareholders may or may
not be subject to various state and local taxes. For example, distributions of
interest income and capital gains realized from certain types of U.S. government
securities may be exempt from state personal income taxes. Because investors'
state and local taxes may be different than the federal taxes described above,
investors should consult their own tax advisers.
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.
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 their
shareholders.
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CALCULATION OF NET ASSET VALUE PER SHARE
The purchase and redemption price of a Class is the net asset value ("NAV")
per share of Class shares next computed after the order is received. The NAV is
computed as of the close of regular trading on the New York Stock Exchange
(ordinarily, 4 p.m., Eastern time) on days when the Exchange is open.
The NAV per share is computed by adding the value of all securities and
other assets in the portfolio, deducting any liabilities (expenses and fees are
accrued daily) and dividing by the number of shares outstanding. Portfolio
securities for which market quotations are available are priced at market value.
Short-term investments having a maturity of less than 60 days are valued at
amortized cost, which approximates market value. All other securities are valued
at their fair value as determined in good faith and in a method approved by
Equity Funds II, Inc.'s Board of Directors.
The net asset values of all outstanding shares of each class of a Fund will
be computed on a pro-rata basis for each outstanding share based on the
proportionate participation in that Fund represented by the value of shares of
that class. All income earned and expenses incurred by a Fund will be borne on a
pro-rata basis by each outstanding share of a class, based on each class'
percentage in the Fund represented by the value of shares of such classes,
except that the Classes will not incur any of the expenses under the Fund's
12b-1 Plans and Decatur Income Fund A, B and C Classes and Decatur Total Return
Fund A, B and C Classes alone will bear the 12b-1 Plan fees payable under their
respective Plans. Due to the specific distribution expenses and other costs that
will be allocable to each class, the net asset value of and dividends paid to
each class of a Fund will vary.
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MANAGEMENT OF THE FUNDS
Directors
The business and affairs of Equity Funds II, Inc. are managed under the
direction of its Board of Directors. Part B contains additional information
regarding Equity Funds II, Inc.'s directors and officers.
Investment Manager
The Manager furnishes investment management services to each Fund.
The Manager and its predecessors have been managing the funds in the
Delaware Group since 1938. On November 30, 1997, the Manager and its affiliates
within the Delaware Group, including Delaware International Advisers Ltd., were
managing in the aggregate more than $39 billion in assets in the various
institutional (approximately $23,274,532,000) and investment company
(approximately $16,181,491,000) 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, 1997, 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, 1997, investment management fees paid by Decatur Total
Return Fund were 0.58% of its average daily net assets.
The directors of Equity Funds II, Inc. annually review fees paid to the
Manager.
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 27 years experience in investment management, earned a bachelor's
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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. 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 Boards 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%.
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 shares of funds in the Delaware Group of funds in
placing portfolio orders and may place orders with broker/dealers that have
agreed to defray certain expenses of such funds, 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.
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. 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 directors of Equity Funds II, Inc. annually review service fees paid to
the Distributor and 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, 1997, the ratio of operating expenses to average daily net assets
for Decatur Income Fund Institutional Class was 0.68% and for Decatur Total
Return Fund Institutional Class was 0.83%.
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 Social Awareness 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.
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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 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 ("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 10% 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.
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.
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 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 management for each Fund.
Foreign Securities
Each Fund may invest up to 20% of its assets in foreign securities (which
may include American, Global and European Depositary Receipts), although the
Manager does not presently anticipate doing so. 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. A Fund may also
experience delays in foreign securities settlement.
Depositary Receipts
Each Fund may make foreign investments through the purchase and sale of
sponsored or unsponsored American, European and Global Depositary Receipts
("Depositary Receipts"). Depositary Receipts are receipts typically issued by a
U.S. or foreign bank or trust company which evidence ownership of underlying
securities issued by a foreign corporation. "Sponsored" Depositary Receipts are
issued jointly by the issuer of the underlying security and a depository,
whereas "unsponsored" Depositary Receipts are issued without participation of
the issuer of the deposited security. Holders of unsponsored Depositary Receipts
generally bear all the costs of such facilities and the depository of an
unsponsored facility frequently is under no obligation to distribute shareholder
communications received from the issuer of the deposited security or to pass
through voting rights to the holders of such receipts in respect of the
deposited securities. Therefore, there may not be a correlation between
information concerning the issuer of the security and the market value of an
unsponsored Depositary Receipt. Investments in Depositary Receipts involve risks
similar to those accompanying direct investments in foreign securities.
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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
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
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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 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
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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 a Covered Call Option on Securities--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 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.
-30-
<PAGE>
* * *
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 normally not be purchased while a
Fund has an outstanding borrowing.
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 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. No more than 10% of each Fund's may be
invested in illiquid securities, including repurchase agreements of over seven
days' maturity. 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 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 102%
of the repurchase price, including the portion representing the Fund's yield
under such agreements, which is monitored on a daily basis.
* * *
Part B describes certain of these investment policies and risk
considerations. In addition, Part B sets forth other investment policies, risk
considerations and more specific restrictions.
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, 1997. The
paragraphs following the table
-31-
<PAGE>
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-%
Ba/BB 2.67%
B/B 10.46%
Not Rated/Other 0.43%
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.
-32-
<PAGE>
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.
-33-
<PAGE>
For more information, contact 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
[GRAPHIC OMITTED]
Printed in the U.S.A. on recycled paper.
P-146[--] PP1/98
<PAGE>
- ---------------------------------
DECATUR INCOME FUND INSTITUTIONAL
- ---------------------------------
DECATUR TOTAL RETURN FUND
INSTITUTIONAL
- ---------------------------------
P r o s p e c t u s
- ---------------------------------
January 30, 1998
DELAWARE
GROUP
--------
<PAGE>
BLUE CHIP FUND
SOCIAL AWARENESS FUND PROSPECTUS
A CLASS SHARES JANUARY 30, 1998
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 800-659-2265
This Prospectus describes two series, Blue Chip Fund and Social Awareness
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. Social Awareness Fund
offers the Social Awareness Fund A Class, the Social Awareness Fund B Class and
the Social Awareness 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." Effective as of the close of business on January 28, 1998,
Quantum Fund's name was changed to Social Awareness Fund.
The investment objective of Blue Chip Fund is to achieve long-term capital
appreciation. Current income is a secondary investment objective. It seeks to
achieve these objectives by investing primarily in equity securities and any
securities that are convertible into equity securities. The investment objective
of Social Awareness 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 January 30, 1998, as it may be amended from time to time,
contains
-1-
<PAGE>
additional information about the Funds and has been filed with the
Securities and Exchange Commission ("SEC"). 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. Each Fund's financial statements appear in its Annual Report, which
will accompany any response to requests for Part B. The SEC also maintains a Web
site (http://www.sec.gov) that contains Part B, material incorporated by
reference into Equity Funds II, Inc.'s registration statement, and other
information regarding registrants that electronically file with the SEC.
Each Fund also offers an Institutional Class which is available for
purchase only by certain investors. A prospectus for the Funds' Institutional
Classes can be obtained by writing to Delaware Distributors, L.P. at the above
address or by calling the above telephone numbers.
Table of Contents
COVER PAGE.................................. 1
SYNOPSIS.................................... 2
SUMMARY OF EXPENSES......................... 4
FINANCIAL HIGHLIGHTS........................ 7
INVESTMENT OBJECTIVES AND POLICIES
Suitability................................ 9
Investment Strategy........................ 9
THE DELAWARE DIFFERENCE
Plans and Services.........................12
CLASSES OF SHARES...........................14
HOW TO BUY SHARES...........................21
REDEMPTION AND EXCHANGE.....................24
DIVIDENDS AND DISTRIBUTIONS.................29
TAXES.......................................30
CALCULATION OF OFFERING PRICE AND
NET ASSET VALUE PER SHARE..................32
MANAGEMENT OF THE FUNDS.....................33
OTHER INVESTMENT POLICIES AND
SPECIAL RISK CONSIDERATIONS................ 38
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 THE PRINCIPAL AMOUNT INVESTED. SHARES OF
THE FUNDS ARE NOT BANK OR CREDIT UNION DEPOSITS.
-2-
<PAGE>
Synopsis
Investment Objective
Blue Chip Fund -- The investment 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.
Social Awareness Fund -- The investment objective of Social Awareness 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 Transfer 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 as such, is responsible for the day-to-day
investment management of 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. The front-end 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 (subject to a CDSC
of 1% if shares are redeemed within 12 months of purchase and a dealer
commission was paid in connection with such purchase). 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.
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 Social Awareness 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"). Additional Class A purchase options involving the imposition of a CDSC
may be permitted as described in the Prospectus from time to time. 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>
Blue Chip Fund
Annual Operating Expenses ----------------------------------------------------
(as a percentage of Class A Class B Class C
average daily net assets) Shares Shares Shares
- ------------------------- ---------------- ---------------- ----------------
<S> <C> <C> <C>
Management Fees
(after voluntary waivers) ............ 0.00%+++ 0.00%+++ 0.00%+++
12b-1 Plan Expenses
(including service fees) ............. 0.30%+ 1.00%+ 1.00%+
Other Operating Expenses
(after any voluntary payments) ....... 1.20%+++ 1.20%+++ 1.20%+++
---- ---- ----
Total Operating Expenses
(after voluntary waivers and
any voluntary payments) ............. 1.50%+++ 2.20%+++ 2.20%+++
==== ==== ====
<CAPTION>
Social Awareness Fund
Annual Operating Expenses ----------------------------------------------------
(as a percentage of Class A Class B Class C
average daily net assets) Shares Shares Shares
- ------------------------- ---------------- ---------------- ----------------
<S> <C> <C> <C>
Management Fees
(after voluntary waivers) ............ 0.29%+++ 0.29%+++ 0.29%+++
12b-1 Plan Expenses
(including service fees) ............. 0.25%+/++ 1.00%+ 1.00%+
Other Operating Expenses
(after any voluntary payments) ....... 0.91%+++ 0.91%+++ 0.91%+++
---- ---- ----
Total Operating Expenses
(after voluntary waivers and
any voluntary payments) ............. 1.45%+++ 2.20%+++ 2.20%+++
==== ==== ====
</TABLE>
<PAGE>
+ 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").
++ The Distributor has elected voluntarily to waive its right to receive 12b-1
Plan fees with respect to Class A Shares of Social Awareness Fund to the
extent necessary to ensure 12b-1 Plan Expenses for such Class do not exceed
0.25% for the period from February 1, 1998 through July 31, 1998. In the
absence of this waiver and during the period from the commencement of the
public offering of Class A Shares of Social Awareness Fund through January
31, 1998, 12b-1 Plan Expenses would have been equal to 0.30% for Class A
Shares. See Distribution (12b-1) and Service under Management of the Funds.
+++ Because each Fund did not commence operations until February 24, 1997, Total
Operating Expenses and Other Operating Expenses for each Class of each Fund
are based on estimated amounts each Fund expects to pay during the fiscal
year. The Manager has elected to voluntarily waive that portion, if any, of
the annual management fees payable by a Fund and to pay a Fund's expenses to
the extent necessary to ensure that the Fund's total operating expenses
(exclusive of 12b-1 Plan Expenses, taxes, interest, brokerage commissions
and extraordinary expenses) do not exceed, on an annualized basis, 1.20% of
the average daily net assets of the Fund. The Manager's voluntary fee
waivers and expense payments began upon the commencement of the public
offering of each Class of each Fund and will extend through July 31, 1998.
Absent the Manager's voluntary fee waivers and expense payments (and the
Distributor's voluntary waiver of a portion of the 12b-1 Plan Expenses for
Class A Shares of Social Awareness Fund through July 31, 1998), it is
estimated that during the current fiscal year, the Total Operating Expenses
would be 2.95%, 3.65% and 3.65%, respectively, for the Class A Shares, the
Class B Shares and the Class C Shares of Blue Chip Fund and 1.96%, 2.66% and
2.66%, respectively, for the Class A Shares, the Class B Shares and the
Class C Shares of Social Awareness Fund, which would include Management Fees
of 0.65% and 0.75% for Blue Chip Fund and Social Awareness Fund,
respectively.
Investors utilizing the Delaware Group Asset Planner asset allocation
service also typically incur an annual maintenance fee of $35 per strategy.
However, effective November 1, 1996, the annual maintenance fee is waived until
further notice. Investors who utilize the Asset Planner for an Individual
-6-
<PAGE>
Retirement Account ("IRA") will pay an IRA fee of $15 per Social Security
number. See Delaware Group Asset Planner in Part B.
For expense information about the Blue Chip Fund Institutional Class of
shares and Social Awareness Fund Institutional Class of 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, (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. The example
for Social Awareness Fund A Class also assumes the partial waiver of the 12b-1
fee by the Distributor as discussed in this Prospectus.
Assuming No
Blue Chip Fund Assuming Redemption Redemption
1 Year 3 Years 1 Year 3 Years
-------- --------- -------- --------
Class A Shares $621 $93 $62 $93
Class B Shares(2) $ 62 $99 $22 $69
Class C Shares $ 32 $69 $22 $69
Assuming No
Social Awareness Fund Assuming Redemption Redemption
1 Year 3 Years 1 Year 3 Years
-------- --------- -------- --------
Class A Shares $621 $91 $62 $91
Class B Shares(2) $ 62 $99 $22 $69
Class C Shares $ 32 $69 $22 $69
(1) Generally, no redemption charge is assessed upon redemption of Class A
Shares. Under certain circumstances, however, a Limited CDSC, or other
CDSC, which has not been reflected in this calculation, may be imposed on
certain redemptions. See Contingent Deferred Sales Charge for Certain
Redemptions of Class A Shares Purchased at Net Asset Value under Redemption
and Exchange.
(2) At the end of approximately eight years after purchase, Class B Shares will
be automatically converted into Class A Shares. The example above does not
assume conversion of Class B Shares since it reflects figures only for one
and three years. See Automatic Conversion of Class B Shares under Classes
of Shares for a description of the automatic conversion feature.
This example should not be considered a representation of past or future
expenses or performance. Actual expenses may be greater or less than those
shown.
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.
-7-
<PAGE>
- -------------------------------------------------------------------------------
Financial Highlights
The following financial highlights are derived from the financial statements of
Blue Chip Fund and Social Awareness Fund of Delaware Group Equity Funds II, 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 its Annual Report to
shareholders. A copy of each Fund's Annual Report (including the report of Ernst
& Young LLP) may be obtained from Equity Funds II, Inc. upon request at no
charge.
- -------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
Blue Chip Fund
A Class
----------------------
Period
2/24/97(1)
through
11/30/97
----------------------
<S> <C>
Net Asset Value, Beginning of Period ................................................. $ 8.500
Income From Investment Operations
Net Investment Income(Loss) (2) ...................................................... 0.041
Net Realized and Unrealized Gain from Investments .................................... 1.309
----------
Total From Investment Operations ................................................... 1.350
----------
Less Distributions
Dividends from Net Investment Income ................................................. none
Distributions from Capital Gains ..................................................... none
----------
Total Distributions ................................................................ none
----------
Net Asset Value, End of Period ....................................................... $ 9.850
==========
- -------------
Total Return ......................................................................... 15.88%(3)(4)
- -------------
Ratios/Supplemental Data
Net Assets, End of Period (000's omitted) ............................................ $ 2,272
Ratio of Expenses to Average Daily Net Assets ........................................ 1.50%
Ratio of Expenses to Average Daily Net Assets Prior to Expense Limitation ............ 2.95%
Ratio of Net Investment Income (Loss) to Average Daily Net Assets .................... 0.69%
Ratio of Net Investment Income (Loss) to Average Daily Net Assets Prior to Expense
Limitation.......................................................................... (0.76%)
Portfolio Turnover Rate .............................................................. 25%
Average Commission Rate Paid (5) ..................................................... $ 0.0359
Blue Chip Fund
B Class
-------------------------
Period
2/24/97(1)
through
11/30/97
-------------------------
<S> <C>
Net Asset Value, Beginning of Period ................................................. $ 8.500
Income From Investment Operations
Net Investment Income(Loss) (2) ...................................................... (0.009)
Net Realized and Unrealized Gain from Investments .................................... 1.309
------------
Total From Investment Operations ................................................... 1.300
------------
Less Distributions
Dividends from Net Investment Income ................................................. none
Distributions from Capital Gains ..................................................... none
------------
Total Distributions ................................................................ none
------------
Net Asset Value, End of Period ....................................................... $ 9.800
============
- -------------
Total Return ......................................................................... 15.29%(3)(4)
- -------------
Ratios/Supplemental Data
Net Assets, End of Period (000's omitted) ............................................ $ 1,444
Ratio of Expenses to Average Daily Net Assets ........................................ 2.20%
Ratio of Expenses to Average Daily Net Assets Prior to Expense Limitation ............ 3.65%
Ratio of Net Investment Income (Loss) to Average Daily Net Assets .................... (0.01%)
Ratio of Net Investment Income (Loss) to Average Daily Net Assets Prior to Expense
Limitation.......................................................................... (1.46%)
Portfolio Turnover Rate .............................................................. 25%
Average Commission Rate Paid (5) ..................................................... $ 0.0359
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Blue Chip Fund
C Class
-------------------------
Period
2/24/97(1)
through
11/30/97
-------------------------
<S> <C>
Net Asset Value, Beginning of Period ................................................. $ 8.500
Income From Investment Operations
Net Investment Income(Loss) (2) ...................................................... (0.011)
Net Realized and Unrealized Gain from Investments .................................... 1.311
------------
Total From Investment Operations ................................................... 1.300
------------
Less Distributions
Dividends from Net Investment Income ................................................. none
Distributions from Capital Gains ..................................................... none
------------
Total Distributions ................................................................ none
------------
Net Asset Value, End of Period ....................................................... $ 9.800
============
- -------------
Total Return ......................................................................... 15.29%(3)(4)
- -------------
Ratios/Supplemental Data
Net Assets, End of Period (000's omitted) ............................................ $ 239
Ratio of Expenses to Average Daily Net Assets ........................................ 2.20%
Ratio of Expenses to Average Daily Net Assets Prior to Expense Limitation ............ 3.65%
Ratio of Net Investment Income (Loss) to Average Daily Net Assets .................... (0.01%)
Ratio of Net Investment Income (Loss) to Average Daily Net Assets Prior to Expense
Limitation.......................................................................... (1.46%)
Portfolio Turnover Rate .............................................................. 25%
Average Commission Rate Paid (5) ..................................................... $ 0.0359
</TABLE>
- -----------
(1) Date of initial public offering; ratios have been annualized but total
return has not been annualized. Total return for this short of a time
period may not be representative of longer term results.
(2) The average shares outstanding method has been applied for net investment
income per share information.
(3) Does not reflect the maximum sales charge of 4.75%, nor the 1% CDSC that
would apply in the event of certain redemptions within 12 months of
purchase for Class A Shares. Does not reflect contingent deferred sales
charge which varies from 1%-4% depending upon the holding period for Class
B Shares and 1% for Class C Shares for 12 months from the date of purchase.
(4) Total return reflects the expense limitations referenced under Summary of
Expenses.
(5) Computed by dividing the total amount of commissions paid by the total
number of shares purchased and sold during the period for which there was a
commission charged.
<PAGE>
<TABLE>
<CAPTION>
Social Awareness
Fund
A Class
-------------------------
Period
2/24/97(1)
through
11/30/97
-------------------------
<S> <C>
Net Asset Value, Beginning of Period ................................................. $ 8.500
Income From Investment Operations
Net Investment Income (Loss) (2) ..................................................... 0.007
Net Realized and Unrealized Gain from Investments .................................... 1.823
-----------
Total From Investment Operations ................................................... 1.830
-----------
Less Distributions
Dividends from Net Investment Income ................................................. none
Distributions from Capital Gains ..................................................... none
Total Distributions ................................................................ none
-----------
Net Asset Value, End of Period ..................................................... $ 10.330
===========
- -------------
Total Return ......................................................................... 21.53%(3)(4)
- -------------
Ratios/Supplemental Data
Net Assets, End of Period (000's omitted) ............................................ $ 9,115
Ratio of Expenses to Average Daily Net Assets ........................................ 1.50%
Ratio of Expenses to Average Daily Net Assets Prior to Expense Limitation ............ 1.96%
Ratio of Net Investment Income (Loss) to Average Daily Net Assets .................... 0.38%
Ratio of Net Investment Income (Loss) to Average Daily Net Assets Prior to Expense
Limitation.......................................................................... (0.08%)
Portfolio Turnover Rate .............................................................. 29%
Average Commission Rate Paid (5) ..................................................... $ 0.0357
Social Awareness
Fund
B Class
-------------------------
Period
2/24/97(1)
through
11/30/97
-------------------------
<S> <C>
Net Asset Value, Beginning of Period ................................................. $ 8.500
Income From Investment Operations
Net Investment Income (Loss) (2) ..................................................... (0.044)
Net Realized and Unrealized Gain from Investments .................................... 1.824
------------
Total From Investment Operations ................................................... 1.780
------------
Less Distributions
Dividends from Net Investment Income ................................................. none
Distributions from Capital Gains ..................................................... none
Total Distributions ................................................................ none
------------
Net Asset Value, End of Period ..................................................... $ 10.280
============
- --------------
Total Return ......................................................................... 20.94%(3)(4)
- --------------
Ratios/Supplemental Data
Net Assets, End of Period (000's omitted) ............................................ $ 6,919
Ratio of Expenses to Average Daily Net Assets ........................................ 2.20%
Ratio of Expenses to Average Daily Net Assets Prior to Expense Limitation ............ 2.66%
Ratio of Net Investment Income (Loss) to Average Daily Net Assets .................... (0.32%)
Ratio of Net Investment Income (Loss) to Average Daily Net Assets Prior to Expense
Limitation.......................................................................... (0.78%)
Portfolio Turnover Rate .............................................................. 29%
Average Commission Rate Paid (5) ..................................................... $ 0.0357
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Social Awareness
Fund
C Class
-------------------------
Period
2/24/97(1)
through
11/30/97
-------------------------
<S> <C>
Net Asset Value, Beginning of Period ................................................. $ 8.500
Income From Investment Operations
Net Investment Income (Loss) (2) ..................................................... (0.044)
Net Realized and Unrealized Gain from Investments .................................... 1.824
------------
Total From Investment Operations ................................................... 1.780
------------
Less Distributions
Dividends from Net Investment Income ................................................. none
Distributions from Capital Gains ..................................................... none
Total Distributions ................................................................ none
------------
Net Asset Value, End of Period ..................................................... $ 10.280
============
- -------------
Total Return ......................................................................... 20.94%(3)(4)
- -------------
Ratios/Supplemental Data
Net Assets, End of Period (000's omitted) ............................................ $ 1,290
Ratio of Expenses to Average Daily Net Assets ........................................ 2.20%
Ratio of Expenses to Average Daily Net Assets Prior to Expense Limitation ............ 2.66%
Ratio of Net Investment Income (Loss) to Average Daily Net Assets .................... (0.32%)
Ratio of Net Investment Income (Loss) to Average Daily Net Assets Prior to Expense
Limitation.......................................................................... (0.78%)
Portfolio Turnover Rate .............................................................. 29%
Average Commission Rate Paid (5) ..................................................... $ 0.0357
</TABLE>
- -----------
(1) Date of initial public offering; ratios have been annualized but total
return has not been annualized. Total return for this short of a time
period may not be representative of longer term results.
(2) The average shares outstanding method has been applied for net investment
income per share information.
(3) Does not reflect the maximum sales charge of 4.75%, nor the 1% CDSC that
would apply in the event of certain redemptions within 12 months of
purchase for Class A Shares. Does not reflect contingent deferred sales
charge which varies from 1%-4% depending upon the holding period for Class
B Shares and 1% for Class C Shares for 12 months from the date of purchase.
(4) Total return reflects the expense limitations referenced under Summary of
Expenses.
(5) Computed by dividing the total amount of commissions paid by the total
number of shares purchased and sold during the period for which there was a
commission charged.
<PAGE>
Investment Objectives and Policies
Blue Chip Fund -- The investment objective of Blue Chip Fund is to achieve
long-term capital appreciation. Current income is a secondary investment
objective. It seeks to achieve these objectives by investing primarily in equity
securities and any securities that are convertible into equity securities.
Social Awareness Fund -- The investment objective of Social Awareness 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.
Social Awareness 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 investment objective of Blue Chip Fund is to achieve
long-term capital appreciation. Current income is a secondary investment
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(R) Composite Stock Price 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.
-9-
<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 Securities
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.
Social Awareness Fund -- The investment objective of Social Awareness 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-
-10-
<PAGE>
Adviser will invest 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 Securities
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.
-11-
<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
investment objectives, there can be no assurance that they will be attained.
-12-
<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, if any, 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.
-13-
<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(SM) Services
Delaware Group offers the following services for fast and convenient
transfer of funds between your personal bank account and your Delaware Group
fund account:
1. MoneyLine(SM) 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(SM) 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. This service is not available for certain retirement plans.
2. MoneyLine(SM) On Demand
You or your investment dealer may request purchases and redemptions of Fund
shares by using MoneyLineSM On Demand. When you authorize the Fund to accept
such requests from you or your investment dealer, funds will be withdrawn from
(for share purchases) or deposited to (for share redemptions) your predesignated
bank account. Your request will be processed the same day if you call prior to 4
p.m., Eastern time. There is a $25 minimum and a $50,000 maximum limit for
MoneyLineSM On Demand transactions. This service is not available for retirement
plans, except for purchases of shares by IRAs.
For each MoneyLine(SM) Service, it may take up to four business days for
the transactions to be completed. You can initiate either service by completing
an Account Services form. 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 Fund does not charge a fee for any
MoneyLine(SM) Service; however, your bank may charge a fee. Please call the
Shareholder Service Center for additional information about these services.
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.
-14-
<PAGE>
Retirement Planning
An investment in the Funds may be a suitable investment option for
tax-deferred retirement plans. Delaware Group offers a full spectrum of
qualified and non-qualified retirement plans, including the popular 401(k)
deferred compensation plan, IRA, and the new Roth IRA. Just call the Delaware
Group at 1-800-5230-1918 for more information.
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.
Exchange Privilege
The Exchange Privilege permits shareholders to exchange all or part of
their shares into shares of 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.
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.
-15-
<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. For the period from
February 1, 1998 through July 31, 1998, the Distributor has elected voluntarily
to waive its right to receive 12b-1 Plan fees with respect to Class A Shares of
Social Awareness Fund to the extent necessary to ensure that 12b-1 Plan expenses
for such Class do not exceed 0.25% of average daily net assets. 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, 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 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
-16-
<PAGE>
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 duration of the annual
12b-1 Plan expenses to which each of these classes is subject and the
desirability of an automatic conversion feature, which is available only for
Class B Shares.
For the distribution and related services provided to, and the expenses
borne on behalf of, a Fund, the Distributor and others will be paid, in the case
of Class A Shares, from the proceeds of the front-end sales charge and 12b-1
Plan fees and, in the case of Class B Shares and Class C Shares, from the
proceeds of the 12b-1 Plan fees and, if applicable, the CDSC incurred upon
redemption. Financial advisers may receive different compensation for selling
Class A, 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, if any, 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.
-17-
<PAGE>
<TABLE>
<CAPTION>
Blue Chip Fund A Class
Social Awareness Fund A Class
- --------------------------------------------------------------------------------
Dealer's
Front-End Sales Charge Commission***
as % of as % of
Offering Amount Offering
Amount of Purchase Price Invested** Price
- ----------------------- ---------- --------------------------------- ---------------
Blue Social
Chip Awareness
Fund Fund
<S> <C> <C> <C> <C>
Less than $100,000 4.75% 4.97% 5.03% 4.00%
$100,000 but under
$ 250,000 3.75 3.86 3.87 3.00
$250,000 but under
$500,000 2.50 2.54 2.52 2.00
$500,000 but under
$1,000,000* 2.00 2.03 2.03 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.
- --------------------------------------------------------------------------------
Blue Chip Fund or Social Awareness 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.
- --------------------------------------------------------------------------------
-18-
<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
For accounts with assets over $1 million, the dealer commission resets
annually to the highest incremental commission rate on the anniversary of the
first purchase. In determining a financial adviser's eligibility for the
dealer's commission, purchases of Class A Shares of other Delaware 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. In
addition, assets held by investment advisory clients of the Manager or its
affiliates in a stable value account 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.
-19-
<PAGE>
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.
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.
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.
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.
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.
-20-
<PAGE>
Buying Class A Shares at Net Asset Value
Class A Shares may be purchased at net asset value under the Delaware Group
Dividend Reinvestment Plan and, under certain circumstances, the Exchange
Privilege and the 12-Month Reinvestment Privilege. See The Delaware Difference
and Redemption and Exchange for additional information.
Purchases of Class A Shares may be made at net asset value by current and
former officers, directors and employees (and members of their families) of the
Manager, any affiliate, any of the funds in the Delaware Group, certain of their
agents and registered representatives and employees of authorized investment
dealers and by employee benefit plans for such entities. Individual purchases,
including those in retirement accounts, must be for accounts in the name of the
individual or a qualifying family member.
Purchases of Class A Shares may also be made by clients of registered
representatives of an authorized investment dealer at net asset value within 12
months after the registered representative changes employment, if the purchase
is funded by proceeds from an investment where a front-end sales charge,
contingent deferred sales charge or other sales charge has been assessed.
Purchases of Class A Shares may also be made at net asset value by bank
employees who provide services in connection with agreements between the bank
and unaffiliated brokers or dealers concerning sales of shares of Delaware Group
funds. Officers, directors and key employees of institutional clients of the
Manager or any of its affiliates may purchase Class A Shares at net asset value.
Moreover, purchases may be effected at net asset value for the benefit of the
clients of brokers, dealers and registered investment advisers affiliated with a
broker or dealer, if such broker, dealer or investment adviser has entered into
an agreement with the Distributor providing specifically for the purchase of
Class A Shares in connection with special investment products, such as wrap
accounts or similar fee based programs. Investors may be charged a fee when
effecting transactions in Class A Shares through a broker or agent that offers
these special investment products.
Purchases of Class A Shares of Blue Chip Fund, at net asset value may also
be made by the following: financial institutions investing for the account of
their trust customers if they are not eligible to purchase shares of the
Institutional Class of the Fund; any group retirement plan (excluding defined
benefit pension plans), or such plans of the same employer, for which plan
participant records are maintained on the Delaware Investment & Retirement
Services, Inc. ("DIRSI") proprietary record keeping system that (i) has in
excess of $500,000 of plan assets invested in Class A Shares of Delaware Group
funds and any stable value product available through the Delaware Group, or (ii)
is sponsored by an employer that has at any point after May 1, 1997 had more
than 100 employees while such plan has held Class A Shares of a Delaware Group
fund and such employer has properly represented to DIRSI in writing that it has
the requisite number of employees and has received written confirmation back
from DIRSI.
Purchases of Class A Shares of Social Awareness Fund at net asset value may
also be made by the following: financial institutions investing for the account
of their trust customers when they are not eligible to purchase shares of the
Institutional Class of the Fund; and any group retirement plan (excluding
defined benefit pension plans), or such plans of the same employer, that (i) has
in excess of $500,000 of plan assets invested in Class A Shares of Delaware
Group funds and in any stable value product available through the Delaware
Group, or (ii) is sponsored by an employer that has at any point after May 1,
1997 more than 100 employees while such plan has held Class A Shares of a
Delaware Group fund and such employer has properly represented to DIRSI in
writing that it has the requisite number of employees and has received written
confirmation back from DIRSI. See Group Investment Plan for more information
regarding the applicability of the Limited CDSC.
-21-
<PAGE>
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.
Investors in Delaware-Voyageur Unit Investment Trusts may reinvest monthly
dividend checks and/or repayment of invested capital into Class A Shares of any
funds in the Delaware Group at net asset value.
Blue Chip Fund or Social Awareness 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, SIMPLE IRA, SIMPLE 401(k),
Profit Sharing, Money Purchase Pension, 401(k) Defined Contribution Plans and
403(b)(7) and 457 Deferred Compensation Plans) may benefit from the reduced
front-end sales charges available on the Class A Shares, 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 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.
The Limited CDSC is applicable to any redemptions of net asset value
purchases made on behalf of any group retirement plan on which a dealer's
commission has been paid only if such redemption is made pursuant to a
withdrawal of the entire plan from Delaware Group funds. See Contingent Deferred
Sales Charge for Certain Redemptions of Class A Shares Purchased at Net Asset
Value under Redemption and Exchange.
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.
-22-
<PAGE>
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.
18
<PAGE>
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 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.
-23-
<PAGE>
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 Social Awareness 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.
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. For the period from February 1, 1998
through July 31, 1998, the Distributor has elected voluntarily to waive its
right to receive 12b-1 Plan fees with respect to Class A Shares of Social
Awareness Fund to the extent necessary to ensure that 12b-1 Plan expenses for
such Class do not exceed 0.25% of average daily net assets.
-24-
<PAGE>
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.
OtherPayments 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 Conduct Rules, 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 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
Conduct Rules 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 Conduct Rules as they may be
amended.
Blue Chip Fund Institutional Class and Social Awareness 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 Social Awareness
Fund also offers the Social Awareness 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 Social Awareness 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 Social Awareness Fund
Institutional Class, contact the Distributor by writing to the address or by
calling the telephone number listed on the back cover of this Prospectus.
-25-
<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 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).
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.
-26-
<PAGE>
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. 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 Classes of Shares 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
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.
-27-
<PAGE>
This option is not available to participants in the following plans:
SAR/SEP, SEP/IRA, SIMPLE IRA, SIMPLE 401(k), Profit Sharing and Money Purchase
Pension Plans, 401(k) Defined Contribution Plans or, 403(b)(7) or 457 Deferred
Compensation Plans.
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. MoneyLineSM On Demand
Through the MoneyLineSM On Demand service, you or your investment dealer
may call the Fund to request a transfer of funds from your predesignated bank
account to your Fund account. See MoneyLineSM Services under The Delaware
Difference for additional information about this service.
4. 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.
This option is not available to participants in the following plans:
SAR/SEP, SEP/IRA, SIMPLE IRA, SIMPLE 401(k), Profit Sharing and Money Purchase
Pension Plans, 401(k) Defined Contribution Plans, or 403(b)(7) and 457 Deferred
Compensation Plans.
5. 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.
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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. For more information about
reinvestments, call the Shareholder Service Center.
Capital gains and/or dividends for participants in the following retirement
plans are automatically reinvested into the same Delaware Group fund in which
their investments are held: SAR/SEP, SEP/IRA, SIMPLE IRA, SIMPLE 401(k), Profit
Sharing and Money Purchase Pension Plans, 401(k) Defined Contribution Plan,
403(b)(7) or 457 Deferred Compensation Plans.
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 is the date the order is received by the
Fund in which the shares are being purchased, its agent or designee. 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. The service fee will be deducted from the account during the first week
of each calendar quarter for the previous quarter, and will be used to help
defray the cost of maintaining low-balance accounts. No fees will be charged
without proper notice, and no CDSC will apply to such assessments.
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Each Fund also reserves the right, upon 60 days' written notice, to
involuntarily redeem accounts that remain under the minimum initial purchase
amount as a result of redemptions. An investor making the minimum initial
investment may be subject to involuntary redemption without the imposition of a
CDSC or Limited CDSC if he or she redeems any portion of his or her account.
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Redemption and Exchange
You can redeem or exchange your shares in a number of different ways. The
exchange service is useful if your investment requirements change and you want
an easy way to invest in other equity funds, bond funds, tax-advantaged funds or
money market funds. This service is also useful if you are anticipating a major
expenditure and want to move a portion of your investment into a fund that has
the checkwriting feature. Exchanges are subject to the requirements of each fund
and all exchanges of shares constitute taxable events. See Taxes. Further, in
order for an exchange to be processed, shares of the fund being acquired must be
registered in the state where the acquiring shareholder resides. You may want to
consult your financial adviser or investment dealer to discuss which funds in
the Delaware Group will best meet your changing objectives, and the consequences
of any exchange transaction. You may also call the Delaware Group directly for
fund information.
All exchanges involve a purchase of shares of the fund into which the
exchange is made. As with any purchase, an investor should obtain and carefully
read that fund's prospectus before buying shares in an exchange. The prospectus
contains more complete information about the fund, including charges and
expenses.
Your shares will be redeemed or exchanged at a price based on the net asset
value next determined after the Fund receives your request in good order,
subject, in the case of a redemption, to any applicable CDSC or Limited CDSC.
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 in which you want to invest the proceeds. Exchange
instructions and redemption requests must be signed by the record owner(s)
exactly as the shares are registered. 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 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 Blue Chip Fund or Social Awareness 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(s) 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
certificate(s).
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 proceeds. If you ask for a check, it will normally be mailed the next
business day after receipt of your redemption request to your predesignated bank
account. There are no separate fees for this redemption method, but the mail
time may delay getting funds into your bank account. Simply call the Shareholder
Service Center prior to the time the offering price and net asset value are
determined, as noted above.
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MoneyLineSM On Demand
Through the MoneyLineSM On Demand service, you or your investment dealer
may call the Fund to request a transfer of funds from your Fund account to your
predesignated bank account. See MoneyLineSM Services under The Delaware
Difference for additional information about this service.
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 MoneyLineSM Direct
Deposit Service. Your funds will normally be credited to your bank account up to
four business days after the payment date. There are no separate fees for this
redemption method. See MoneyLine SM Services 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 MoneyLineSM 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.
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Waiver of Limited Contingent Deferred Sales Charge -- Class A Shares The Limited
CDSC for Class A Shares on which a dealer's commission has
been paid will be waived in the following instances: (i) redemptions that result
from a Fund's right to liquidate a shareholder's account if the aggregate net
asset value of the shares held in the account is less than the then-effective
minimum account size; (ii) distributions to participants from a retirement plan
qualified under section 401(a) or 401(k) of the Internal Revenue Code of 1986,
as amended (the "Code"), or due to death of a participant in such a plan; (iii)
redemptions pursuant to the direction of a participant or beneficiary of a
retirement plan qualified under section 401(a) or 401(k) of the Code with
respect to that retirement plan; (iv) periodic distributions from an IRA, SIMPLE
IRA, or 403(b)(7) or 457 Deferred Compensation Plan due to death, disability, or
attainment of age 59 1/2, and IRA distributions qualifying under Section 72(t)
of the Code; (v) returns of excess contributions to an IRA; (vi) distributions
by other employee benefit plans to pay benefits; (vii) distributions described
in (ii), (iv), and (vi) above pursuant to a systematic withdrawal plan; 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, SIMPLE IRA, SEP/IRA or 403(b)(7)
or 457 Deferred Compensation Plans; (iii) periodic distributions from an IRA,
SIMPLE IRA, SAR/SEP, SEP/IRA, 403(b)(7) or 457 Deferred Compensation Plan due to
death, disability or attainment of age 59 1/2, and IRA distributions qualifying
under Section 72(t) of the Internal Revenue Code; and (iv) distributions from an
account if the redemption results from the death of 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, SIMPLE IRA, 403(b)(7) or 457 Deferred
Compensation Plan, Profit Sharing Plan, Money Purchase Pension Plan, or 401(k)
Defined Contribution Plan; (iii) periodic distributions from a 403(b)(7) or 457
Deferred Compensation Plan upon attainment of age 59 1/2, Profit Sharing Plan,
Money Purchase Plan, 401(k) Defined Contribution Plan upon attainment of age 70
1/2, and IRA distributions qualifying under Section 72(t) of the Code; (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) periodic distributions from an IRA or SIMPLE IRA on or after
attainment of age 59 1/2; and (vii) distributions from an account if the
redemption results from the death of 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.
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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 annual payments from Blue
Chip Fund's and Social Awareness Fund's net investment income and capital gains.
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 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 MoneyLineSM 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
MoneyLineSM Services 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.
On August 5, 1997, President Clinton signed into law the Taxpayer Relief
Act of 1997 (the "1997 Act"). This new law makes sweeping changes in the Code.
Because many of these changes are complex, and only indirectly affect each Fund
and its distributions to you, they are discussed in Part B. Changes in the
treatment of capital gains, however, are discussed in this section.
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 and it satisfies certain other requirements relating to the
sources of its income and diversification of its assets.
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. For the period February 24, 1997 (date of initial sale)
through November 30, 1997, all of the dividends from each Fund's 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 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.
The Treatment of Capital Gain Distributions under the Taxpayer Relief Act of
1997
The 1997 Act creates a category of long-term capital gain for individuals
that will be taxed at new lower tax rates. For investors who are in the 28% or
higher federal income tax brackets, these gains will be taxed at a maximum rate
of 20%. For investors who are in the 15% federal income tax bracket, these gains
will be taxed at a maximum rate of 10%. Capital gain distributions will qualify
for these new maximum tax rates, depending on when each Fund's securities were
sold and how long they were held by the Fund before they were sold. Investors
who want more information on holding periods and other qualifying rules relating
to these new rates should review the expanded discussion in Part B, or should
contact their own tax advisers.
Equity Funds II, Inc. will advise you in its annual information reporting
at calendar year end of the amount of its capital gain distributions which will
qualify for these maximum federal tax rates.
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<PAGE>
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.
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 the federal taxes described above, shareholders may or may
not be subject to various state and local taxes. For example, distributions of
interest income and capital gains realized from certain types of U.S. government
securities may be exempt from state personal income taxes. Because investors'
state and local taxes may be different than the federal taxes described above,
investors should consult their own tax advisers.
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.
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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<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 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 the Blue Chip Fund Institutional Class and the Social Awareness 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, 1997, the Manager and its affiliates
within the Delaware Group, including Delaware International Advisers Ltd., were
managing in the aggregate more than $39 billion in assets in the various
institutional or separately managed (approximately $23,274,532,000) and
investment company (approximately $16,181,491,000) accounts.
The Manager is an indirect, wholly owned subsidiary of Delaware Management
Holdings, Inc. ("DMH"). On April 3, 1995, a merger between DMH and a wholly
owned subsidiary of Lincoln National Corporation ("Lincoln National") was
completed. DMH and the Manager are now indirect, wholly owned subsidiaries, and
subject to the ultimate control, of Lincoln National. Lincoln National, with
headquarters in Fort Wayne, Indiana, is a diversified organization with
operations in many aspects of the financial services industry, including
insurance and investment management.
The Manager administers the affairs of and is ultimately responsible for
the investment management of each of the Funds under separate Investment
Management Agreements with Equity Funds II, Inc. on behalf of each Fund dated
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 Social Awareness 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. For the period February 24, 1997 (date of initial sale) through
November 30, 1997, investment management fees incurred by Blue Chip Fund were
0.65% (annualized) of average daily net assets and no fees were paid by this
Fund as a result of the voluntary waiver of fees by the Manager. For the period
February 24, 1997 (date of initial sale) through November 30, 1997, investment
management fees incurred by Social Awareness Fund were 0.75% (annualized) of
average daily net assets and 0.29% (annualized) of average daily net assets were
paid after considering the voluntary waiver of fees by the Manager.
The directors of Equity Funds II, Inc. annually review fees paid to the
Manager.
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 annual fee with respect to Blue Chip
Fund: (i) 0.15% of average daily net assets averaging one year old or less; (ii)
0.20% of average daily net assets averaging two years old or less, but greater
than one year old; and (iii) 0.35% of average daily net assets averaging over
two years old. For the services provided to the Manager, the Manager pays the
Sub-Adviser the following annual fee with respect to Social Awareness Fund: (i)
0.20% of average daily net assets averaging one year old or less; (ii) 0.25% of
average daily net assets averaging two years old or less, but greater than one
year old; and (iii) 0.40% of average daily net assets averaging over two years
old.
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<PAGE>
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 November 30, 1997, in excess of $7 billion. T. Scott Wittman, President
and Chief Investment Officer of the Sub-Adviser, has primary responsibility for
making day-to-day investment decisions for each Fund. He has had such
responsibility for the Funds since their inception. His responsibilities include
both business administration and equity portfolio management. A CFA
charterholder, Mr. Wittman received both graduate and undergraduate degrees in
business administration from 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
For the period February 24, 1997 (commencement of operations) through
December 31, 1997, the annual return for Class A Shares, Class B Shares and
Class C Shares of Blue Chip Fund excluding sales charge was 15.88%, 15.29% and
15.29%, respectively and the annual return for Class A Shares, Class B Shares
and Class C Shares of Social Awareness Fund excluding sales charge was 21.53%,
20.94% and 20.94%, respectively. These total returns assume the reinvestment of
all dividends and capital gains and reflect fee waivers and reimbursements in
effect. Without these waivers and reimbursements, each Fund's performance would
be lower. Of course, past performance is no guarantee of future results.
Investment return and principal value will fluctuate so that shares, when
redeemed, may be worth more or less than the original cost. For more information
on performance, including each Fund's total return including sales charge, see
Performance Information in Part B.
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, 1997 on an annualized basis for
Lincoln Growth and Income Fund compared with the average of the performance of
all funds offered through variable annuity contracts included as part of Lipper
Analytical Services Variable Annuity growth and income category. The performance
shown below does not represent the performance of the Blue Chip Fund. You should
not consider this past performance as an indication of future performance of the
Blue Chip Fund or of the Sub-Adviser. The results presented below may not
necessarily equate with the returns experienced by a shareholder of the Blue
Chip Fund.
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<PAGE>
<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) ......... 29.48% 23.84% 28.08% 18.77% 14.76% 15.22%
Average Growth and
Income(3) ......... 26.04% 23.01% 25.48% 16.85% 15.48% 15.87%
</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.
The investment objectives, policies and strategies of Social Awareness Fund
of Equity Funds II, Inc. 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, 1997
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. The performance shown below does not represent performance of the
Social Awareness Fund of Equity Funds II, Inc. You should not consider this past
performance an indication of future performance of the Social Awareness Fund of
Equity Funds II, Inc. or the Sub-Adviser. The results presented below may not
necessarily equate with the returns experienced by a shareholder of the Social
Awareness Fund of Equity Funds II, Inc.
<TABLE>
<CAPTION>
Since
1 Year 2 Years 3 Years 5 Years Inception(1)
----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Lincoln Social Awareness
Fund(2) ....................... 36.06% 31.95% 35.16% 22.48% 17.99%
Average Growth Funds(3) ......... 24.84% 21.80% 25.04% 16.49% 15.54%
</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.
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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 shares of funds in the Delaware Group of
funds in placing portfolio orders and may place orders with broker/dealers that
have agreed to defray certain expenses of such funds, 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. For further performance see Performance
Information in Part B.
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 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.
-45-
<PAGE>
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.
For the period from February 1, 1998 through July 31, 1998, the Distributor has
elected voluntarily to waive its right to receive 12b-1 Plan fees with respect
to Class A Shares of Social Awareness Fund to the extent necessary to ensure
that 12b-1 Plan expenses for such Class do not exceed 0.25% of average daily net
assets.
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 Social Awareness 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 Social Awareness 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 Distributor and 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 Funds' other expenses include
each Fund's proportionate share of rent and certain other administrative
expenses; the investment management fees; transfer and dividend disbursing agent
fees and costs; custodian expenses; federal and state securities registration
fees; proxy costs; and the costs of preparing prospectuses and reports sent to
shareholders. The expense ratio of each Class will also 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 Social Awareness Fund also offer, respectively, the Blue Chip Fund
Institutional Class and the Social Awareness 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
Social Awareness 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.
The Lincoln National Life Insurance Company has made an investment in each
Fund, which resulted in The Lincoln National Life Insurance Company holding
28.45% of the outstanding shares of Blue Chip Fund as of December 31, 1997.
Subject to certain limited exceptions, there is 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.
Effective as of the close of business on January 28, 1998, the name of
Quantum Fund was changed to Social Awareness Fund.
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<PAGE>
Other Investment Policies And Risk Considerations
Social Criteria
Social Awareness 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 alcoholic beverage, 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,
although the Sub-Adviser does not presently anticipate doing so. Foreign markets
may be more volatile than U.S. markets. Such investments involve sovereign risk
in addition to the normal risks associated with securities of U.S. issuers.
These risks include political risks, foreign taxes and exchange controls and
currency fluctuations. For example, foreign portfolio investments may fluctuate
in value due to changes in currency rates (i.e., other things being equal, the
value of foreign investments would increase with a fall in the value of the
dollar, and decrease with a rise in the value of the dollar) and control
regulations apart from market fluctuations. Each Fund may also experience delays
in foreign securities settlement.
Depositary Receipts
Each Fund may make foreign investments through the purchase and sale of
sponsored or unsponsored American, European and Global Depositary Receipts
("Depositary Receipts"). Depositary Receipts are receipts typically issued by a
U.S. or foreign bank or trust company which evidence ownership of underlying
securities issued by a foreign corporation. "Sponsored" Depositary Receipts are
issued jointly by the issuer of the underlying security and a depository,
whereas "unsponsored" Depositary Receipts are issued without participation of
the issuer of the deposited security. Holders of unsponsored Depositary Receipts
generally bear all the costs of such facilities and the depository of an
unsponsored facility frequently is under no obligation to distribute shareholder
communications received from the issuer of the deposited security or to pass
through voting rights to the holders of such receipts in respect of the
deposited securities. Therefore, there may not be a correlation between
information concerning the issuer of the security and the market value of an
unsponsored Depositary Receipt. Investments in Depositary Receipts involve risks
similar to those accompanying direct investments in foreign securities.
-49-
<PAGE>
Futures Contracts
Each Fund may enter into futures contracts on stocks, stock indices and
foreign currencies, and purchase or sell options on such futures contracts.
These activities will not be entered into for speculative purposes, but rather
for hedging purposes and to facilitate the ability to quickly deploy into the
stock market a Fund's positions in cash, short-term debt securities and other
money market instruments, at times when a Fund's assets are not fully invested
in equity securities. Such positions will generally be eliminated when it
becomes possible to invest in securities that are appropriate for the Fund
involved.
A futures contract is a bilateral agreement providing for the purchase and
sale of a specified type and amount of a financial instrument, or for the making
and acceptance of a cash settlement, at a stated time in the future for a fixed
price. By its terms, a futures contract provides for a specified settlement date
on which the securities, foreign currency or other financial instrument
underlying the contract are delivered, or in the case of securities index
futures contracts, the difference between the price at which the contract was
entered into and the contract's closing value is settled between the purchaser
and seller in cash. Futures contracts differ from options in that they are
bilateral agreements, with both the purchaser and the seller equally obligated
to complete the transaction. In addition, futures contracts call for settlement
only on the expiration date, and cannot be "exercised" at any other time during
their term.
The purchase or sale of a futures contract also differs from the purchase
or sale of a security or the purchase of an option in that no purchase price is
paid or received. Instead, an amount of cash or cash equivalents, which varies
but may be as low as 5% or less of the value of the contract, must be deposited
with the broker as "initial margin" as a good faith deposit. This amount is
generally maintained in a segregated account at the custodian bank. Subsequent
payments to and from the broker, referred to as "variation margin," are made on
a daily basis as the value of the index or instrument underlying the futures
contract fluctuates, making positions in the futures contracts more or less
valuable, a process known as "marking to the market."
Purchases or sales of stock index futures contracts are used for hedging
purposes to attempt to protect a Fund's current or intended investments from
broad fluctuations in stock prices. For example, a Fund may sell stock index
futures contracts in anticipation of or during a market decline to attempt to
offset the decrease in market value of the Fund's securities portfolio that
might otherwise result. If such decline occurs, the loss in value of portfolio
securities may be offset, in whole or part, by gains on the futures position.
When a Fund is not fully invested in the securities market and anticipates a
significant market advance, it may purchase stock index futures contracts in
order to gain rapid market exposure that may, in part or entirely, offset
increases in the cost of securities that the Fund intends to purchase. As such
purchases are made, the corresponding positions in stock index futures contracts
will be closed out.
Each Fund may purchase and sell foreign currency futures contracts for
hedging purposes to attempt to protect its current or intended investments
denominated in foreign currencies from fluctuations in currency exchange rates.
Such fluctuations could reduce the dollar value of portfolio securities
denominated in foreign currencies, or increase the cost of foreign-denominated
securities to be acquired, even if the value of such securities in the
currencies in which they are denominated remains constant. Each Fund may sell
futures contracts on a foreign currency, for example, when it holds securities
denominated in such currency and it anticipates a decline in the value of such
currency relative to the dollar. In the event such decline occurs, the resulting
adverse effect on the value of foreign-denominated securities may be offset, in
whole or in part, by gains on the futures contracts. However, if the value of
the foreign currency increases relative to the dollar, a Fund's loss on the
foreign currency futures contract 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.
-50-
<PAGE>
Conversely, a Fund could protect against a rise in the dollar cost of
foreign-denominated securities to be acquired by purchasing futures contracts on
the relevant currency, which could offset, in whole or in part, the increased
cost of such securities resulting from a rise in the dollar value of the
underlying currencies. When a Fund purchases futures contracts under such
circumstances, however, and the price of securities to be acquired instead
declines as a result of appreciation of the dollar, the Fund will sustain losses
on its futures position which could reduce or eliminate the benefits of the
reduced cost of portfolio securities to be acquired.
Each Fund may also purchase and write options on the types of futures
contracts in which the Fund may invest, and enter into related closing
transactions. Options on futures are similar to options on securities, as
described below, except that options on futures give the purchaser the right, in
return for the premium paid, to assume a position in a futures contract, rather
than to actually purchase or sell the futures contract, at a specified exercise
price at any time during the period of the option. In the event that an option
written by a Fund is exercised, the Fund will be subject to all the risks
associated with the trading of futures contracts, such as payment of variation
margin deposits. In addition, the writer of an option on a futures contract,
unlike the holder, is subject to initial and variation margin requirements on
the option position.
At any time prior to the expiration of a futures contract, a trader may
elect to close out its position by taking an opposite position on the contract
market on which the position was entered into, subject to the availability of a
secondary market, which will operate to terminate the initial position.
Likewise, a position in an option on a futures contract may be terminated by the
purchaser or seller prior to expiration by effecting a closing purchase or sale
transaction, subject to availability of a secondary market, which is the
purchase or sale of an option of the same series (i.e., the same exercise price
and expiration date) as the option previously purchased or sold. Each Fund may
realize a profit or a loss when closing out a futures contract or an option on a
futures contract.
To the extent that interest or exchange rates or securities prices move in
an unexpected direction, a Fund may not achieve the anticipated benefits of
investing in futures contracts and options thereon, or may realize a loss. To
the extent that a Fund purchases an option on a futures contract and fails to
exercise the option prior to the exercise date, it will suffer a loss of the
premium paid. Further, the possible lack of a secondary market could prevent a
Fund from closing out its positions relating to futures. See Part B for a
further discussion of this investment technique.
Options
Each Fund may write covered call options on individual issues as well as
write call options on stock indices. Each Fund may also purchase put options on
individual issues and on stock indices. The Sub-Adviser will employ these
techniques in an attempt to protect appreciation attained, to offset capital
losses and to take advantage of the liquidity available in the option markets.
The ability to hedge effectively using options on stock indices will depend, in
part, on the correlation between the composition of the index and a Fund's
portfolio as well as the price movement of individual securities. The
Sub-Adviser may also write covered call options to achieve income to offset the
cost of purchasing put options.
-51-
<PAGE>
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.
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).
-52-
<PAGE>
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
fundsdeposited 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;
(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.
-53-
<PAGE>
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 illiquid assets of which, no more than 10% may be invested in
repurchase agreements of over seven days' maturity. 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 102% 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, 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 normally not be purchased while a
Fund has an outstanding borrowing.
-54-
<PAGE>
The Delaware Group includes funds with a wide range of investment
objectives. Stock funds, income funds, national and state specific tax-exempt
funds, money market funds, global and international funds and closed-end funds
give investors the ability to create a portfolio that fits their personal
financial goals. For more information, 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
[GRAPHIC OMITTED]
[GRAPHIC OMITTED]
Printed in the U.S.A. on recycled paper.
P-143[--] PP1/98
<PAGE>
- -------------------------------------------------
BLUE CHIP FUND
SOCIAL AWARENESS FUND (formerly
Quantum Fund)
- -------------------------------------------------
A CLASS SHARES
B CLASS SHARES
C CLASS SHARES
- -------------------------------------------------
PROSPECTUS
- -------------------------------------------------
JANUARY 30, 1998
DELAWARE
GROUP
--------
<PAGE>
BLUE CHIP FUND
SOCIAL AWARENESS FUND PROSPECTUS
(formerly Quantum Fund) JANUARY 30, 1998
INSTITUTIONAL CLASS SHARES
-------------------------------------------------------------
1818 Market Street, Philadelphia, PA 19103
For more information about
the Blue Chip Fund Institutional Class
and the Social Awareness Fund Institutional Class
call the Delaware Group at 800-828-5052
This Prospectus describes two series, the Blue Chip Fund and the Social
Awareness 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 Social Awareness Fund offers the Social Awareness
Fund Institutional Class. Each class is referred to individually as a "Class"
and collectively as the "Classes." Effective as of the close of business on
January 28, 1998, Quantum Fund's name was changed to Social Awareness Fund.
The investment objective of Blue Chip Fund is to achieve long-term capital
appreciation. Current income is a secondary investment objective. It seeks to
achieve these objectives by investing primarily in equity securities and any
securities that are convertible into equity securities. The investment objective
of Social Awareness 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 January 30, 1998, 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 ("SEC"). 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. Each Fund's financial statements appear in its Annual Report,
which will accompany any response to requests for Part B. The SEC also maintains
a Web site (http://www.sec.gov) that contains Part B, material incorporated by
reference into Equity Funds II, Inc.'s registration statement, and other
information regarding registrants that electronically file with the SEC.
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
Social Awareness Fund also offers the Social Awareness Fund A Class of shares,
the Social Awareness Fund B Class of shares and the Social Awareness Fund C
Class of shares. Shares of these classes are subject to sales charges and other
expenses,
-1-
<PAGE>
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.
TABLE OF CONTENTS
Cover Page 1
Synopsis 2
Summary of Expenses 3
Financial Highlights 4
Investment Objectives and
Policies 5
Suitability 5
Investment Strategy 5
Classes of Shares 8
How to Buy Shares 9
Redemption and Exchange 10
Dividends and Distributions 11
Taxes 12
Calculation of Net Asset Value Per Share 13
Management of the Fund 13
Other Investment Policies and
Risk Considerations 17
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 THE PRINCIPAL AMOUNT INVESTED. SHARES OF
THE FUNDS ARE NOT BANK OR CREDIT UNION DEPOSITS.
-2-
<PAGE>
SYNOPSIS
Investment Objective
Blue Chip Fund --The investment objective of Blue Chip Fund is to achieve
long-term capital appreciation. Current income is a secondary investment
objective. It seeks to achieve these objectives by investing primarily in equity
securities and any securities that are convertible into equity securities.
Social Awareness Fund--The investment objective of Social Awareness 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 Transfer 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 as such, is responsible for the day-to-day
investment management of 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.
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.
-3-
<PAGE>
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
Blue Social
Chip Awareness
Shareholder Transaction Expenses Fund Fund
- --------------------------------------------------------------------------------
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) .............. None None
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price) .............. None None
Exchange Fees ...................................... None* None*
Annual Operating Expenses Blue Social
(as a percentage of Chip Awareness
average daily net assets) Fund Fund
- -------------------------------------------------------------------------------
Management Fees (after voluntary waivers) ......... 0.00% 0.29%
12b-1 Fees ........................................ None None
Other Operating Expenses .......................... 1.20% 0.91%
---- ----
Total Operating Expenses+
(after voluntary waivers) ....................... 1.20% 1.20%
==== ====
*Exchanges are subject to the requirements of each fund and a front-end sales
charge may apply.
+ Because each Fund did not commence operations until February 24, 1997, Total
Operating Expenses and Other Operating Expenses for each Fund are based on
estimated amounts each Fund expects to pay during the fiscal year. The Manager
has elected to voluntarily waive that portion, if any, of the annual management
fees payable by a Fund and to pay a Fund's expenses to the extent necessary to
ensure that the Fund's total operating expenses (exclusive of taxes, interest,
brokerage commissions and extraordinary expenses) do not exceed, on an
annualized basis, 1.20% of the average daily net assets of the Fund. The
Manager's voluntary fee waivers and expense payments began upon the commencement
of the public offering of each Fund and will extend through July 31, 1998.
Absent the Manager's voluntary fee waivers and expense payments, it is estimated
that during the current fiscal year, the Total Operating Expenses Fees would be
2.65% for the Blue Chip Fund Institutional Class and 1.66% for the Social
Awareness Fund Institutional Class, which would include Management Fees of 0.65%
and 0.75% for the Blue Chip Fund and Social Awareness Fund, respectively.
-5-
<PAGE>
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. The Fund charges
no redemption fees. The following example assumes the voluntary waiver of the
management fee by the Manager.
1 year 3 years
-------- --------
Blue Chip Fund ................. $12 $38
Social Awareness Fund .......... $12 $38
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.
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.
-6-
<PAGE>
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The following financial highlights are derived from the financial statements of
Blue Chip Fund and Social Awareness Fund of Delaware Group Equity Funds II,
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 its Annual Report to
shareholders. A copy of each Fund's 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>
Blue Chip Social Awareness
Fund Fund
Institutional Institutional
Class Class
--------------------- ---------------------
Period Period
2/24/97(1) 2/24/97(1)
through through
11/30/97 11/30/97
--------------------- ---------------------
<S> <C> <C>
Net Asset Value, Beginning of Period ........................................ $ 8.500 $ 8.500
Income From Investment Operations
Net Investment Income(2)..................................................... 0.062 0.029
Net Realized and Unrealized Gain from Investments ........................... 1.308 1.821
-------- --------
Total From Investment Operations .......................................... 1.370 1.850
-------- --------
Less Distributions
Dividends from Net Investment Income ........................................ none none
Distributions from Capital Gains ............................................ none none
-------- --------
Total Distributions ....................................................... none none
-------- --------
Net Asset Value, End of Period .............................................. $ 9.870 $10.350
======== ========
- --------------------------
Total Return ................................................................ 16.12%(3) 21.77%(3)
- --------------------------
Ratios/Supplemental Data
Net Assets, End of Period (000's omitted) ................................... $ 1,834 $ 107
Ratio of Expenses to Average Daily Net Assets ............................... 1.20% 1.20%
Ratio of Expenses to Average Daily Net Assets Prior to Expense Limitation ... 2.65% 1.66%
Ratio of Net Investment Income to Average Daily Net Assets .................. 0.99% 0.68%
Ratio of Net Investment Income (Loss) to Average Daily Net Assets Prior to
Expense Limitation ......................................................... (0.46%) 0.22%
Portfolio Turnover Rate ..................................................... 25% 29%
Average Commission Rate Paid4 ............................................... $ 0.0359 $0.0357
</TABLE>
- -----------
(1) Date of initial public offering; ratios have been annualized but total
return has not been annualized. Total return for this short of a time period
may not be representative of longer term results.
(2) The average shares outstanding method has been applied for net investment
income per share information.
(3) Total return reflects the expense limitations described under Summary of
Expenses.
(4) Computed by dividing the total amount of commissions paid by the total
number of shares purchased and sold during the period for which there was a
commission charged.
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
Blue Chip Fund--The investment objective of Blue Chip Fund is to achieve
long-term capital appreciation. Current income is a secondary investment
objective. It seeks to achieve these objectives by investing primarily in equity
securities and any securities that are convertible into equity securities.
Social Awareness Fund--The investment objective of Social Awareness 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.
Social Awareness 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 investment objective of Blue Chip Fund is to achieve
long-term capital appreciation. Current income is a secondary investment
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(R) Composite Stock Price 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 Securities
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.
Social Awareness Fund--The investment objective of Social Awareness 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 substantially all of the assets of the
Fund in equity securities that it believes exhibit growth potential that
-9-
<PAGE>
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 Securities
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
investment objectives, there can be no assurance that they will be attained.
-11-
<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.
Blue Chip Fund A Class, Blue Chip Fund B Class, Blue Chip Fund C Class, Social
Awareness Fund A Class, Social Awareness Fund B Class and Social Awareness 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 Social Awareness Fund
Institutional Class, Social Awareness Fund also offers the Social Awareness Fund
A Class, the Social Awareness Fund B Class and the Social Awareness 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. Class A
Shares, Class B Shares and Class C Shares may have different sales charges and
other expenses which may affect performance. 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.
-12-
<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 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.
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 is the date the order is received by a
Fund, its agent or designee. 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.
-13-
<PAGE>
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.
-14-
<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 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 in which you want to invest the proceeds.
Exchange instructions and redemption requests must be signed by the record
owner(s) exactly as the shares are registered. 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,
although in the case of an exchange, a sales charge may apply. 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.
-15-
<PAGE>
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(s)
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 certificate(s).
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.
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.
-16-
<PAGE>
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.
-17-
<PAGE>
DIVIDENDS AND DISTRIBUTIONS
Equity Funds II, Inc. currently intends to make annual payments from Blue
Chip Fund's and Social Awareness Fund's net investment income and capital gains.
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.
-18-
<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.
On August 5, 1997, President Clinton signed into law the Taxpayer Relief
Act of 1997 (the "1997 Act"). This new law makes sweeping changes in the
Internal Revenue Code (the "Code"). Because many of these changes are complex,
and only indirectly affect each Fund and its distributions to you, they are
discussed in Part B. Changes in the treatment of capital gains, however, are
discussed in this section.
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 and it satisfies certain other requirements relating to the
sources of its income and diversification of its assets.
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. For the period February 24, 1997 (date of initial sale)
through November 30, 1997, all of the dividends from each Fund's 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. 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.
The Treatment of Capital Gain Distributions under the Taxpayer Relief Act of
1997
The 1997 Act creates a category of long-term capital gain for individuals
that will be taxed at new lower tax rates. For investors who are in the 28% or
higher federal income tax brackets, these gains will be taxed at a maximum rate
of 20%. For investors who are in the 15% federal income tax bracket, these gains
will be taxed at a maximum rate of 10%. Capital gain distributions will qualify
for these new maximum tax rates, depending on when each Fund's securities were
sold and how long they were held by the Fund before they were sold. Investors
who want more information on holding periods and other qualifying rules relating
to these new rates should review the expanded discussion in Part B, or should
contact their own tax advisers.
Equity Funds II, Inc. will advise you in its annual information reporting
at calendar year end of the amount of its capital gain distributions which will
qualify for these maximum federal tax rates.
-19-
<PAGE>
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 the federal taxes described above, shareholders may or may
not be subject to various state and local taxes. For example, distributions of
interest income and capital gains realized from certain types of U.S. government
securities may be exempt from state personal income taxes. Because investors'
state and local taxes may be different than the federal taxes described above,
investors should consult their own tax advisers.
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.
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.
-20-
<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 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 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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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, 1997, the Manager and its affiliates
within the Delaware Group, including Delaware International Advisers Ltd., were
managing in the aggregate more than $39 billion in assets in the various
institutional or separately managed (approximately $23,274,532,000) and
investment company (approximately $16,181,491,000) accounts.
The Manager is an indirect, wholly owned subsidiary of Delaware Management
Holdings, Inc. ("DMH"). On April 3, 1995, a merger between DMH and a wholly
owned subsidiary of Lincoln National Corporation ("Lincoln National") was
completed. DMH and the Manager are now indirect, wholly owned subsidiaries, and
subject to the ultimate control, of Lincoln National. Lincoln National, with
headquarters in Fort Wayne, Indiana, is a diversified organization with
operations in many aspects of the financial services industry, including
insurance and investment management.
The Manager administers the affairs of and is ultimately responsible for
the investment management of each of the Funds under separate Investment
Management Agreements with Equity Funds II, Inc. on behalf of each Fund dated
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 Social Awareness 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. For the period February 24, 1997 (date of initial sale) through
November 30, 1997, investment management fees incurred by Blue Chip Fund were
0.65% (annualized) of average daily net assets and no fees were paid by this
Fund as a result of the voluntary waiver of fees by the Manager. For the period
February 24, 1997 (date of initial sale) through November 30, 1997, investment
management fees incurred by Social Awareness Fund were 0.75% (annualized) of
average daily net assets and 0.29% (annualized) of average daily net assets were
paid after considering the voluntary waiver of fees by the Manager.
The directors of Equity Funds II, Inc. annually review fees paid to the
Manager.
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
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following annual fee with respect to Blue Chip Fund: (i) 0.15% of average daily
net assets averaging one year old or less; (ii) 0.20% of average daily net
assets averaging two years old or less, but greater than one year old; and (iii)
0.35% of average daily net assets averaging over two years old. For the services
provided to the Manager, the Manager pays the Sub-Adviser the following annual
fee with respect to Social Awareness Fund: (i) 0.20% of average daily net assets
averaging one year old or less; (ii) 0.25% of average daily net assets averaging
two years old or less, but greater than one year old; and (iii) 0.40% of average
daily net assets averaging over two years old.
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 November 30, 1997, in excess of $7 billion. T. Scott Wittman, President
and Chief Investment Officer of the Sub-Adviser, has primary responsibility for
making day-to-day investment decisions for each Fund. He has had such
responsibility for the Funds since their inception. His responsibilities include
both business administration and equity portfolio management. A CFA
charterholder, Mr. Wittman received both graduate and undergraduate degrees in
business administration from 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
For the period February 24, 1997 (commencement of operations) through
December 31, 1997, the cumulative return for the Institutional Class of Blue
Chip Fund was 18.20% and the cumulative return for the Institutional Class of
Social Awareness Fund was 24.72%. These total returns assume the reinvestment of
all dividends and capital gains and reflect fee waivers and reimbursements in
effect. Without these waivers and reimbursements, each Fund's performance would
be lower. Of course, past performance is no guarantee of future results.
Investment return and principal value will fluctuate so that shares, when
redeemed, may be worth more or less than the original cost. For more information
on performance, including each Fund's total return including sales charge, see
Performance Information in Part B.
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, 1997 on an annualized basis for
Lincoln Growth and Income Fund compared with the average of the performance of
all funds offered through variable annuity contracts included as part of Lipper
Analytical Services Variable Annuity growth and income category. The performance
shown below does not represent the performance of the Blue Chip Fund. You should
not consider this past performance as an indication of future performance of the
Blue Chip Fund or of
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the Sub-Adviser. The results presented below may not necessarily equate with
the returns experienced by a shareholder of the Blue Chip Fund.
<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) 29.48% 23.84% 28.08% 18.77% 14.76% 15.22%
Average Growth
and Income(3) 26.04% 23.01% 25.48% 16.85% 15.48% 15.87%
</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.
The investment objectives, policies and strategies of Social Awareness Fund
of Equity Funds II, Inc. 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, 1997
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. The performance shown below does not represent performance of the
Social Awareness Fund of Equity Funds II, Inc. You should not consider this past
performance an indication of future performance of the Social Awareness Fund of
Equity Funds II, Inc. or the Sub-Adviser. The results presented below may not
necessarily equate with the returns experienced by a shareholder of the Social
Awareness Fund of Equity Funds II, Inc.
<TABLE>
<CAPTION>
Since
1 Year 2 Years 3 Years 5 Years Inception(1)
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Lincoln Social
Awareness Fund(2) 36.06% 31.95% 35.16% 22.48% 17.99%
Average Growth
Funds(3) 24.84% 21.80% 25.04% 16.49% 15.54%
</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.
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<PAGE>
(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.
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 shares of funds in the Delaware Group of
funds in placing portfolio orders and may place orders with broker/dealers that
have agreed to defray certain expenses of such funds, 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. For further performance information see
Performance Information in Part B.
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
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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
terms of a separate Fund Accounting Agreement. 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 directors of Equity Funds II, Inc. annually review service fees paid to
the Distributor and the Transfer Agent. The Distributor and the Transfer Agent
are also indirect, wholly owned subsidiaries of DMH.
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<PAGE>
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 Funds' other expenses include
each Fund's proportionate share of rent and certain other administrative
expenses; the investment management fees; transfer and dividend disbursing agent
fees and costs; custodian expenses; federal and state securities registration
fees; proxy costs; and the costs of preparing prospectuses and reports sent to
shareholders.
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.
The Lincoln National Life Insurance Company has made an investment in each
Fund, which resulted in The Lincoln National Life Insurance Company holding
28.45% of the outstanding shares of Blue Chip Fund as of December 31, 1997.
Subject to certain limited exceptions, there is 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.
Effective as of the close of business on January 28, 1998, the name of
Quantum Fund changed to Social Awareness Fund.
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<PAGE>
OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS
Social Criteria
Social Awareness 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 alcoholic beverage, 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,
although the Sub-Adviser does not anticipate doing so. Foreign markets may be
more volatile than U.S. markets. Such investments involve sovereign risk in
addition to the normal risks associated with securities of U.S. issuers. These
risks include political risks, foreign taxes and exchange controls and currency
fluctuations. For example, foreign portfolio investments may fluctuate in value
due to changes in currency rates (i.e., other things being equal, the value of
foreign investments would increase with a fall in the value of the dollar, and
decrease with a rise in the value of the dollar) and control regulations apart
from market fluctuations. Each Fund may also experience delays in foreign
securities settlement.
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<PAGE>
Depositary Receipts
Each Fund may make foreign investments through the purchase and sale of
sponsored or unsponsored American, European and Global Depositary Receipts
("Depositary Receipts"). Depositary Receipts are receipts typically issued by a
U.S. or foreign bank or trust company which evidence ownership of underlying
securities issued by a foreign corporation. "Sponsored" Depositary Receipts are
issued jointly by the issuer of the underlying security and a depository,
whereas "unsponsored" Depositary Receipts are issued without participation of
the issuer of the deposited security. Holders of unsponsored Depositary Receipts
generally bear all the costs of such facilities and the depository of an
unsponsored facility frequently is under no obligation to distribute shareholder
communications received from the issuer of the deposited security or to pass
through voting rights to the holders of such receipts in respect of the
deposited securities. Therefore, there may not be a correlation between
information concerning the issuer of the security and the market value of an
unsponsored Depositary Receipt. Investments in Depositary Receipts involve risks
similar to those accompanying direct investments in foreign securities.
Futures Contracts
Each Fund may enter into futures contracts on stocks, stock indices and
foreign currencies, and purchase or sell options on such futures contracts.
These activities will not be entered into for speculative purposes, but rather
for hedging purposes and to facilitate the ability to quickly deploy into the
stock market a Fund's positions in cash, short-term debt securities and other
money market instruments, at times when a Fund's assets are not fully invested
in equity securities. Such positions will generally be eliminated when it
becomes possible to invest in securities that are appropriate for the Fund
involved.
A futures contract is a bilateral agreement providing for the purchase and
sale of a specified type and amount of a financial instrument, or for the making
and acceptance of a cash settlement, at a stated time in the future for a fixed
price. By its terms, a futures contract provides for a specified settlement date
on which the securities, foreign currency or other financial instrument
underlying the contract are delivered, or in the case of securities index
futures contracts, the difference between the price at which the contract was
entered into and the contract's closing value is settled between the purchaser
and seller in cash. Futures contracts differ from options in that they are
bilateral agreements, with both the purchaser and the seller equally obligated
to complete the transaction. In addition, futures contracts call for settlement
only on the expiration date, and cannot be "exercised" at any other time during
their term.
The purchase or sale of a futures contract also differs from the purchase
or sale of a security or the purchase of an option in that no purchase price is
paid or received. Instead, an amount of cash or cash equivalents, which varies
but may be as low as 5% or less of the value of the contract, must be deposited
with the broker as "initial margin" as a good faith deposit. This amount is
generally maintained in a segregated account at the custodian bank. Subsequent
payments to and from the broker, referred to as "variation margin," are made on
a daily basis as the value of the index or instrument underlying the futures
contract fluctuates, making positions in the futures contracts more or less
valuable, a process known as "marking to the market."
Purchases or sales of stock index futures contracts are used for hedging
purposes to attempt to protect a Fund's current or intended investments from
broad fluctuations in stock prices. For example, a Fund may sell stock index
futures contracts in anticipation of or during a market decline to attempt to
offset the decrease in market value of the Fund's securities portfolio that
might otherwise result. If such decline occurs, the loss in value of portfolio
securities may be offset, in whole or part, by gains on the futures position.
When a Fund is not fully invested in the securities market and anticipates a
significant market advance, it may purchase stock index futures contracts in
order to gain rapid market exposure that may, in part or entirely, offset
increases in the cost of securities that the Fund intends to purchase. As such
purchases are made, the corresponding positions in stock index futures contracts
will be closed out.
Each Fund may purchase and sell foreign currency futures contracts for
hedging purposes to attempt to protect its current or intended investments
denominated in foreign currencies from fluctuations in currency exchange rates.
Such fluctuations could reduce the dollar value of portfolio securities
denominated in foreign currencies, or increase the cost of foreign-denominated
securities to be acquired, even if the value of such securities in the
currencies in which they are denominated remains constant. Each Fund may sell
futures contracts on a foreign currency, for example, when it holds securities
denominated in such currency and it anticipates a decline in the value of such
currency relative to the dollar. In the event such decline occurs, the
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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 Fund's
portfolio as well as the price movement of individual securities. The
Sub-Adviser may also write covered call options to achieve income to offset the
cost of purchasing put options.
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<PAGE>
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.
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;
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<PAGE>
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;
(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
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<PAGE>
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 illiquid assets of which, no more than 10% may be invested in
repurchase agreements of over seven days' maturity. 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 102% 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, 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 normally not be purchased while a
Fund has an outstanding borrowing.
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<PAGE>
[GRAPHIC OMITTED]
For more information, contact
Delaware Group at 800-828-5052.
INVESTMENT MANAGER
Delaware Management Company, Inc.
One Commerce Square
Philadelphia, PA 19103
SUB-ADVISOR
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
[GRAPHIC OMITTED]
Printed in the U.S.A. on recycled paper.
P-146[--] PP1/98
<PAGE>
- ------------------------------------------
BLUE CHIP FUND
SOCIAL AWARENESS FUND (formerly
Quantum Fund)
- ------------------------------------------
INSTITUTIONAL
- ------------------------------------------
P r o s p e c t u s
- ------------------------------------------
January 30, 1998
DELAWARE
GROUP
--------
<PAGE>
- -------------------------------------------------------------------------------
PART B--STATEMENT OF ADDITIONAL INFORMATION
JANUARY 30, 1998
- -------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------
Distributions and Taxes
- -------------------------------------------------------------------------------
Investment Management Agreements and Sub-Advisory Agreements
- -------------------------------------------------------------------------------
Officers and Directors
- -------------------------------------------------------------------------------
Exchange Privilege
- -------------------------------------------------------------------------------
General Information
- -------------------------------------------------------------------------------
Appendix A--Ratings
- -------------------------------------------------------------------------------
Financial Statements
- -------------------------------------------------------------------------------
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<PAGE>
Delaware Group Equity Funds II, Inc. ("Equity Funds II, Inc.") is a
professionally-managed mutual fund of the series type. This Statement of
Additional Information ("Part B" of the registration statement) describes the
Decatur Income Fund series, Decatur Total Return Fund series, Blue Chip Fund
series and Social Awareness Fund series (individually the "Fund" and
collectively the "Funds") of Equity Funds II, Inc. Each Fund offers Class A
Shares, Class B Shares and Class C Shares (together, the "Fund Classes") and
Institutional Class shares (together, the "Institutional Classes"). Effective
as of the close of business on January 28, 1998, Quantum Fund series' name
changed to Social Awareness Fund series.
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, January 30, 1998 and the current
Prospectuses for the Institutional Classes dated January 30, 1998 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.
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.
-3-
<PAGE>
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).
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.
-4-
<PAGE>
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.
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.
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
-5-
<PAGE>
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.
Blue Chip Fund will not:
1. With respect to 75% of its total assets, 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. 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. Sell short any security or property.
4. Buy or sell commodities or commodity contracts except that the Fund
may enter into futures contracts and options thereon.
5. 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. 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. 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. 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.
-6-
<PAGE>
In addition to the above fundamental investment restrictions, Blue Chip
Fund has the following investment restrictions which may be amended or changed
without approval of shareholders.
1. Blue Chip Fund will not invest for the purpose of acquiring control
of any company.
2. Blue Chip Fund will not invest in securities of other investment
companies, except the Fund may invest in securities of open-end, closed-end and
unregistered investment companies, in accordance with the limitations contained
in the Investment Company Act at the time of the investment.
3. Blue Chip Fund will not purchase or retain the securities of any
issuer which has an officer, director or security holder who is a director or
officer of Equity Funds II, Inc. or of the Manager or Sub-Adviser if or so long
as the directors and officers of Equity Funds II, Inc. and of the Manager and
Sub-Adviser together own beneficially more than 5% of any class of securities of
such issuer.
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.
Social Awareness Fund will not:
1. With respect to 75% of its total assets, 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. 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. Sell short any security or property.
4. Buy or sell commodities or commodity contracts except that the Fund
may enter into futures contracts and options thereon.
5. 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. Social Awareness Fund shall not issue senior securities as defined
in the 1940 Act, except for notes to banks.
6. 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-
<PAGE>
7. 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. 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, Social
Awareness Fund has the following investment restrictions which may be amended or
changed without approval of shareholders.
1. Social Awareness Fund will not invest for the purpose of acquiring
control of any company.
2. Social Awareness 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. Social Awareness 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. Social Awareness Fund will not invest in interests in oil, gas and
other mineral leases or other mineral exploration or development programs.
5. Social Awareness 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 Social Awareness 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
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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 Fund may be invested in repurchase agreements of over seven-days'
maturity. Should an issuer of a repurchase agreement fail to repurchase the
underlying security, the loss to a Fund, if any, would be the difference between
the repurchase price and the market value of the security. A Fund will limit its
investments in repurchase agreements, to those which the Manager, under the
guidelines of the Board of Directors, determines to present minimal credit risks
and which are of high quality. In addition, the Fund must have collateral of at
least 102% 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.
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
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one and nine months from the date written. The exercise price of a call option
may be below, equal to or above the current market value of the underlying
security at the time the option is written.
Purchasing 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 (R) Composite Stock Price Index ("S&P 500") or the New
York Stock Exchange Composite Index, or a narrower market index such as the
Standard & Poor's 100 ("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
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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.
A Fund will not engage in transactions in options on stock indices for
speculative purposes but only to protect appreciation attained, to offset
capital losses and to take advantage of the liquidity available in the option
markets.
E. Futures Contracts and Options on Futures Contracts--As noted in the
Prospectuses, each Fund may enter into futures contracts relating to securities,
securities indices, interest rates or foreign currencies. (Unless otherwise
specified, interest rate futures contracts, securities and securities index
futures contracts and foreign currency futures contracts are collectively
referred to as "futures contracts.") Such investment strategies will be used as
a hedge and not for speculation.
As noted in the Prospectuses, each Fund may purchase and write options
on the types of futures contracts, described in the Prospectuses.
The writing of a call option on a futures contract constitutes a
partial hedge against declining prices of the securities in a Fund's portfolio.
If the futures price at expiration of the option is below the exercise price, a
Fund will retain the full amount of the option premium, which provides a partial
hedge against any decline that may have occurred in the Fund's portfolio
holdings. The writing of a put option on a futures contract constitutes a
partial hedge against increasing prices of the securities or other instruments
required to be delivered under the terms of the futures contract. If the futures
price at expiration of the put option is higher than the exercise price, a Fund
will retain the full amount of the option premium, which provides a partial
hedge against any increase in the price of securities which a Fund intends to
purchase. If a put or call option that a Fund has written is exercised, the Fund
will incur a loss which will be reduced by the amount of the premium it
receives. Depending on the degree of correlation between changes in the value of
its portfolio securities and changes in
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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, each Fund each may engage in the
following investment techniques:
A. Foreign and Emerging Market Securities--Each Fund has the ability to
purchase securities in any foreign country. Investors should consider carefully
the substantial risks involved in investing in securities issued by companies
and governments of foreign nations. These risks are in addition to the usual
risks inherent in domestic investments. There is the possibility of
expropriation, nationalization or confiscatory taxation, taxation of income
earned in foreign nations or other taxes imposed with respect to investments in
foreign nations, foreign exchange controls (which may include suspension of the
ability to transfer currency from a given country), default in foreign
government securities, political or social instability or diplomatic
developments which could affect investments in securities of issuers in those
nations.
In addition, in many countries, there is substantially less publicly
available information about issuers than is available in reports about companies
in the United States. Foreign companies are not subject to uniform accounting,
auditing and financial reporting standards, and auditing practices and
requirements may not be comparable to those applicable to United States
companies. Consequently, financial data about foreign companies may not
accurately reflect the real condition of those issuers and securities markets.
Further, a Fund may encounter difficulty or be unable to pursue legal
remedies and obtain judgments in foreign courts. Commission rates on securities
transactions in foreign countries, which are sometimes fixed rather than subject
to negotiation as in the United States, are likely to be higher. Further, the
settlement period of securities transactions in foreign markets may be longer
than in domestic markets, and may be subject to administrative uncertainties. In
many foreign countries, there is less government supervision and regulation of
business and industry practices, stock exchanges, brokers and listed companies
than in the United States, and capital requirements for brokerage firms are
generally lower. The foreign securities markets of many of the countries in
which a Fund may invest may also be smaller, less liquid and subject to greater
price volatility than those in the United States.
Each Fund may also invest in securities of issuers located in emerging
market nations. Compared to the United States and other developed countries,
emerging countries may have volatile social conditions, relatively unstable
governments and political systems, economies based on only a few industries and
economic structures that are less diverse and mature, and securities markets
that trade a small number of securities, which can result in a low or
nonexistent volume of trading. Prices in these securities markets tend to be
volatile and, in the past,
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securities in these countries have offered greater potential for gain (as well
as loss) than securities of companies located in developed countries. Until
recently, there has been an absence of a capital market structure or
market-oriented economy in certain emerging countries. Further, investments and
opportunities for investments by foreign investors are subject to a variety of
national policies and restrictions in many emerging countries. Also, the
repatriation of both investment income and capital from several foreign
countries is restricted and controlled under certain regulations, including, in
some cases, the need for certain governmental consents. Countries such as those
in which a Fund may invest have historically experienced and may continue to
experience, substantial, and in some periods extremely high rates of inflation
for many years, high interest rates, exchange rate fluctuations or currency
depreciation, large amounts of external debt, balance of payments and trade
difficulties and extreme poverty and unemployment. Other factors which may
influence the ability or willingness to service debt include, but are not
limited to, a country's cash flow situation, the availability of sufficient
foreign exchange on the date a payment is due, the relative size of its debt
service burden to the economy as a whole, its government's policy towards the
International Monetary Fund, the World Bank and other international agencies and
the political constraints to which a government debtor may be subject.
There has been in the past, and there may be again in the future, an
interest equalization tax levied by the United States in connection with the
purchase of foreign securities such as those purchased by a Fund. Payment of
such interest equalization tax, if imposed, would reduce the Fund's rate of
return on its investment. Dividends paid by foreign issuers may be subject to
withholding and other foreign taxes which may decrease the net return on such
investments as compared to dividends paid to the Fund by United States
corporations. Special rules govern the federal income tax treatment of certain
transactions denominated in terms of a currency other than the U.S. dollar or
determined by reference to the value of one or more currencies other than the
U.S. dollar. The types of transactions covered by the special rules generally
include the following: (i) the acquisition of, or becoming the obligor under, a
bond or other debt instrument (including, to the extent provided in Treasury
Regulations, preferred stock); (ii) the accruing of certain trade receivables
and payables; and (iii) the entering into or acquisition of any forward
contract, futures contract, option and similar financial instruments other than
any "regulated futures contract" or "nonequity option" marked to market. The
disposition of a currency other than the U.S. dollar by a U.S. taxpayer is also
treated as a transaction subject to the special currency rules. However, foreign
currency-related regulated futures contracts and nonequity options are generally
not subject to the special currency rules, if they are or would be treated as
sold for their fair market value at year-end under the marking to market rules
applicable to other futures contracts, unless an election is made to have such
currency rules apply. With respect to transactions covered by the special rules,
foreign currency gain or loss is calculated separately from any gain or loss on
the underlying transaction and is normally taxable as ordinary gain or loss. A
taxpayer may elect to treat as capital gain or loss foreign currency gain or
loss arising from certain identified forward contracts, futures contracts and
options that are capital assets in the hands of the taxpayer and which are not
part of a straddle. Certain transactions subject to the special currency rules
that are part of a "section 988 hedging transaction" (as defined in the Internal
Revenue Code of 1986, as amended (the "Code"), and the Treasury Regulations)
will be integrated and treated as a single transaction or otherwise treated
consistently for purposes of the Code. The income tax effects of integrating and
treating a transaction as a single transaction are generally to create a
synthetic debt instrument that is subject to the original discount provisions.
It is anticipated that some of the non-U.S. dollar denominated investments and
foreign currency contracts a Fund may make or enter into will be subject to the
special currency rules described above.
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
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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 Manager or Sub-Adviser, with respect to the Blue Chip Fund and
Social Awareness Fund, believes that the currency of a particular country may
suffer a significant decline against the U.S. dollar or against another
currency, a Fund may enter into a forward foreign currency contract to sell, for
a fixed amount of U.S. dollars or other appropriate currency, the amount of
foreign currency approximating the value of some or all of the Fund's securities
denominated in such foreign currency.
A Fund will not enter into forward contracts or maintain a net exposure
to such contracts where the consummation of the contracts would obligate the
Fund to deliver an amount of foreign currency in excess of the value of the
Fund's securities or other assets denominated in that currency.
At the maturity of a forward contract, a Fund may either sell the
portfolio security and make delivery of the foreign currency, or it may retain
the security and terminate its contractual obligation to deliver the foreign
currency by purchasing an "offsetting" contract with the same currency trader
obligating it to purchase, on the same maturity date, the same amount of the
foreign currency. The Fund may realize a gain or loss from currency
transactions. With respect to forward foreign currency contracts, the precise
matching of forward contract amounts and the value of the securities involved is
generally not possible since the future value of such securities in foreign
currencies will change as a consequence of market movements in the value of
those securities between the date the forward contract is entered into and the
date it matures. The projection of short-term currency strategy is highly
uncertain.
It is impossible to forecast the market value of Fund securities at the
expiration of the contract. Accordingly, it may be necessary for a Fund to
purchase additional foreign currency on the spot market (and bear the expense of
such purchase) if the market value of the security is less than the amount of
foreign currency the Fund is obligated to deliver and if a decision is made to
sell the security and make delivery of the foreign currency. Conversely, it may
be necessary to sell on the spot market some of the foreign currency received
upon the sale of a security if its market value exceeds the amount of foreign
currency the Fund is obligated to deliver.
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;
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(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--Blue Chip Fund and Social Awareness Fund may
invest in relatively new or unseasoned companies which are in their early stages
of development, or small companies positioned in new and emerging industries
where the opportunity for rapid growth is expected to be above average.
Securities of unseasoned companies present greater risks than securities of
larger, more established companies. The companies in which a Fund may invest may
have relatively small revenues, limited product lines, and may have a small
share of the market for their products or services. Small companies may lack
depth of management, they may be unable to internally generate funds necessary
for growth or potential development or to generate such funds through external
financing or favorable terms, or they may be developing or marketing new
products or services for which markets are not yet established and may never
become established. Due these and other factors, small companies may suffer
significant losses as well as realize substantial growth, and investments in
such companies tend to be volatile and are therefore speculative.
In addition, as a matter of non-fundamental policy, Social Awareness
Fund will adhere to a Social Criteria strategy:
The Sub-Adviser will utilize the Social Investment Database published
by KLD in determining whether a company is engaged in any activity precluded by
the Fund's Social Criteria. The Social Investment Database reflects KLD's
determination of the extent to which a company's involvement in the activities
prohibited by the Social Criteria is significant enough to merit a concern or a
major concern. Significance may be determined on the basis of percentage of
revenue generated by, or the size of the operations attributable to, activities
related to such Social Criteria, or other factors selected by KLD. The social
screening undergoes continual refinement and modification.
Pursuant to the Social Criteria presently in effect, the Fund will not
knowingly invest in or hold securities of companies which engage in:
1. Activities which result or are likely to result in damage to the
natural environment;
2. The production of nuclear power, the design or construction of
nuclear power plants, or the manufacture of equipment for the
production of nuclear power;
3. The manufacture of, or contracting for, military weapons; or
4. The alcoholic beverage, 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.
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The Fund will commence the orderly sale of securities of a company when
it is determined by the Sub-Adviser that such company no longer adheres to the
Social Criteria. The Fund will sell such securities in a manner so as to
minimize any adverse affect on the Fund's assets. Typically, such sales will be
made within 90 days from the date of the Sub-Adviser's determination, unless a
sale within the 90-day period would produce a significant loss to the overall
value of the Fund's assets.
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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--Each Fund intends to qualify as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). As such, a Fund will not be subject to federal income tax,
or to any excise tax, to the extent its earnings are distributed as provided in
the Code and it satisfies other requirements relating to the sources of its
income and diversification of its assets.
In order to qualify as a regulated investment company for federal
income tax purposes, each Fund must meet certain specific requirements,
including:
(i) The Fund must maintain a diversified portfolio of securities,
wherein no security (other than U.S. government securities and securities of
other regulated investment companies) can exceed 25% of the Fund's total assets,
and, with respect to 50% of the Fund's total assets, no investment (other than
cash and cash items, U.S. Government securities and securities of other
regulated investment companies) can exceed 5% of the Fund's total assets;
(ii) The Fund must derive at least 90% of its gross income from
dividends, interest, payments with respect to securities loans, and gains from
the sale or disposition of stock and securities or foreign currencies, or other
income derived with respect to its business of investing in such stock,
securities, or currencies;
(iii) The Fund must distribute to its shareholders at least 90% of its
investment company taxable income and net tax-exempt income for each of its
fiscal years, and
(iv) The Fund must realize less than 30% of its gross income for each
fiscal year from gains from the sale of securities and certain other assets that
have been held by the Fund for less than three months ("short-short income").
The Taxpayer Relief Act of 1997 (the "1997 Act") repealed the 30% short-short
income test for tax years of regulated investment companies beginning after
August 5, 1997; however, this rule may have continuing effect in some states for
purposes of classifying the Fund as a regulated investment company.
-18-
<PAGE>
The Code requires the Funds to distribute at least 98% of its taxable
ordinary income earned during the calendar year and 98% of its capital gain net
income earned during the 12 month period ending November 30 (in addition to
amounts from the prior year that were neither distributed nor taxed to a Fund)
to you by December 31 of each year in order to avoid federal excise taxes. The
Funds intend as a matter of policy to declare and pay sufficient dividends in
December or January (which are treated by you as received in December) but does
not guarantee and can give no assurances that its distributions will be
sufficient to eliminate all such taxes.
The straddle rules of Section 1092 may apply. Generally, the straddle
provisions require the deferral of losses to the extent of unrecognized gains
related to the offsetting positions in the straddle. Excess losses, if any, can
be recognized in the year of loss. Deferred losses will be carried forward and
recognized in the year that unrealized losses exceed unrealized gains.
The 1997 Act has also added new provisions for dealing with
transactions that are generally called "Constructive Sale Transactions." Under
these rules, the Fund must recognize gain (but not loss) on any constructive
sale of an appreciated financial position in stock, a partnership interest or
certain debt instruments. The Fund will generally be treated as making a
constructive sale when it: 1) enters into a short sale on the same or
substantially identical property; 2) enters into an offsetting notional
principal contract; or 3) enters into a futures or forward contract to deliver
the same or substantially identical property. Other transactions (including
certain financial instruments called collars) will be treated as constructive
sales as provided in Treasury regulations to be published. There are also
certain exceptions that apply for transactions that are closed before the end of
the 30th day after the close of the taxable year.
Investment in Foreign Currencies and Foreign Securities--The Funds are
authorized to invest certain limited amounts in foreign securities. Such
investments, if made, will have the following additional tax consequences to
each Fund:
Under the Code, gains or losses attributable to fluctuations in foreign
currency exchange rates which occur between the time a Fund accrues income
(including dividends), or accrues expenses which are denominated in a foreign
currency, and the time a Fund actually collects such income or pays such
expenses generally are treated as ordinary income or loss. Similarly, on the
disposition of debt securities denominated in a foreign currency and on the
disposition of certain options, futures, forward contracts, gain or loss
attributable to fluctuations in the value of foreign currency between the date
of acquisition of the security or contract and the date of its disposition are
also treated as ordinary gain or loss. These gains or losses, referred to under
the Code as "Section 988" gains or losses, may increase or decrease the amount
of a Fund's net investment company taxable income, which, in turn, will affect
the amount of income to be distributed to you by a Fund.
If a Fund's Section 988 losses exceed a Fund's other investment company
taxable income during a taxable year, a Fund generally will not be able to make
ordinary dividend distributions to you for that year, or distributions made
before the losses were realized will be recharacterized as return of capital
distributions for federal income tax purposes, rather than as an ordinary
dividend or capital gain distribution. If a distribution is treated as a return
of capital, your tax basis in your Fund shares will be reduced by a like amount
(to the extent of such basis), and any excess of the distribution over your tax
basis in your Fund shares will be treated as capital gain to you.
-19-
<PAGE>
The 1997 Act generally requires that foreign income be translated into
U.S. dollars at the average exchange rate for the tax year in which the
transactions are conducted. Certain exceptions apply to taxes paid more than two
years after the taxable year to which they relate. This new law may require a
Fund to track and record adjustments to foreign taxes paid on foreign securities
in which it invests. Under a Fund's current reporting procedure, foreign
security transactions are recorded generally at the time of each transaction
using the foreign currency spot rate available for the date of each transaction.
Under the new law, a Fund will be required to record a fiscal year end (and at
calendar year end for excise tax purposes) an adjustment that reflects the
difference between the spot rates recorded for each transaction and the year-end
average exchange rate for all of a Fund's foreign securities transactions. There
is a possibility that the mutual fund industry will be given relief from this
new provision, in which case no year-end adjustments will be required.
The Funds may be subject to foreign withholding taxes on income from
certain of its foreign securities. If more than 50% of the total assets of a
Fund at the end of its fiscal year are invested in securities of foreign
corporations, a Fund may elect to pass-through to you your pro rata share of
foreign taxes paid by a Fund. If this election is made, you will be: (i)
required to include in your gross income your pro rata share of foreign source
income (including any foreign taxes paid by a Fund); and (ii) entitled to either
deduct your share of such foreign taxes in computing your taxable income or to
claim a credit for such taxes against your U.S. income tax, subject to certain
limitations under the Code. You will be informed by a Fund at the end of each
calendar year regarding the availability of any such foreign tax credits and the
amount of foreign source income (including any foreign taxes paid by a Fund). If
a Fund elects to pass-through to you the foreign income taxes that it has paid,
you will be informed at the end of the calendar year of the amount of foreign
taxes paid and foreign source income that must be included on your federal
income tax return. If a Fund invests 50% or less of its total assets in
securities of foreign corporations, it will not be entitled to pass-through to
you your pro-rata shares of foreign taxes paid by a Fund. In this case, these
taxes will be taken as a deduction by a Fund, and the income reported to you
will be the net amount after these deductions. The 1997 Act also simplifies the
procedures by which investors in funds that invest in foreign securities can
claim tax credits on their individual income tax returns for the foreign taxes
paid by a Fund. These provisions will allow investors who pay foreign taxes of
$300 or less on a single return or $600 or less on a joint return during any
year (all of which must be reported on IRS Form 1099-DIV from a Fund to the
investor) to claim a tax credit against their U.S. federal income tax for the
amount of foreign taxes paid by a Fund. This process will allow you, if you
qualify, to bypass the burdensome and detailed reporting requirements on the
foreign tax credit schedule (Form 1116) and report your foreign taxes paid
directly on page 2 of Form 1040. You should note that this simplified procedure
will not be available until calendar year 1998.
Investment in Passive Foreign Investment Company securities--The Funds
may invest in shares of foreign corporations which may be classified under the
Code as passive foreign investment companies ("PFICs"). In general, a foreign
corporation is classified as a PFIC if at least one-half of its assets
constitute investment-type assets or 75% or more of its gross income is
investment-type income. If a Fund receives an "excess distribution" with respect
to PFIC stock, the Fund itself may be subject to U.S. federal income tax on a
portion of the distribution, whether or not the corresponding income is
distributed by a Fund to you. In general, under the PFIC rules, an excess
distribution is treated as having been realized ratably over the period during
which a Fund held the PFIC shares. A Fund itself will be subject to tax on the
portion, if any, of an excess distribution that is so allocated to prior Fund
taxable years, and an interest factor will be added to the tax, as if the tax
had been payable in such prior taxable years. In this case, you would not be
permitted to claim a credit on your own tax return for the
-20-
<PAGE>
tax paid by a Fund. Certain distributions from a PFIC as well as gain from the
sale of PFIC shares are treated as excess distributions. Excess distributions
are characterized as ordinary income even though, absent application of the PFIC
rules, certain distribution might have been classified as capital gain. This may
have the effect of increasing Fund distributions to you that are treated as
ordinary dividends rather than long-term capital gain dividends.
A Fund may be eligible to elect alternative tax treatment with respect
to PFIC shares. Under an election that currently is available in some
circumstances, a Fund generally would be required to include in its gross income
its share of the earnings of a PFIC on a current basis, regardless of whether
distributions are received from the PFIC during such period. If this election
were made, the special rules, discussed above, relating to the taxation of
excess distributions, would not apply. In addition, the 1997 Act provides for
another election that would involve marking-to-market the Fund's PFIC shares at
the end of each taxable year (and on certain other dates as prescribed in the
Code), with the result that unrealized gains would be treated as though they
were realized. The Fund would also be allowed an ordinary deduction for the
excess, if any, of the adjusted basis of its investment in the PFIC stock over
its fair market value at the end of the taxable year. This deduction would be
limited to the amount of any net mark-to-market gains previously included with
respect to that particular PFIC security. If a Fund were to make this second
PFIC election, tax at the Fund level under the PFIC rules would generally be
eliminated.
The application of the PFIC rules may affect, among other things, the
amount of tax payable by a Fund (if any), the amounts distributable to you by a
Fund, the time at which these distributions must be made, and whether these
distributions will be classified as ordinary income or capital gain
distributions to you.
You should be aware that it is not always possible at the time shares
of a foreign corporation are acquired to ascertain that the foreign corporation
is a PFIC, and that there is always a possibility that a foreign corporation
will become a PFIC after a Fund acquires shares in that corporation. While a
Fund will generally seek to avoid investing in PFIC shares to avoid the tax
consequences detailed above, there are no guarantees that it will do so and it
reserves the right to make such investments as a matter of its fundamental
investment policy.
Most foreign exchange gains are classified as ordinary income which
will be taxable to you as such when distributed. Similarly, you should be aware
that any foreign exchange losses realized by a Fund, including any losses
realized on the sale of foreign debt securities, are generally treated as
ordinary losses for federal income tax purposes. This treatment could increase
or reduce a Fund's income available for distribution to you, and may cause some
or all of a Fund's previously distributed income to be classified as a return of
capital.
-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.
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.
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.
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.
-22-
<PAGE>
Aggregate or cumulative total return is calculated in a similar manner,
except that the results are not annualized. Each calculation assumes the maximum
front-end sales charge, if any, is deducted from the initial $1,000 investment
at the time it is made with respect to Class A Shares and that all distributions
are reinvested at net asset value, and, with respect to Class B Shares and Class
C Shares, reflects the deduction of the CDSC that would be applicable upon
complete redemption of such shares. In addition, each Fund may present total
return information that does not reflect the deduction of the maximum front-end
sales charge or any applicable CDSC.
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,
1997, computed as described above. The performance of Class A Shares, Class B
Shares, Class C Shares and Institutional Class of Blue Chip Fund and Social
Awareness Fund, as shown below, is the total return quotations from commencement
of operations (February 24, 1997) through November 30, 1997. These total return
quotations have not been annualized. Total return for this short of a time
period may not be representative of longer term results.
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, 1997. 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,
1997 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 11/30/97 18.88% 24.78% 25.02%
3 years ended 11/30/97 24.67% 26.72% 26.90%
5 years ended 11/30/97 17.42% 18.57% 18.71%
10 years ended 11/30/97 14.57% 15.13% 15.19%
15 years ended 11/30/97 14.96% 15.33% 15.37%
3/18/57(5) through 11/30/97 12.48% 12.61% 12.63%
</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)
<S> <C> <C> <C> <C>
1 year ended 1 year ended
11/30/97 19.73% 23.73% 11/30/97 22.75% 23.75%
3 years ended Period 11/29/95(2)
11/30/97 25.00% 25.63% through 11/30/97 23.49% 23.49%
Period 9/6/94(1)
through 11/30/97 20.91% 21.51%
</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 11/30/97 19.31% 25.26% 25.65%
3 years ended 11/30/97 26.17% 28.22% 28.59%
5 years ended 11/30/97 18.15% 19.31% 19.61%
10 years ended 11/30/97 16.33% 16.90% 17.04%
Period 8/27/86(3) through 11/30/97 14.07% 14.57% 14.70%
</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>
1 year ended 1 year ended
11/30/97 20.45% 24.45% 11/30/97 23.44% 24.44%
3 years ended Period 11/29/95(2)
11/30/97 26.72% 27.34% through 11/30/97 24.16% 24.16%
Period 9/6/94(1)
through 11/30/97 22.41% 23.00%
</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.
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<PAGE>
Aggregate Total Return(1)
Blue Chip Fund Blue Chip Fund
A Class Institutional
(at offer) Class
Period 2/24/97(2) through 11/30/97 10.43% 16.12%
(1) For the period from commencement of operations (February 24, 1997)
through January 31, 1998, the Manager elected voluntarily to waive that
portion, if any, of the annual management fees payable by the Fund and
to pay certain expenses of the Fund to the extent necessary to ensure
that the Total Operating Expenses of Class A Shares and Institutional
Class shares of the Fund did not exceed 1.20% (exclusive of taxes,
interest, brokerage commissions and extraordinarily expenses, and, in
the case of Class A Shares, exclusive of 12b-1 Plan expenses). In the
absence of such voluntary fee waiver and payment of expenses,
performance would have been affected negatively. See Investment
Management Agreements and Sub-Advisory Agreements for information about
fee waivers and expense payments in effect until July 31, 1998.
(2) Commencement of operations; total return for this short of a time
period may not be representative of longer term results.
Aggregate Total Return(1)
Blue Chip Blue Chip
Fund B Class Fund B Class
(Including (Excluding
Deferred Deferred
Sales Charge) Sales Charge)
Period 2/24/97(2) through 11/30/97 11.29% 15.29%
(1) For the period from commencement of operations (February 24, 1997)
through January 31, 1998, the Manager elected voluntarily to waive that
portion, if any, of the annual management fees payable by the Fund and
to pay certain expenses of the Fund to the extent necessary to ensure
that the Total Operating Expenses of Class B Shares of the Fund did not
exceed 1.20% (exclusive of 12b-1 Plan expenses, taxes, interest,
brokerage commissions and extraordinarily expenses). In the absence of
such voluntary fee waiver and payment of expenses, performance would
have been affected negatively. See Investment Management Agreements and
Sub-Advisory Agreements for information about fee waivers and expense
payments in effect until July 31, 1998.
(2) Commencement of operations; total return for this short of a time
period may not be representative of longer term results.
-26-
<PAGE>
Aggregate Total Return(1)
Blue Chip Blue Chip
Fund C Class Fund C Class
(Including (Excluding
Deferred Deferred
Sales Charge) Sales Charge)
Period 2/24/97(2) through 11/30/97 14.29% 15.29%
(1) For the period from commencement of operations (February 24, 1997)
through January 31, 1998, the Manager elected voluntarily to waive that
portion, if any, of the annual management fees payable by the Fund and
to pay certain expenses of the Fund to the extent necessary to ensure
that the Total Operating Expenses of Class C Shares of the Fund did not
exceed 1.20% (exclusive of 12b-1 Plan expenes, taxes, interest,
brokerage commissions and extraordinarily expenses). In the absence of
such voluntary fee waiver and payment of expenses, performance would
have been affected negatively. See Investment Management Agreements and
Sub-Advisory Agreements for information about fee waivers and expense
payments in effect until July 31, 1998.
(2) Commencement of operations; total return for this short of a time
period may not be representative of longer term results.
Aggregate Total Return(1)
Social Awareness Social Awareness
Fund Fund
A Class Institutional
(at offer) Class
Period 2/24/97(2) through 11/30/97 15.81% 21.77%
(1) For the period from commencement of operations (February 24, 1997)
through January 31, 1998, the Manager elected voluntarily to waive that
portion, if any, of the annual management fees payable by the Fund and
to pay certain expenses of the Fund to the extent necessary to ensure
that the Total Operating Expenses of Class A Shares and Institutional
Class shares of the Fund did not exceed 1.20% (exclusive of taxes,
interest, brokerage commissions and extraordinarily expenses, and, in
the case of Class A Shares, exclusive of 12b-1 Plan expenses). In the
absence of such voluntary fee waiver and payment of expenses,
performance would have been affected negatively. See Investment
Management Agreements and Sub-Advisory Agreements for information about
fee waivers and expense payments in effect until July 31, 1998.
(2) Commencement of operations; total return for this short of a time
period may not be representative of longer term results.
-27-
<PAGE>
Aggregate Total Return(1)
Social Awareness Social Awareness
Fund B Class Fund B Class
(Including (Excluding
Deferred Deferred
Sales Charge) Sales Charge)
Period 2/24/97(2) through 11/30/97 16.94% 20.94%
(1) For the period from commencement of operations (February 24, 1997)
through January 31, 1998, the Manager elected voluntarily to waive that
portion, if any, of the annual management fees payable by the Fund and
to pay certain expenses of the Fund to the extent necessary to ensure
that the Total Operating Expenses of Class B Shares of the Fund did not
exceed 1.20% (exclusive of 12b-1 Plan expenses, taxes, interest,
brokerage commissions and extraordinarily expenses). In the absence of
such voluntary fee waiver and payment of expenses, performance would
have been affected negatively. See Investment Management Agreements and
Sub-Advisory Agreements for information about fee waivers and expense
payments in effect until July 31, 1998.
(2) Commencement of operations; total return for this short of a time
period may not be representive of longer term results.
Aggregate Total Return(1)
Social Awareness Social Awareness
Fund C Class Fund C Class
(Including (Excluding
Deferred Deferred
Sales Charge) Sales Charge)
Period 2/24/97(2) through 11/30/97 19.94% 20.94%
(1) For the period from commencement of operations (February 24, 1997)
through January 31, 1998, the Manager elected voluntarily to waive that
portion, if any, of the annual management fees payable by the Fund and
to pay certain expenses of the Fund to the extent necessary to ensure
that the Total Operating Expenses of Class C Shares of the Fund did not
exceed 1.20% (exclusive of 12b-1 Plan expenses, taxes, interest,
brokerage commissions and extraordinarily expenses). In the absence of
such voluntary fee waiver and payment of expenses, performance would
have been affected negatively. See Investment Management Agreements
and Sub-Advisory Agreements for information about fee waivers and
expense payments in effect until July 31, 1998.
(2) Commencement of operations; total return for this short of a time
period may not be representive of longer term results.
-28-
<PAGE>
As stated in the Funds' Prospectuses, Decatur Income Fund and Decatur
Total Return Fund may also quote their respective Classes' current yield in
advertisements and investor communications.
The yield computation is determined by dividing the net investment
income per share earned during the period by the maximum offering price per
share on the last day of the period and annualizing the resulting figure,
according to the following formula:
a--b 6
YIELD = 2[(-------- + 1) -- 1]
cd
Where: a = dividends and interest earned during the period;
b = expenses accrued for the period (net of
reimbursements);
c = the average daily number of shares outstanding
during the period that were entitled to receive
dividends;
d = the maximum offering price per share on the last
day of the period.
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 30-day yields of each Class of Decatur Income Fund and Decatur Total
Return Fund as of November 30, 1997 were as follows:
Decatur Income Fund Decatur Total Return Fund
Class A Shares 2.50% 1.35%
Class B Shares 1.85% 0.73%
Class C Shares 1.85% 0.73%
Institutional Class Shares 2.83% 1.71%
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. Actual yields on Class A Shares, Class B Shares and Class C
Shares would have been lower had any Limited CDSC or CDSC been applied.
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.
-29-
<PAGE>
Each of the Decatur Income Fund's and Decatur Total Return 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. This 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, 1997, Delaware Investment Advisers managed
approximately $14.5 billion in institutional assets under management in that
style.
From time to time, each Fund may also quote its Classes' actual total
return performance, dividend results and other performance information in
advertising and other types of literature. This information may be compared to
that of other mutual funds with similar investment objectives and to stock, bond
and other relevant indices or to rankings prepared by independent services or
other financial or industry publications that monitor the performance of mutual
funds. For example, the performance of a Fund (or Fund Class) may be compared to
data prepared by Lipper Analytical Services, Inc., Morningstar, Inc. or to the
S&P 500 Index or the Dow Jones Industrial Average.
Lipper Analytical Services, Inc. maintains statistical performance
databases, as reported by a diverse universe of independently-managed mutual
funds. Morningstar, Inc. is a mutual fund rating service that rates mutual funds
on the basis of risk-adjusted performance. Rankings that compare a Fund's
performance to another fund in appropriate categories over specific time periods
also may be quoted in advertising and other types of literature. The S&P 500
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. A direct investment in an unmanaged index is not possible. 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. In addition, the performance of multiple indices compiled and
maintained by statistical research firms, such as Salomon Brothers and Lehman
Brothers, may be combined to create a blended performance result for comparative
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.
-30-
<PAGE>
Ibbotson Associates of Chicago, Illinois ("Ibbotson") provides
historical returns of the capital markets in the United States, including common
stocks, small capitalization stocks, long-term corporate bonds,
intermediate-term government bonds, long-term government bonds, Treasury bills,
the U.S. rate of inflation (based on the Consumer Price Index), and combinations
of various capital markets. The performance of these capital markets is based on
the returns of different indices. The Funds may use the performance of these
capital markets in order to demonstrate general risk-versus-reward investment
scenarios. Performance comparisons may also include the value of a hypothetical
investment in any of these capital markets. The risks associated with the
security types in any capital market may or may not correspond directly to those
of the Funds. The Funds may also compare performance to that of other
compilations or indices that may be developed and made available in the future.
The Funds may include discussions or illustrations of the potential
investment goals of a prospective investor (including materials that describe
general principles of investing, such as asset allocation, diversification, risk
tolerance, and goal setting, questionnaires designed to help create a personal
financial profile, worksheets used to project savings needs based on assumed
rates of inflation and hypothetical rates of return and action plans offering
investment alternatives), investment management techniques, policies or
investment suitability of a Fund (such as value investing, market timing, dollar
cost averaging, asset allocation, constant ratio transfer, automatic account
rebalancing, the advantages and disadvantages of investing in tax-deferred and
taxable investments), economic and political conditions, the relationship
between sectors of the economy and the economy as a whole, the effects of
inflation and historical performance of various asset classes, including but not
limited to, stocks, bonds and Treasury bills. From time to time advertisements,
sales literature, communications to shareholders or other materials may
summarize the substance of information contained in shareholder reports
(including the investment composition of a Fund), as well as the views as to
current market, economic, trade and interest rate trends, legislative,
regulatory and monetary developments, investment strategies and related matters
believed to be of relevance to a Fund. In addition, selected indices may be used
to illustrate historic performance of selected asset classes. The Funds may also
include in advertisements, sales literature, communications to shareholders or
other materials, charts, graphs or drawings which illustrate the potential risks
and rewards of investment in various investment vehicles, including but not
limited to, stocks, bonds, treasury bills and shares of a Fund. In addition,
advertisements, sales literature, communications to shareholders or other
materials may include a discussion of certain attributes or benefits to be
derived by an investment in a Fund and/or other mutual funds, shareholder
profiles and hypothetical investor scenarios, timely information on financial
management, tax and retirement planning (such as information on Roth IRAs and
Educational IRAs) and investment alternative to certificates of deposit and
other financial instruments. Such sales literature, communications to
shareholders or other materials may include symbols, headlines or other material
which highlight or summarize the information discussed in more detail therein.
Materials may refer to the CUSIP numbers of the Funds and may
illustrate how to find the listings of the Funds in newspapers and periodicals.
Materials may also include discussions of other Funds, products, and services.
The Funds may quote various measures of volatility and benchmark
correlation in advertising. In addition, the Funds may compare these measures to
those of other funds. Measures of volatility seek to compare the historical
share price fluctuations or total returns to those of a benchmark. Measures of
benchmark correlation indicate how valid a comparative benchmark may be.
Measures of volatility and correlation may be calculated using averages of
historical data. A Fund may advertise its current interest rate sensitivity,
duration, weighted average maturity or similar maturity characteristics.
Advertisements and sales materials relating to a Fund may include information
regarding the background and experience of its portfolio managers.
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 each Fund through November 30, 1997.
Pursuant to applicable regulation, total return shown for the Institutional
Classes of Decatur Income Fund and Decatur Total Return Fund 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. Past performance is no guarantee of
future results. Performance shown for short periods of time may not be
representative of longer term results.
-31-
<PAGE>
<TABLE>
<CAPTION>
Cumulative Total Return
Decatur Income Fund
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 11/30/97 (0.91%) 4.07% 6.67% 3.09%
6 months ended 11/30/97 6.19%(6) 11.62% 13.54% 7.63%
9 months ended 11/30/97 12.09% 17.93% 22.43% 15.30%
1 year ended 11/30/97 18.88% 25.02% 28.50% 22.20%
3 years ended 11/30/97 93.79% 104.36% 124.96% 123.86%
5 years ended 11/30/97 123.23% 135.70% 150.21% 167.92%
10 years ended 11/30/97 289.69% 311.39% 454.85% 478.79%
15 years ended 11/30/97 709.41% 754.28% 1026.18% 1165.18%
3/18/57(7) through 11/30/97 11,899.41% 12,568.09% 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: Lipper Analytical Services, Inc.
(6) For the six months ended November 30, 1997, cumulative total return
for Decatur Income Fund A Class at net asset value was 11.47%.
(7) Date of initial public offering of Decatur Income Fund A Class.
-32-
<PAGE>
<TABLE>
<CAPTION>
Cumulative Total Return
Decatur Income Fund
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 11/30/97 (0.19%) 3.82% 6.67% 3.09%
6 months ended 11/30/97 7.02% 11.02% 13.54% 7.63%
9 months ended 11/30/97 13.03% 17.03% 22.43% 15.30%
1 year ended 11/30/97 19.73% 23.73% 28.50% 22.20%
3 years ended 11/30/97 95.30% 98.30% 124.96% 123.86%
Period 9/6/94(2) through 11/30/97 84.83% 87.83% 116.23% 115.42%
(1) Source: Lipper Analytical Services, Inc.
(2) Date of initial public offering of Decatur Income Fund B Class.
</TABLE>
<TABLE>
<CAPTION>
Cumulative Total Return
Decatur Income Fund
Class C Shares Class C 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 11/30/97 2.80% 3.80% 6.67% 3.09%
6 months ended 11/30/97 10.03% 11.03% 13.54% 7.63%
9 months ended 11/30/97 16.01% 17.01% 22.43% 15.30%
1 year ended 11/30/97 22.75% 23.75% 28.50% 22.20%
Period 11/29/95(2) through 11/30/97 52.67% 52.67% 64.29% 60.69%
(1) Source: Lipper Analytical Services, Inc.
(2) Date of initial public offering of Decatur Income Fund C Class.
</TABLE>
-33-
<PAGE>
<TABLE>
<CAPTION>
Cumulative Total Return
Decatur Total Return Fund
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 11/30/97 (1.02%) 3.97% 6.67% 3.09%
6 months ended 11/30/97 6.06%(4) 11.51% 13.54% 7.63%
9 months ended 11/30/97 12.63% 18.47% 22.43% 15.30%
1 year ended 11/30/97 19.40% 25.65% 28.50% 22.20%
3 years ended 11/30/97 100.87% 112.64% 124.96% 123.86%
5 years ended 11/30/97 130.23% 144.79% 150.21% 167.92%
10 years ended 11/30/97 353.91% 382.47% 454.85% 478.79%
Period 8/27/86(5) through 11/30/97 340.48% 368.45% 425.57% 482.36%
</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: Lipper Analytical Services, Inc.
(4) For the six months ended November 30, 1997, cumulative total return at
net asset value for Decatur Total Return Fund A Class was 11.35%.
(5) Date of initial public offering of Decatur Total Return Fund A Class.
-34-
<PAGE>
<TABLE>
<CAPTION>
Cumulative Total Return
Decatur Total Return Fund
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 11/30/97 (0.28%) 3.72% 6.67% 3.09%
6 months ended 11/30/97 6.95% 10.95% 13.54% 7.63%
9 months ended 11/30/97 13.59% 17.59% 22.43% 15.30%
1 year ended 11/30/97 20.45% 24.45% 28.50% 22.20%
3 years ended 11/30/97 103.47% 106.47% 124.96% 123.86%
Period 9/6/94(2) through 11/30/97 92.38% 95.38% 116.23% 115.42%
</TABLE>
(1) Source: Lipper Analytical Services, Inc.
(2) Date of initial public offering of Decatur Total Return Fund B Class.
<TABLE>
<CAPTION>
Cumulative Total Return
Decatur Total Return Fund
Class C Shares Class C 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 11/30/97 2.67% 3.67% 6.67% 3.09%
6 months ended 11/30/97 9.97% 10.97% 13.54% 7.63%
9 months ended 11/30/97 16.56% 17.56% 22.43% 15.30%
1 year ended 11/30/97 23.44% 24.44% 28.50% 22.20%
Period 11/29/95(2) through 11/30/97 54.35% 54.35% 64.29% 60.69%
(1) Source: Lipper Analytical Services, Inc.
(2) Date of initial public offering of Decatur Total Return Fund C Class.
</TABLE>
-35-
<PAGE>
<TABLE>
<CAPTION>
Cumulative Total Return(1)
Blue Chip Fund Blue Chip Fund
A Class Institutional S&P 500 Dow Jones
(at offer) Class Index(2) Industrial(2)
<S> <C> <C> <C> <C> <C>
3 months ended 11/30/97 0.92% 5.90% 6.67% 3.09%
6 months ended 11/30/97 7.65%(3) 13.19% 13.54% 7.63%
9 months ended 11/30/97 13.09% 18.92% 22.43% 15.30%
Period 2/24/97(4) through 11/30/97 10.43% 16.12% 22.43% 15.30%
</TABLE>
(1) For the period from commencement of operations (February 24, 1997)
through January 31, 1998, the Manager elected voluntarily to waive that
portion, if any, of the annual management fees payable by the Fund and
to pay certain expenses of the Fund to the extent necessary to ensure
that the Total Operating Expenses of Class A Shares and Institutional
Class shares of the Fund did not exceed 1.20% (exclusive of taxes,
interest, brokerage commissions and extraordinarily expenses, and, in
the case of Class A Shares, exclusive of 12b-1 Plan expenses). In the
absence of such voluntary fee waiver and payment of expenses,
performance would have been affected negatively. See Investment
Management Agreements and Sub-Advisory Agreements for information about
fee waivers and expense payments in effect until July 31, 1998.
(2) Source: Lipper Analytical Services, Inc.
(3) For the six months ended November 30, 1997, cumulative total return at
net asset value for Blue Chip Fund A Class was 12.96%.
(4) Commencement of operations.
<TABLE>
<CAPTION>
Cumulative Total Return(1)
Blue Chip Blue Chip
Fund B Class Fund B Class
(Including (Excluding
Deferred Deferred S&P 500 Dow Jones
Sales Charge) Sales Charge) Index (2) Industrial (2)
<S> <C> <C> <C> <C> <C>
3 months ended 11/30/97 1.72% 5.72% 6.67% 3.09%
6 months ended 11/30/97 8.64% 12.64% 13.54% 7.63%
9 months ended 11/30/97 14.07% 18.07% 22.43% 15.30%
Period 2/24/97(3) through 11/30/97 11.29% 15.29% 22.43% 15.30%
</TABLE>
(1) For the period from commencement of operations (February 24, 1997)
through January 31, 1998, the Manager elected voluntarily to waive that
portion, if any, of the annual management fees payable by the Fund and
to pay certain expenses of the Fund to the extent necessary to ensure
that the Total Operating Expenses of Class B Shares of the Fund did not
exceed 1.20% (exclusive of 12b-1 Plan expenese, taxes, interest,
brokerage commissions and extraordinarily expenses). In the absence of
such voluntary fee waiver and payment of expenes, performance would
have been affected negatively. See Investment Management Agreements and
Sub-Advisory Agreements for information about fee waivers and expense
payments in effect until July 31, 1998.
(2) Source: Lipper Analytical Services, Inc.
(3) Commencement of operations.
-36-
<PAGE>
<TABLE>
<CAPTION>
Cumulative Total Return(1)
Blue Chip Blue Chip
Fund C Class Fund C Class
(Including (Excluding
Deferred Deferred S&P 500 Dow Jones
Sales Charge) Sales Charge) Index (2) Industrial (2)
<S> <C> <C> <C> <C> <C>
3 months ended 11/30/97 4.72% 5.72% 6.67% 3.09%
6 months ended 11/30/97 11.52% 12.52% 13.54% 7.63%
9 months ended 11/30/97 17.07% 18.07% 22.43% 15.30%
Period 2/24/97(3) through 11/30/97 14.29% 15.29% 22.43% 15.30%
</TABLE>
(1) For the period from commencement of operations (February 24, 1997)
through January 31, 1998, the Manager elected voluntarily to waive that
portion, if any, of the annual management fees payable by the Fund and
to pay certain expenses of the Fund to the extent necessary to ensure
that the Total Operating Expenses of Class C Shares of the Fund did not
exceed 1.20% (exclusive of 12b-1 Plan expenses, taxes, interest,
brokerage commissions and extraordinarily expenses). In the absence of
such voluntary fee waiver and payment of expenses, performance would
have been affected negatively. See Investment Management Agreements and
Sub-Advisory Agreements for information about fee waivers and expense
payments in effect until July 31, 1998.
(2) Source: Lipper Analytical Services, Inc.
(3) Commencement of operations.
<TABLE>
<CAPTION>
Cumulative Total Return(1)
Social Awareness Social Awareness
Fund Fund
A Class Institutional S&P 500 Dow Jones
(at offer) Class Index (2) Industrial (2)
<S> <C> <C> <C> <C> <C>
3 months ended 11/30/97 3.40% 8.61% 6.67% 3.09%
6 months ended 11/30/97 12.28%(3) 18.02% 13.54% 7.63%
9 months ended 11/30/97 18.87% 25.00% 22.43% 15.30%
Period 2/24/97(4) through 11/30/97 15.81% 21.53% 22.43% 15.30%
</TABLE>
(1) For the period from commencement of operations (February 24, 1997)
through January 31, 1998, the Manager elected voluntarily to waive that
portion, if any, of the annual management fees payable by the Fund and
to pay certain expenses of the Fund to the extent necessary to ensure
that the Total Operating Expenses of Class A Shares and Institutional
Class shares of the Fund did not exceed 1.20% (exclusive of taxes,
interest, brokerage commissions and extraordinarily expenses, and, in
the case of Class A Shares, exclusive of 12b-1 Plan expenses). In the
absence of such voluntary fee waiver and payment of expenses,
performance would have been affected negatively. See Investment
Management Agreements and Sub-Advisory Agreements for information about
fee waivers and expense payments in effect until July 31, 1998.
(2) Source: Lipper Analytical Services, Inc.
(3) For the six months ended November 30, 1997, cumulative total return at
net asset value for Social Awareness Fund A Class was 17.92%.
(4) Commencement of operations.
-37-
<PAGE>
<TABLE>
<CAPTION>
Cumulative Total Return(1)
Social Awareness Social Awareness
Fund B Class Fund B Class
(Including (Excluding
Deferred Deferred S&P 500 Dow Jones
Sales Charge) Sales Charge) Index (2) Industrial (2)
<S> <C> <C> <C> <C> <C>
3 months ended 11/30/97 4.44% 8.44% 6.67% 3.09%
6 months ended 11/30/97 13.49% 17.49% 13.54% 7.63%
9 months ended 11/30/97 20.16% 24.16% 22.43% 15.30%
Period 2/24/97(3) through 11/30/97 16.94% 20.94% 22.43% 15.30%
</TABLE>
(1) For the period from commencement of operations (February 24, 1997)
through January 31, 1998, the Manager elected voluntarily to waive that
portion, if any, of the annual management fees payable by the Fund and
to pay certain expenses of the Fund to the extent necessary to ensure
that the Total Operating Expenses of Class B Shares of the Fund did not
exceed 1.20% (exclusive of 12b-1 Plan expenses, taxes, interest,
brokerage commissions and extraordinarily expenses). In the absence of
such voluntary fee waiver and payment of expenses, performance would
have been affected negatively. See Investment Management Agreements and
Sub-Advisory Agreements for information about fee waivers and expense
payments in effect until July 31, 1998.
(2) Source: Lipper Analytical Services, Inc.
(3) Commencement of operations.
<TABLE>
<CAPTION>
Cumulative Total Return(1)
Social Awareness Social Awareness
Fund C Class Fund C Class
(Including (Excluding
Deferred Deferred S&P 500 Dow Jones
Sales Charge) Sales Charge) Index (2) Industrial (2)
<S> <C> <C> <C> <C> <C>
3 months ended 11/30/97 7.44% 8.44% 6.67% 3.09%
6 months ended 11/30/97 16.49% 17.49% 13.54% 7.63%
9 months ended 11/30/97 23.16% 24.16% 22.43% 15.30%
Period 2/24/97(3) through 11/30/97 19.94% 20.94% 22.43% 15.30%
</TABLE>
(1) For the period from commencement of operations (February 24, 1997)
through January 31, 1998, the Manager elected voluntarily to waive that
portion, if any, of the annual management fees payable by the Fund and
to pay certain expenses of the Fund to the extent necessary to ensure
that the Total Operating Expenses of Class C Shares of the Fund did not
exceed 1.20% (exclusive of 12b-1 Plan expenses, taxes, interest,
brokerage commissions and extraordinarily expenses. In the absence of
such voluntary fee waiver and payment of expenses, performance would
have been affected negatively. See Investment Management Agreements and
Sub-Advisory Agreements for information about fee waivers and expense
payments in effect until July 31, 1998.
(2) Source: Lipper Analytical Services, Inc.
(3) Commencement of operations.
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
-38-
<PAGE>
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.
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. Each Fund may include illustrations showing the power
of compounding in advertisements and other types of literature.
-39-
<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, 1995, 1996 and 1997, the
aggregate dollar amounts of brokerage commissions paid by Decatur Income Fund
were $3,039,414, $4,041,197 and $3,714,766, respectively. During the same
periods, the aggregate dollar amounts of brokerage commissions paid by Decatur
Total Return Fund were $1,150,026, $1,488,884 and $1,634,268, respectively.
For the period February 24, 1997 (date of initial public offering) through
November 30, 1997, the aggregate dollar amounts of brokerage commissions paid by
Blue Chip Fund and Social Awareness Fund were $4,339 and $14,989, 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, 1997, portfolio
transactions of Decatur Income Fund and Decatur Total Return Fund in the amounts
of $659,533,482 and $264,288,650, respectively, resulting in brokerage
commissions of $763,110 and $307,938, respectively, were directed to brokers
for brokerage and research services provided. During the period February 24,
1997 (date of initial public offering) through November 30, 1997, portfolio
transactions of Blue Chip Fund and Social Awareness Fund in the amounts of
$2,058,490 and $3,918,367, respectively, resulting in the brokerage commissions
of $405 and $1,356, 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
-40-
<PAGE>
not, in general, higher than commissions that would be paid to broker/dealers
not providing such services and that such commissions are reasonable in relation
to the value of the brokerage and research services provided. In some instances,
services may be provided to the Manager which constitute in some part brokerage
and research services used by the Manager in connection with its investment
decision-making process and constitute in some part services used by the Manager
in connection with administrative or other functions not related to its
investment decision-making process. In such cases, the Manager will make a good
faith allocation of brokerage and research services and will pay out of its own
resources for services used by the Manager in connection with administrative or
other functions not related to its investment decision-making process. In
addition, so long as no fund is disadvantaged, portfolio transactions which
generate commissions or their equivalent are allocated to broker/dealers who
provide daily portfolio pricing services to 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 Conduct Rules 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 expenses of the funds in the Delaware Group of funds, such as
custodian fees, and may, at the request of the Distributor, give consideration
to sales of shares of a such funds 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.
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.
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<PAGE>
During the past two fiscal years, Decatur Income Fund's portfolio
turnover rates were 101% and 90%, respectively, for 1996 and 1997 and Decatur
Total Return Fund's portfolio turnover rates were 87% and 69%, respectively,
for 1996 and 1997. During the period February 25 1997 (date of initial public
offering) through November 30, 1997, Blue Chip Fund's portfolio turnover rate
was 25% (annualized) and Social Awareness Fund's portfolio turnover rate was 29%
(annualized).
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.
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<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. However, effective as of the date of this Part
B, the minimum initial investment for new shareholder accounts in Decatur Income
Fund is $100 and subsequent purchases for these accounts must be at least $25.
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 amendments to certain rules 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. Class A Shares are also subject to annual 12b-1
Plan expenses.
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<PAGE>
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. 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. See Automatic Conversion of Class B
Shares under Classes of Shares in the Fund Classes' Prospectuses.
Class C Shares are purchased at net asset value and are subject to a
CDSC of 1% if shares are redeemed within 12 months following purchase. Class C
Shares are also subject to annual 12b-1 Plan expenses for the life of the
investment which are equal to those to which Class B Shares are subject.
Institutional Class shares are purchased at the net asset value per
share without the imposition of a front-end or contingent deferred sales charge
or 12b-1 Plan expenses. See Determining Offering Price and Net Asset Value and
Plans Under Rule 12b-1 for the Fund Classes in this Part B.
Class A Shares, Class B Shares, Class C Shares and Institutional Class
shares represent a proportionate interest in a Fund's assets and will receive a
proportionate interest in that Fund's income, before application, as to 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 or in the case of any retirement plan
accounts including self-directed IRAs. However, purchases not involving the
issuance of certificates are confirmed to the investor and credited to the
shareholder's account on the books maintained by Delaware Service Company, Inc.
(the "Transfer Agent"). The investor will have the same rights of ownership with
respect to such shares as if certificates had been issued. An investor that is
permitted to obtain a certificate may receive a certificate representing full
share denominations purchased by sending a letter signed by each owner of the
account to the Transfer Agent requesting the certificate. No charge is assessed
by Equity Funds II, Inc. for any certificate issued. A shareholder may be
subject to fees for replacement of a lost or stolen certificate, under certain
conditions, including the cost of obtaining a bond covering the lost or stolen
certificate. Please contact a Fund for further information. Investors who hold
certificates representing any of their shares may only redeem those shares by
written request. The investor's certificate(s) must accompany such request.
Alternative Purchase Arrangements
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.
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<PAGE>
Class A Shares
Purchases of $100,000 or more of Class A Shares at the offering price
carry reduced front-end sales charges and may include a series of purchases
over a 13-month period under a Letter of Intention signed by the purchaser. See
Front-End Sales Charge Alternative-Class A Shares in the Prospectus for the Fund
Classes for a table illustrating reduced front-end sales charge. See also
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.
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
As described more fully in the Prospectus for the Fund Classes, 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. See Front-End Sales Charge Alternative--Class A Shares in the
Prospectuses for the Fund Classes for the applicable schedule and further
details.
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 above and Class C Shares redeemed
within 12 months of purchase may be subject to a CDSC of 1%. CDSCs are charged
as a percentage of the dollar amount subject to the CDSC. The charge will be
assessed on an amount equal to the lesser of the net asset value at the time of
purchase of the shares being redeemed or the net asset value of those shares at
the time of redemption. No CDSC will be imposed on increases in net asset value
above the initial purchase price, nor will a CDSC be assessed on redemptions of
shares acquired through reinvestment of dividends or capital gains
distributions. 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.
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
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<PAGE>
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.
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.
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<PAGE>
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.
For the fiscal year ended November 30, 1997, payments from Decatur
Income Fund A Class, Decatur Income Fund B Class and Decatur Income Fund C Class
amounted to $3,368,726, $911,431 and $109,054, 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 $15,906 ---- ----
Annual/Semi-Annual Reports $45,111 ---- ----
Broker Trails $2,689,707 $208,654 $14,537
Broker Sales Charges ---- $398,283 $75,838
Dealer Service Expenses $12,191 ---- $787
Interest on Broker Sales Charges ---- $239,718 $3,321
Commissions to Wholesalers $108,447 $45,811 $11,246
Promotional-Broker Meetings $134,235 $9,578 $564
Promotional-Other $123,255 ---- ----
Prospectus Printing $81,472 ---- ----
Telephone $21,446 $251 $53
Wholesaler Expenses $136,956 $9,136 $2,708
Other ---- ---- ----
</TABLE>
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<PAGE>
For the fiscal year ended November 30, 1997, payments from Decatur
Total Return Fund A Class, Decatur Total Return Fund B Class and Decatur Total
Return Fund C Class amounted to $2,297,540, $902,042 and $163,951,
respectively. Such amounts were used for the following purposes:
<TABLE>
<CAPTION>
Decatur Total Return Decatur Total Return Decatur Total Return
Fund A Class Fund B Class Fund C Class
<S> <C> <C> <C>
Advertising $19,343 ---- ----
Annual/Semi-Annual Reports $61,598 ---- ----
Broker Trails $1,861,875 $207,781 $23,648
Broker Sales Charges ---- $390,929 $121,373
Dealer Service Expenses $3,779 ---- ----
Interest on Broker Sales Charges ---- $240,500 $5,058
Commissions to Wholesalers $121,110 $47,370 $12,469
Promotional-Broker Meetings $57,018 $9,344 $922
Promotional-Other $118,297 ---- ----
Prospectus Printing $25,298 ---- ----
Telephone $4,611 $149 $72
Wholesaler Expenses $24,611 $5,969 $409
Other ---- ---- ----
</TABLE>
For period February 24, 1997 (date of initial public offering) through
November 30, 1997, payments from Blue Chip Fund A Class, Blue Chip Fund B Class
and Blue Chip Fund C Class amounted to $1,924, $2,405 and $1,166, respectively.
Such amounts were used for the following purposes:
<TABLE>
<CAPTION>
Blue Chip Blue Chip Blue Chip
Fund A Class Fund B Class Fund C Class
<S> <C> <C> <C>
Advertising ---- ---- ----
Annual/Semi-Annual Reports ---- ---- ----
Broker Trails $853 $492 $12
Broker Sales Charges ---- $643 $358
Dealer Service Expenses $60 ---- $182
Interest on Broker Sales Charges ---- $858 $43
Commissions to Wholesalers $486 $327 $450
Promotional-Broker Meetings $71 $32 $5
Promotional-Other $238 ---- ----
Prospectus Printing ---- ---- ----
Telephone ---- $2 ----
Wholesaler Expenses $216 ---- $116
Other ---- $51 ----
</TABLE>
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<PAGE>
For period February 24, 1997 (date of initial public offering) through
November 30, 1997, payments from Social Awareness Fund A Class, Social Awareness
Fund B Class and Social Awareness Fund C Class amounted to $9,246, $23,663 and
$4,692, respectively. Such amounts were used for the
following purposes:
<TABLE>
<CAPTION>
Social Awareness Social Awareness Social Awareness
Fund A Class Fund B Class Fund C Class
<S> <C> <C> <C>
Advertising $-0- ---- ----
Annual/Semi-Annual Reports $48 ---- ----
Broker Trails $2,311 $9,310 $688
Broker Sales Charges $5,722 $6,726 $2,941
Dealer Service Expenses ---- ---- ----
Interest on Broker Sales Charges ---- $6,744 $245
Commissions to Wholesalers $55 $703 $826
Promotional-Broker Meetings $157 $180 $10
Promotional-Other $953 ---- ----
Prospectus Printing ---- ---- ----
Telephone ---- ---- $2
Wholesaler Expenses ---- ---- ----
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. 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. Class A Shares may also be purchased at net asset
value by current and former officers, directors and employees (and members of
their families) of the Dougherty Financial Group LLC.
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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. 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.
Investors in Delaware-Voyageur Unit Investment Trusts may reinvest
monthly dividend checks and/or repayment of invested capital into Class A Shares
of any of the funds in the Delaware Group at net asset value.
Purchases of Class A Shares of each Fund, except Social Awareness Fund,
at net asset value may also be made by the following: financial institutions
investing for the account of their trust customers if they are not eligible to
purchase shares of the Institutional Class of a Fund; any group retirement plan
(excluding defined benefit pension plans), or such plans of the same employer,
for which plan participant records are maintained on the Delaware Investment &
Retirement Services, Inc. ("DIRSI") proprietary record keeping system that (i)
has in excess of $500,000 of plan assets invested in Class A Shares of Delaware
Group funds and any stable value product available through the Delaware Group,
or (ii) is sponsored by an employer that has at any point after May 1, 1997 had
more than 100 employees while such plan has held Class A Shares of a Delaware
Group fund and such employer has properly represented to DIRSI in writing that
it has the requisite number of employees and has received written confirmation
back from DIRSI.
Purchases of Class A Shares of Social Awareness Fund at net asset value
may also be made by the following: financial institutions investing for the
account of their trust customers when they are not eligible to purchase shares
of the Institutional Class of the Fund; and any group retirement plan (excluding
defined benefit pension plans), or such plans of the same employer, that (i) has
in excess of $500,000 of plan assets invested in Class A Shares of Delaware
Group funds and in any stable value product available through the Delaware
Group, or (ii) is sponsored by an employer that has at any point after May 1,
1997 more than 100 employees while such plan has held Class A Shares of a
Delaware Group fund and such employer has properly represented to DIRSI in
writing that it has the requisite number of employees and has received written
confirmation back from DIRSI.
Purchases of Class A Shares of Decatur Total Return Fund at net asset
value may also be made by bank sponsored retirement plans that are no longer
eligible to purchase Institutional Class shares as a result of a change in the
distribution arrangements.
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<PAGE>
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 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.
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.
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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). In addition, assets held by investment advisory clients of the
Manager or its affiliates in a stable value account may be combined with other
Delaware Group fund holdings.
The privilege also extends to all purchases made at one time by an
individual; or an individual, his or her spouse and their children under 21; or
a trustee or other fiduciary of trust estates or fiduciary accounts for the
benefit of such family members (including certain employee benefit programs).
Right of Accumulation
In determining the availability of the reduced front-end sales charge
with respect to 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.
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
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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.
The Institutional Classes
The Institutional Class of each Fund is available for purchase only by:
(a) retirement plans introduced by persons not associated with brokers or
dealers that are primarily engaged in the retail securities business and
rollover individual retirement accounts from such plans; (b) tax-exempt employee
benefit plans of the Manager, the Sub-Adviser or their affiliates and securities
dealer firms with a selling agreement with the Distributor; (c) institutional
advisory accounts of the Manager, the Sub-Adviser or their affiliates and those
having client relationships with Delaware Investment Advisers, a division of the
Manager, or its affiliates and their corporate sponsors, as well as subsidiaries
and related employee benefit plans and rollover individual retirement accounts
from such institutional advisory accounts; (d) a bank, trust company and similar
financial institution investing for its own account or for the account of its
trust customers for whom such financial institution is exercising investment
discretion in purchasing shares of the Class, except where the investment is
part of a program that requires payment to the financial institution of a Rule
12b-1 fee; and (e) registered investment advisers investing on behalf of clients
that consist solely of institutions and high net-worth individuals having at
least $1,000,000 entrusted to the adviser for investment purposes, but only if
the adviser is not affiliated or associated with a broker or dealer and derives
compensation for its services exclusively from its clients for such advisory
services.
Shares of the Institutional Classes are available for purchase at net
asset value, without the imposition of a front-end or contingent deferred sales
charge and are not subject to Rule 12b-1 expenses.
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INVESTMENT PLANS
Reinvestment Plan/Open Account
Unless otherwise designated by shareholders in writing, dividends from
net investment income and distributions from realized securities profits, if
any, will be automatically reinvested in additional shares of the respective
Fund Class in which an investor has an account (based on the net asset value in
effect on the reinvestment date) and will be credited to the shareholder's
account on that date. All dividends and distributions of the Institutional
Classes of each Fund 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.
Capital gains and/or dividend distributions to participants in the
following retirement plans are automatically reinvested into the same Delaware
Group fund in which their investments are held: SAR/SEP, SEP/IRA, SIMPLE IRA,
SIMPLE 401(k), Profit Sharing and Money Purchase Pension Plans, 401(k) Defined
Contribution Plans or 403(b)(7) or 457 Deferred Compensation Plans.
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Investing by Electronic Fund Transfer
Direct Deposit Purchase Plan -- Investors may arrange for a Fund to
accept for investment in Class A, Class B or Class C Shares, through an agent
bank, preauthorized government or private recurring payments. This method of
investment assures the timely credit to the shareholder's account of payments
such as social security, veterans' pension or compensation benefits, federal
salaries, Railroad Retirement benefits, private payroll checks, dividends, and
disability or pension fund benefits. It also eliminates lost, stolen and delayed
checks.
Automatic Investing Plan -- Shareholders of Class A, Class B and Class
C Shares may make automatic investments by authorizing, in advance, monthly
payments directly from their checking account for deposit into their Fund
account. This type of investment will be handled in either of the following
ways. (1) If the shareholder's bank is a member of the National Automated
Clearing House Association ("NACHA"), the amount of the investment will be
electronically deducted from his or her account by Electronic Fund Transfer
("EFT"). The shareholder's checking account will reflect a debit each month at a
specified date although no check is required to initiate the transaction. (2) If
the shareholder's bank is not a member of NACHA, deductions will be made by
preauthorized checks, known as Depository Transfer Checks. Should the
shareholder's bank become a member of NACHA in the future, his or her
investments would be handled electronically through EFT.
This option is not available to participants in the following plans:
SAR/SEP, SEP/IRA, SIMPLE IRA, SIMPLE 401(k), Profit Sharing and Money Purchase
Pension Plans, 401(k) Defined Contribution Plans, or 403(b)(7) or 457 Deferred
Compensation Plans.
* * *
Initial investments under the Direct Deposit Purchase Plan and the
Automatic Investing Plan must be for $250 or more and subsequent investments
under such Plans must be for $25 or more. An investor wishing to take advantage
of either service must complete an authorization form. Either service can be
discontinued by the shareholder at any time without penalty by giving written
notice.
Payments to a Fund from the federal government or its agencies on
behalf of a shareholder may be credited to the shareholder's account after such
payments should have been terminated by reason of death or otherwise. Any such
payments are subject to reclamation by the federal government or its agencies.
Similarly, under certain circumstances, investments from private sources may be
subject to reclamation by the transmitting bank. In the event of a reclamation,
a Fund may liquidate sufficient shares from a shareholder's account to reimburse
the government or the private source. In the event there are insufficient shares
in the shareholder's account, the shareholder is expected to reimburse 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.
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
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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, SIMPLE IRA, SIMPLE 401(k), Profit Sharing and Money Purchase
Pension Plans, 401(k) Defined Contribution Plans, or 403(b)(7) or 457 Deferred
Compensation Plans. This option also is not available to shareholders of the
Institutional Classes.
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. Effective September 1, 1997, the Delaware Group
Asset Planner Service is only available to financial advisers or investment
dealers who have previously used this service. 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. With the help of a financial adviser, you may also design a
customized asset allocation strategy.
The sales charge on an investment through the Asset Planner service is
determined by the individual sales charges of the underlying funds and their
percentage allocation in the selected Strategy. Exchanges from existing Delaware
Group accounts into the Asset Planner service may be made at net asset value
under the circumstances described under Investing by Exchange in the Prospectus.
Also see Buying Class A Shares at Net Asset Value under Classes of Shares. The
minimum initial investment per Strategy is $2,000; subsequent investments must
be at least $100. Individual fund minimums do not apply to investments made
using the Asset Planner service. Class A, Class B and Class C Shares are
available through the Asset Planner service. Generally, only shares within the
same class may be used within the same Strategy. However, Class A Shares of the
Fund and of other funds in the Delaware
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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
in the Prospectus for the funds in the Delaware Group that offer consultant
class shares.
An annual maintenance fee, currently $35 per Strategy, is due at the
time of initial investment and by September 30 of each subsequent year. The fee,
payable to Delaware Service Company, Inc. to defray extra costs associated with
administering the Asset Planner service, will be deducted automatically from one
of the funds within your Asset Planner account if not paid by September 30.
However, effective November 1, 1996, the annual maintenance fee is waived until
further notice. Investors who utilize the Asset Planner for an IRA will continue
to pay an annual IRA fee of $15 per Social Security number.
Investors will receive a customized quarterly Strategy Report
summarizing all 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.
Retirement Plans for the Fund Classes
An investment in each Fund may be suitable for tax-deferred
retirement plans. Delaware Group offers a full spectrum of qualified and
non-qualified retirement plans, including the 401(k) deferred compensation
plan, Individual Retirement Account ("IRA"), and the new Roth IRA.
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.
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.
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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 may be subject to
withholding.
Please contact your investment dealer or the Distributor for the
special application forms required for the plans.
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 plans. 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
and make contributions which may be tax-deductible, even if the individual is
already participating in an employer-sponsored retirement plan. Even if
contributions are not deductible for tax purposes, as indicated below, earnings
will be tax-deferred. In addition, an individual may make contributions on
behalf of a spouse who has no compensation for the year 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 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 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.
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.
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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.
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")
Although new SAR/SEP plans may not be established after December 31,
1996, existing plans may be maintained by employers having 25 or fewer
employees. An employer may elect to make additional contributions to such
existing plans.
Prototype 401(k) Defined Contribution Plan
Section 401(k) of the Code permits employers to establish qualified
plans based on salary deferral contributions. 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 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")
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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.
SIMPLE IRA
A SIMPLE IRA combines many of the features of an IRA and a 401(k) Plan
but is easier to administer than a typical 401(k) Plan. It requires employers to
make contributions on behalf of their employees and also has a salary deferral
feature that permits employees to defer a portion of their salary into the plan
on a pre-tax basis.
SIMPLE 401(k)
A SIMPLE 401(k) is like a regular 401(k) except that plan sponsors are
limited to 100 employees and, in exchange for mandatory plan sponsor
contributions, discrimination testing is no longer required.
Class B Shares are not available for purchase by such plans.
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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, its agent or certain other authorized persons.
See Distribution and Service under Investment Management Agreements and
Sub-Advisory Agreements. 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, its agent or certain other authorized persons. 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, Martin Luther King, Jr.'s
Birthday, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving and Christmas. When the New York Stock Exchange is closed, the
Funds will generally be closed, pricing calculations will not be made and
purchase and redemption orders will not be processed.
An example showing how to calculate the net asset value per share and,
in the case of Class A Shares, the offering price per share, is included in
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. Foreign
securities and the prices of foreign securities denominated in foreign
currencies are translated into U.S. dollars at the mean between the bid and
offer quotations of such currencies based on rates in effect as of the close of
the London Stock Exchange. 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,
its agent or certain other authorized persons, subject to any applicable CDSC or
Limited CDSC. See Distribution and Service under Investment Management
Agreements and Sub-Advisory Agreements. 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.
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
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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. Effective as of the date of this Part B, the minimum
initial investment for new shareholder accounts in Decatur Income Fund is $100
and subsequent purchases for these accounts must be at least $25. Accounts in
Decatur Income Fund will not be subject to the $9 quarterly
service fee.
* * *
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.
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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.
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
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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.
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
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 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 intends to pay dividends from
net investment income on a quarterly basis. Blue Chip Fund and Social
Awareness Fund intend 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
described below. The tax status of dividends and distributions paid to
shareholders will not be affected by whether they are paid in cash or in
additional shares. Each Fund is treated as a single tax entity and capital
gains for each Fund will be calculated separately.
Under the Taxpayer Relief act of 1997 (the "1997 Act"), a Fund is
required to track its sales of portfolio securities and to report its capital
gain distributions to you according to the following categories of holding
periods:
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"Pre-Act long-term capital gains": securities sold by a Fund before May
7, 1997, that were held for more than 12 months. These gains will be
taxable to individual investors at a maximum rate of 28%.
"Mid-term capital gains" or "28 percent rate gain": securities sold by
a Fund after July 28, 1997 that were held more than one year but not
more than 18 months. These gains will be taxable to individual
investors at a maximum rate of 28%.
"1997 Act long-term capital gains" or "20 percent rate gain":
securities sold by a Fund between May 7, 1997 and July 28, 1997 that
were held for more than 12 months, and securities sold by the Fund
after July 28, 1997 that were held for more than 18 months. These gains
will be taxable to individual investors at a maximum rate of 20% for
investors in the 28% or higher federal income tax brackets, and at a
maximum rate of 10% for investors in the 15% federal income tax
bracket.
"Qualified 5-year gains": For individuals in the 15% bracket, qualified
5-year gains are net gains on securities held for more than 5 years
which are sold after December 31, 2000. For individual who are subject
to tax at higher rate brackets, qualified 5-year gains are net gains on
securities which are purchased after December 31, 2000 and are held for
more than 5 years. Taxpayers subject to tax at a higher rate brackets
may also make an election for shares held on January 1, 2001 to
recognize gain on their shares in order to qualify such shares as
qualified 5-year property. These gains will be taxable to individual
investors at a maximum rate of 18% for investors in the 28% or higher
federal income tax brackets, and at a maximum rate of 8% for investors
in the 15% federal income tax bracket..
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. Under the 1997
Act, the amount that a Fund may designate as eligible for the dividends-received
deduction will be reduced or eliminated if the shares on which the dividends
earned by the Fund were debt-financed or held by the Fund for less than a 46-day
period during a 90-day period beginning 45 days before the ex-dividend date and
ending 45 days after the ex-dividend date. Similarly, if your Fund shares are
debt-financed or held by you for less than a 46-day period during a 90-day
period beginning 45 days before the ex-dividend date and ending 45 days after
the ex-dividend date, then the dividends-received deduction for Fund dividends
on your shares may also be reduced or eliminated. Even if designated as
dividends eligible for the dividends-received deduction, all dividends
(including any deducted portion) must be included in your alternative minimum
taxable income calculation. For the fiscal year ended November 30, 1997, 34%,
57%, 100% and 100% of the dividends from net investment income of Decatur Income
Fund, Decatur Total Return Fund, Blue Chip Fund and Social Awareness 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, 1997, the Manager and its
affiliates within the Delaware Group, including Delaware International Advisers
Ltd., were managing in the aggregate more than $39 billion in assets in the
various institutional or separately managed (approximately $23,274,532,000)
and investment company (approximately $16,181,491,000) 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 Social Awareness 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: (i) 0.15%
of average daily net assets averaging one year old or less; (ii) 0.20% of
average daily net assets averaging two years old or less, but greater than one
year old; and (iii) 0.35% of average daily net assets averaging over two years
old.
The annual compensation paid by Social Awareness Fund is equal to: (i)
0.20% of average daily net assets averaging one year old or less; (ii) 0.25% of
average daily net assets averaging two years old or less, but greater than one
year old; and (iii) 0.40% of average daily net assets averaging over two years
old.
The Manager has elected voluntarily to waive that portion, if any, of
the annual management fees payable by Blue Chip Fund and Social Awareness Fund
and to pay certain expenses of a Fund to the extent
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necessary to ensure that the total operating expenses of each Class of that Fund
do not exceed 1.20% (exclusive of taxes, interest, brokerage commissions,
extraordinary expenses and applicable 12b-1 expenses) during the commencement of
the public offering of the Fund through July 31, 1998.
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 average daily net assets averaging one
year old or less; (ii) 0.20% of average daily net assets averaging two years
old or less, but greater than one year old; and (iii) 0.35% of average daily
net assets averaging over two years old. For the services provided to the
Manager, the Manager pays the Sub-Adviser the following fee with respect to
Social Awareness Fund: (i) 0.20% of average daily net assets averaging one
year old or less; (ii) 0.25% of average daily net assets averaging two years
old or less, but greater than one year old; and (iii) 0.40% of average daily
net assets averaging over two years old.
The Sub-Adviser, 630 Fifth Avenue, New York, New York, 10111, is an
indirect, wholly-owned subsidiary of Lincoln National and an affiliate of the
Manager. Founded in 1979, it provides investment advice to pension plans,
endowments, insurance and commingled products and has assets under management,
as of 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, 1997, the total net assets of Equity Funds II, Inc.
were $3,451,491,312, broken down as follows:
Decatur Income Fund $2,323,634,186
Decatur Total Return Fund $1,104,636,359
Blue Chip Fund $5,788,733
Social Awareness Fund $17,432,034
Investment management fees paid by Decatur Income Fund during the past
three fiscal years were $7,182,707 for 1995, $8,397,639 for 1996 and
$10,329,490 for 1997. Investment management fees paid by Decatur Total Return
Fund during the past three fiscal years were $2,859,001 for 1995, $3,801,697
for 1996 and $5,429,552 for 1997. During the period February 24, 1997 (date of
initial public offering) through November 30, 1997, investment management fees
incurred by Blue Chip Fund amounted to $18,283 and no fees were paid as a result
of the voluntary waiver of fees by the Manager. During the period February 24,
1997 (date of initial public offering) through November 30, 1997, investment
management fees incurred by Social Awareness Fund amounted to $53,306 and
$13,785 was paid and $32,652 was waived as a result of the voluntary waiver of
fees by the Manager.
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. Except
for those expenses borne by the Manager under the Investment Management
Agreements and the
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Distributor under the Distribution Agreements, each Fund is responsible for all
of its own expenses. Among others, these include each Fund's proportionate
share of rent and certain other administrative expenses; the investment
management fees; transfer and dividend disbursing agent fees and costs;
custodian expenses; federal and state securities registration fees; proxy costs;
and the costs of preparing prospectuses and reports sent to shareholders.
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 Social Awareness 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.
The Fund has authorized one or more brokers to accept on its behalf
purchase and redemption orders in addition to the Transfer Agent. Such brokers
are authjorized to designate other intermediaries to accept purchase and
redemption orders on the bvehalf of the Funds. For purposes of pricing, the
Funds will be deemed to have received a purchase or redemption order when a
authorized broker or, if applicable, a broker's aurhorized designee, accepts the
order.
-71-
<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 December 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 December 31, 1997, management believes the following
shareholders held 5% or more of the outstanding shares of a Class:
<TABLE>
<CAPTION>
Class Name and Address of Account Share Amount Percentage
- ----- --------------------------- ------------ ----------
<S> <C> <C> <C>
Decatur Income B Class Merrill Lynch, Pierce, Fenner & Smith
For the Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, 3rd Floor
Jacksonville, FL 32246 630,383 9.79%
Decatur Income Fund C Merrill Lynch, Pierce, Fenner & Smith
Class For the Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, 3rd Floor
Jacksonville, FL 32246 222,147 27.59%
Decatur Income Fund The Northern Trust Co.
Institutional Class Cust. J Paul Getty Trust
401 Wilshire Blvd. Ste 1000
Santa Monica, CA 90401 3,299,988 22.46%
RS 401(k) Plan
Price Waterhouse LLP Savings Plan
c/o DELPAC 16th floor
1818 Market Street
Philadelphia, PA 19103 3,156,778 21.48%
Brigham Young University
RL Ball & Associates
c/o Richard White
Provo, UT 84602 1,893,289 12.88%
</TABLE>
-72-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Class Name and Address of Account Share Amount Percentage
- ----- --------------------------- ------------ ----------
Decatur Income Fund RS Day & Zimmerman Start 401(k)
Institutional Class Attn: Retirement Plans
1818 Market Street
Philadelphia, PA 19103 1,538,120 10.46%
Decatur Total Return Fund Merrill Lynch, Pierce, Fenner & Smith
B Class For the Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, 3rd Floor
Jacksonville, FL 32246 796,266 9.77%
Decatur Total Return Fund Merrill Lynch, Pierce, Fenner & Smith
C Class For the Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, 3rd Floor
Jacksonville, FL 32246 238,296 14.61%
Decatur Total Return Fund First Trust NA
Institutional Class Trst Northern States Power
Employee Retirement Savings Plan
P.O. Box 64482
St. Paul, MN 55164 1,662,120 34.72%
Federated Life Insurance Company
Separate Sub-Account A
Attn: Tom Koch
121 E. Park Square
Owatonna, MN 55060 1,472,782 30.76%
Lincoln National Life Insurance Co.
Attn: Karen Gerke
1300 Clinton Street
Fort Wayne, IN 46802 933,109 19.49%
Blue Chip Fund PaineWebber for the benefit of
A Class PaineWebber CDN FBO
Eric S. Petersen
P.O. Box 1108
New York, NY 10268 13,472 5.32%
Blue Chip Fund NFSC FEBO
C Class Elizabeth S. Fleming
1915 Wyngate
Ames, IA 50010 3,902 15.53%
</TABLE>
-73-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Class Name and Address of Account Share Amount Percentage
- ----- --------------------------- ------------ ----------
Blue Chip Fund NFSC FEBO
C Class Linda A. Benesh
2602 Caldwell Mill Ln.
Birmingham, AL 35243 2,426 9.66%
NFSC FEBO
Elizabeth S. Fleming Cust.
Cody H. Fleming
1915 Wyngate
Ames, IA 50010 2,081 8.28%
Prudential Securities Inc. FBO
Michael R. Katz MD TTEE
Atlantic Cardiology Assoc. PA
MPP Plan
FBO Mohamed H. Elnahal MD
Absecon, NJ 08201 1,876 7.47%
Marvin E. Rushing and Shirley A.
Rushing JT WROS
354 Maple Ave.
Owensboro, KY 42301 1,366 5.44%
Blue Chip Fund Lincoln Investment Management, Inc.
Institutional Class Attn: Patricia Roller
200 E. Berry St. Ste 3R04
Fort Wayne, IN 46802 177,830 95.23%
Social Awareness Fund MLPF&S for the sole benefit of
C Class its customers
Attn: Fund Administration
4800 Deer Lake Drive East, 3rd Fl.
Jacksonville, FL 32246 26,908 17.30%
Donaldson Lufkin Jenrette
Securities Corporation Inc.
P.O. Box 2052
Jersey City, NJ 07303 9,784 6.29%
Social Awareness Fund RS DMC Employee Profit Sharing Plan
Institutional Class Delaware Management Co.
Employee Profit Sharing Trust
c/o Rick Seidel
1818 Market Street
Philadelphia, PA 19103 9,982 96.69%
</TABLE>
-74-
<PAGE>
DMH Corp., Delvoy, Inc., 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 (60)
Chairman and Director and/or Trustee of Equity Funds II, Inc., each of
the other 33 other investment companies in the Delaware Group,
Delaware Management Holdings, Inc. and Delaware
Capital Management, Inc.
Chairman, President, Chief Executive Officer, Director of DMH Corp.,
Delaware Distributors, Inc. and Founders Holdings, 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. and Delaware International Holdings Ltd.
President and Chief Executive Officer of Delvoy, Inc.
Chairman of Delaware Distributors, L.P.
Director of Delaware Service Company, Inc. and Delaware Investment &
Retirement Services, Inc. During the past five years, Mr. Stork has
served in various executive capacities at different times within
the Delaware organization.
* Jeffrey J. Nick (44)
President, Chief Executive Officer and Director and/or Trustee of
Equity Funds II, Inc. and each of the other 33 investment companies in
the Delaware Group.
President, Chief Executive Officer and Director of Delaware Management
Holdings, Inc. President, Chief Executive Officer and Director of
Lincoln National Investment Companies, Inc. President of Lincoln Funds
Corporation.
From 1992 to 1996, Mr. Nick was Managing Director of Lincoln National
UK plc and from 1989 to 1992, he was Senior Vice President responsible
for corporate planning and development for Lincoln National
Corporation.
- -------------------
*Director affiliated with the Funds' investment manager and considered an
"interested person" as defined in the 1940 Act.
-76-
<PAGE>
Richard G. Unruh, Jr. (58)
Executive Vice President of Equity Funds II, Inc., each of the other
33 investment companies in the Delaware Group, Delaware
Management Holdings, Inc. and Delaware Capital Management,
Inc.
Executive Vice President and Director of Delaware Management Company,
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 (50)
Executive Vice President/Chief Investment Officer, Fixed Income of
Equity Funds II, Inc., each of the other
33 investment companies in the Delaware Group, Delaware
Management Company, Inc. and Delaware Management Holdings,
Inc.
Executive Vice President and Director of Founders Holdings, Inc.
Executive Vice President of Delaware Capital Management, Inc.
Director of Founders CBO Corporation.
Director of 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 (70)
Director and/or Trustee of Equity Funds II, Inc. and each of the other
33 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 (59)
Director and/or Trustee of Equity Funds II, Inc. and each of the other
33 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.
-76-
<PAGE>
Ann R. Leven (57)
Director and/or Trustee of Equity Funds II, Inc. and each of the other
33 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 (77)
Director and/or Trustee of Equity Funds II, Inc. and each of the other
33 investment companies in the Delaware Group.
City Hall, Philadelphia, PA 19107.
Philadelphia City Councilman.
Thomas F. Madison (61)
Director and/or Trustee of Equity Funds II, Inc. and each of the other
33 investment companies in the Delaware Group.
President and Chief Executive Officer, MLM Partners, Inc.
200 South Fifth Street, Suite 2100, Minneapolis, Minnesota 55402.
Mr. Madison has also been Chairman of the Board of Communications
Holdings, Inc. since 1996.
From February to September 1994, Mr. Madison served as Vice
Chairman--Office of the CEO of The Minnesota Mutual Life
Insurance Company and from 1988 to 1993, he was President of
U.S. WEST Communications--Markets.
Charles E. Peck (72)
Director and/or Trustee of Equity Funds II, Inc. and each of the other
33 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.
-77-
<PAGE>
David K. Downes (57)
Executive Vice President/Chief Operating Officer/Chief Financial
Officer of Equity Funds II, Inc., each of the other 33 investment
companies in the Delaware Group, Delaware Management Holdings,
Inc, Founders CBO Corporation, Delaware Capital Management,
Inc. and Delaware Distributors, L.P.
Executive Vice President, Chief Operating Officer, Chief Financial
Officer and Director of
Delaware Management Company, Inc., DMH Corp., Delaware
Distributors, Inc., Founders Holdings, Inc. and Delvoy, Inc.
President,Chief Executive Officer,Chief Financial Officer and Director
of Delaware Service Company, Inc.
President, Chief Operating Officer, Chief Financial Officer and
Director of Delaware International Holdings Ltd.
Chairman, Chief Executive Officer and Director of Delaware Management
Trust Company and Delaware Investment & Retirement Services, Inc.
Director of Delaware International Advisers Ltd.
Vice President of Lincoln Funds Corporation
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.
George M. Chamberlain, Jr. (50)
Senior Vice President , Secretary and General Counsel of Equity
Funds II, Inc., each of the other 33 investment companies in
the Delaware Group, Delaware Distributors, L.P. and Delaware
Management Holdings, Inc.
Senior Vice President, Secretary, General Counsel and Director
of DMH Corp., Delaware Management Company, Inc., Delaware
Distributors, Inc., Delaware Service Company, Inc., Founders
Holdings, Inc., Delaware Investment & Retirement Services,
Inc., Delaware Capital
Management, Inc. and Delvoy, Inc.
Executive Vice President, Secretary, General Counsel and Director of
Delaware Management Trust Company.
Senior Vice President and Director of Delaware International Holdings
Ltd.
Director of Delaware International Advisers Ltd.
Secretary of Lincoln Funds Corporation
Attorney.
During the past five years, Mr. Chamberlain has served in various
capacities at different times within
the Delaware organization.
-78-
<PAGE>
Joseph H. Hastings (48)
Senior Vice President/Corporate Controller of the Equity Funds II,
Inc., each of the other 33 investment companies in the
Delaware Group and Founders Holdings, Inc.
Senior Vice President/Corporate Controller and Treasurer of Delaware
Management Holdings, Inc.,
DMH Corp., Delaware Management Company, Inc., Delaware
Distributors, L.P., Delaware Distributors, Inc., Delaware
Service Company, Inc., Delaware Capital Management, Inc.,
Delaware International Holdings Ltd. and Delvoy, Inc.
Chief Financial Officer/Treasurer of Delaware Investment & Retirement
Services, Inc. Executive Vice President/Chief Financial
Officer/Treasurer of Delaware Management Trust Company.
Senior Vice President/Assistant Treasurer of Founders CBO Corporation.
Treasurer of Lincoln Funds 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 (35)
Senior Vice President/Treasurer of Equity Funds II, Inc., each of the
other 33 investment companies in the Delaware Group and Founders
Holdings, Inc. Senior Vice President/Investment Accounting of Delaware
Management Company, Inc. and Delaware Service Company, Inc.
Senior Vice President and Treasurer/Manager of Investment Accounting of
Delaware Distributors, L.P. Senior Vice President and 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.
John B. Fields (52)
Vice President/Senior Portfolio Manager of Equity Funds II, Inc.,
of nine 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.
-79-
<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, 1997 and an estimate of
annual benefits to be received upon retirement under the Delaware Group
Retirement Plan for Directors/Trustees as of December 31, 1997.
<TABLE>
<CAPTION>
Pension or
Retirement
Benefits Estimated Total
Aggregate Accrued Annual Compensation
Compensation as Part of Benefits from all 33
from Equity Equity Funds II, Upon Delaware
Name Funds II, Inc. Inc. Expenses Retirement* Group Funds
<S> <C> <C> <C> <C>
W. Thacher Longstreth $8,414 None $38,500 $59,243
Ann R. Leven $9,554 None $38,500 $64,452
Walter P. Babich $9,335 None $38,500 $63,452
Anthony D. Knerr $9,335 None $38,500 $63,452
Charles E. Peck $8,311 None $38,500 $56,057
Thomas F. Madison** $4,997 None $38,500 $37,225
</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 December 31, 1997, he or she would be
entitled to annual payments totaling $38,500, 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.
** Thomas F. Madison joined Equity Funds II, Inc.'s Board of Directors on
April 30, 1997.
-80-
<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.
-81-
<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:
-82-
<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.
Small Cap Value Fund seeks capital appreciation by investing primarily
in common stocks whose market values appear low relative to their underlying
value or future potential.
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. High-Yield Opportunities Fund seeks to provide
investors with total return and, as a secondary objective, high current income.
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.
REIT Fund seeks to achieve maximum long-term total return with capital
appreciation as a secondary objective. it seeks to achieve its objectives by
investing in securities of companies primarily engaged in the real estate
industry.
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.
-83-
<PAGE>
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 New Jersey Fund seeks a high level of current interest
income exempt from federal income tax and New Jersey state and local taxes,
consistent with preservation of capital. Tax-Free Ohio Fund seeks a high level
of current interest income exempt from federal income tax and Ohio state and
local taxes, consistent with preservation of capital. Tax-Free Pennsylvania Fund
seeks a high level of current interest income exempt from federal income tax and
Pennsylvania state and local taxes, consistent with the preservation of capital.
International Equity Fund seeks to achieve long-term growth without
undue risk to principal by investing primarily in international securities that
provide the potential for capital appreciation and income. Global Bond Fund
seeks to achieve current income consistent with the preservation of principal by
investing primarily in global fixed-income securities that may also provide the
potential for capital appreciation. Global Assets Fund seeks to achieve
long-term total return by investing in global securities which will provide
higher current income than a portfolio comprised exclusively of equity
securities, along with the potential for capital growth. Emerging Markets Fund
seeks long-term capital appreciation by investing primarily in equity securities
of issuers located or operating in emerging countries.
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. Overseas
Equity 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.
Delaware Group Premium Fund, Inc. offers 15 funds available
exclusively as funding vehicles for certain insurance company separate accounts.
Decatur Total Return Series seeks the highest possible total rate of return by
selecting issues that exhibit the potential for capital appreciation while
providing higher than average dividend income. Delchester Series seeks as high
a current income as possible by investing in rated and unrated corporate bonds,
U.S. government securities and commercial paper. Capital Reserves Series seeks a
high stable level of current income while minimizing fluctuations in principal
by investing in a diversified portfolio of short- and intermediate-term
securities. Cash Reserve Series seeks the highest level of income consistent
with preservation of capital and liquidity through investments in short-term
money market instruments. DelCap Series seeks long-term capital appreciation
by investing its assets in a diversified portfolio of securities exhibiting the
potential for significant growth. Delaware 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.
Trend Series seeks long-term capital appreciation by investing primarily in
small-cap common stocks and convertible securities of emerging and other
growth-oriented companies. These securities will have been judged to be
responsive to changes in the market place and to have fundamental
characteristics to support growth. Income is not an objective. Global Bond
Series seeks to achieve current income consistent with the preservation of
principal by investing primarily in global fixed-income securities that may also
provide the potential for capital appreciation. Strategic Income Series seeks
high current income and total return by using
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<PAGE>
a multi-sector investment approach, investing primarily in three sectors of the
fixed-income securities markets: high-yield, higher risk securities; investment
grade fixed-income securities; and foreign government and other foreign
fixed-income securities. Devon Series seeks current income and capital
appreciation by investing primarily in income-producing common stocks, with a
focus on common stocks that the investment manager believes have the potential
for above-average dividend increases over time. Emerging Markets Series seeks to
achieve long-term capital appreciation by investing primarily in equity
securities of issuers located or operating in emerging countries. Convertible
Securities Series seeks a high level of total return on its assets through a
combination of capital appreciation and current income by investing primarily in
convertible securities. Quantum Series seeks to achieve long-term capital
appreciation by investing primarily in equity securities of medium to
large-sized companies expected to grow over time that meet the Series' "Social
Criteria" strategy.
Delaware-Voyageur US Government Securities Fund seeks to provide a high
level of current income consistent with the prudent investment risk by investing
in U.S. Treasury bills, notes, bonds, and other obligations issued or
unconditionally guaranteed by the full faith and credit of the U.S. Treasury,
and repurchase agreements fully secured by such obligations.
Delaware-Voyageur Tax-Free Arizona Insured Fund seeks to provide a high
level of current income exempt from federal income tax and the Arizona personal
income tax, consistent with the preservation of capital. Delaware-Voyageur
Minnesota Insured Fund seeks to provide a high level of current income exempt
from federal income tax and the Minnesota personal income tax, consistent with
the preservation of capital.
Delaware-Voyageur Tax-Free Minnesota Intermediate Fund seeks to provide
a high level of current income exempt from federal income tax and the Minnesota
personal income tax, consistent with preservation of capital. The Fund seeks to
reduce market risk by maintaining an average weighted maturity from five to
ten years.
Delaware-Voyageur Tax-Free California Insured Fund seeks to provide a
high level of current income exempt from federal income tax and the California
personal income tax, consistent with the preservation of capital.
Delaware-Voyageur Tax-Free Florida Insured Fund seeks to provide a high level of
current income exempt from federal income tax, consistent with the preservation
of capital. The Fund will seek to select investments that will enable its shares
to be exempt from the Florida intangible personal property tax.
Delaware-Voyageur Tax-Free Florida Fund seeks to provide a high level of current
income exempt from federal income tax, consistent with the preservation of
capital. The Fund will seek to select investments that will enable its shares to
be exempt from the Florida intangible personal property tax. Delaware-Voyageur
Tax-Free Kansas Fund seeks to provide a high level of current income exempt from
federal income tax, the Kansas personal income tax and the Kansas Intangible
personal property tax, consistent with the preservation of capital.
Delaware-Voyageur Tax-Free Missouri Insured Fund seeks to provide a high level
of current income exempt from federal income tax and the Missouri personal
income tax, consistent with the preservation of capital. Delaware-Voyageur
Tax-Free New Mexico Fund seeks to provide a high level of current income exempt
from federal income tax and the New Mexico personal income tax, consistent with
the preservation of capital. Delaware-Voyageur Tax-Free Oregon Insured Fund
seeks to provide a high level of current income exempt from federal income tax
and the Oregon personal income tax, consistent with the preservation of capital.
Delaware-Voyageur Tax-Free Utah Fund seeks to provide a high level of current
income exempt from federal income tax, consistent with the preservation of
capital. Delaware-Voyageur Tax-Free Washington Insured Fund seeks to provide a
high level of current income exempt from federal income tax, consistent with the
preservation of capital.
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<PAGE>
Delaware-Voyageur Tax-Free Florida Intermediate Fund seeks to provide a
high level of current income exempt from federal income tax, consistent with the
preservation of capital. The Fund will seek to select investments that will
enable its shares to be exempt from the Florida intangible personal property
tax. The Fund seeks to reduce market risk by maintaining an average weighted
maturity from five to ten years.
Delaware-Voyageur Tax-Free Arizona Fund seeks to provide a high level
of current income exempt from federal income tax and the Arizona personal income
tax, consistent with the preservation of capital. Delaware-Voyageur Tax-Free
California Fund seeks to provide a high level of current income exempt from
federal income tax and the California personal income tax, consistent with the
preservation of capital. Delaware-Voyageur Tax-Free Iowa Fund seeks to provide a
high level of current income exempt from federal income tax and the Iowa
personal income tax, consistent with the preservation of capital.
Delaware-Voyageur Tax-Free Idaho Fund seeks to provide a high level of current
income exempt from federal income tax and the Idaho personal income tax,
consistent with the preservation of capital. Delaware-Voyageur Minnesota High
Yield Municipal Bond Fund seeks to provide a high level of current income exempt
from federal income tax and the Minnesota personal income tax primarily through
investment in medium and lower grade municipal obligations. National High Yield
Municipal Fund seeks to provide a high level of income exempt from federal
income tax, primarily through investment in medium and lower grade municipal
obligations. Delaware-Voyageur Tax-Free New York Fund seeks to provide a high
level of current income exempt from federal income tax and the personal income
tax of the state of New York and the city of New York, consistent with the
preservation of capital. Delaware-Voyageur Tax-Free Wisconsin Fund seeks to
provide a high level of current income exempt from federal income tax and the
Wisconsin personal income tax, consistent with the preservation of capital.
Delaware-Voyageur Tax-Free Colorado Fund seeks to provide a high level
of current income exempt from federal income tax and the Colorado personal
income tax, consistent with the preservation of capital.
Aggressive Growth Fund seeks long-term capital appreciation, which the
Fund attempts to achieve by investing primarily in equity securities believed to
have the potential for high earnings growth. Although the Fund, in seeking its
objective, may receive current income from dividends and interest, income is
only an incidental consideration in the selection of the Fund's investments.
Growth Stock Fund has an objective of long-term capital appreciation. The Fund
seeks to achieve its objective from equity securities diversified among
individual companies and industries. Tax-Efficient Equity Fund seeks to obtain
for taxable investors a high total return on an after-tax basis. The Fund will
attempt to achieve this objective by seeking to provide a high long-term
after-tax total return through managing its portfolio in a manner that will
defer the realization of accrued capital gains and minimize dividend income.
Delaware-Voyageur Tax-Free Minnesota Fund seeks to provide a high level
of current income exempt from federal income tax and the Minnesota personal
income tax, consistent with the preservation of capital. Delaware-Voyageur
Tax-Free North Dakota Fund seeks to provide a high level of current income
exempt from federal income tax and the North Dakota personal income tax,
consistent with the preservation of capital.
For more complete information about any of the 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).
-86-
<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 15 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.
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 their respective Class A Shares, after reallowances to
dealers, as follows:
Decatur Income Fund
<TABLE>
<CAPTION>
Fiscal Total Amount Amounts Net
Year of Underwriting Reallowed Commission
Ended Commission to Dealers to DDLP/DDI
----- ---------- ---------- -----------
<S> <C> <C> <C>
11/30/97 $2,632,798 $2,164,821 $467,977
11/30/96 2,178,120 1,814,559 363,561
11/30/95 2,136,781 1,849,211 287,570
</TABLE>
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<PAGE>
Decatur Total Return Fund
<TABLE>
<CAPTION>
Fiscal Total Amount Amounts Net
Year of Underwriting Reallowed Commission
Ended Commission to Dealers to DDLP/DDI
----- ---------- ---------- -----------
<S> <C> <C> <C>
11/30/97 $2,530,072 $2,104,851 $425,221
11/30/96 1,749,609 1,457,509 292,100
11/30/95 1,637,530 1,416,914 220,616
</TABLE>
Blue Chip Fund
<TABLE>
<CAPTION>
Fiscal Total Amount Amounts Net
Year of Underwriting Reallowed Commission
Ended Commission to Dealers to DDLP/DDI
----- ---------- ---------- -----------
<S> <C> <C> <C>
11/30/97* $71,225 $63,548 $7,677
</TABLE>
*Commenced operations on February 24, 1997.
Social Awareness Fund
<TABLE>
<CAPTION>
Fiscal Total Amount Amounts Net
Year of Underwriting Reallowed Commission
Ended Commission to Dealers to DDLP/DDI
----- ---------- ---------- -----------
<S> <C> <C> <C>
11/30/97* $258,024 $224,473 $33,551
</TABLE>
*Commenced operations on February 24, 1997.
The Distributor and, in its capacity as such, DDI received Limited CDSC
payments with respect to Class A Shares of each Fund as follows:
Limited CDSC Payments
<TABLE>
<CAPTION>
Decatur
Fiscal Decatur Income Total Return Blue Chip Social Awareness
Year Ended Fund A Class Fund A Class Fund A Class* Fund A Class*
- ---------- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
11/30/97 $-0- $2,399 $-0- $-0-
11/30/96 3,249 -0- N/A N/A
11/30/95 -0- -0- N/A N/A
</TABLE>
*Commenced operations on February 24, 1997.
The Distributor and, in its capacity as such, DDI received CDSC
payments with respect to Class B Shares of each Fund as follows:
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<PAGE>
CDSC Payments
<TABLE>
<CAPTION>
Decatur
Fiscal Decatur Income Total Return Blue Chip Social Awareness
Year Ended Fund B Class Fund B Class Fund B Class* Fund B Class*
- ---------- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
11/30/97 $150,241 $171,099 $757 $2,387
11/30/96 60,751 45,044 N/A N/A
11/30/95 21,252 15,098 N/A N/A
</TABLE>
*Commenced operations on February 24, 1997.
The Distributor received CDSC payments with respect to Class C Shares
of each Fund as follows:
CDSC Payments
<TABLE>
<CAPTION>
Decatur
Fiscal Decatur Income Total Return Blue Chip Social Awareness
Year Ended Fund C Class* Fund C Class* Fund C Class** Fund C Class**
- ---------- ------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
11/30/97 $3,768 $5,019 $-0- $10
11/30/96 1,439 1,584 N/A N/A
11/30/95* -0- -0- N/A N/A
</TABLE>
*Commenced operations on November 29, 1995.
**Commenced operations on February 24, 1997.
Effective as of January 3, 1995, all such payments described above have
been paid to the Distributor.
The Transfer Agent, an affiliate of the Manager, acts as shareholder
servicing, dividend disbursing and transfer agent for each Fund and for the
other mutual funds in the Delaware Group. The Transfer Agent is paid a fee by
each Fund for providing these services consisting of an annual per account
charge of $5.50 plus transaction charges for particular services according to a
schedule. Compensation is fixed each year and approved by the Board of
Directors, including a majority of the unaffiliated directors. The Transfer
Agent also provides accounting services to 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.
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<PAGE>
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 Social
Awareness 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.
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:
<TABLE>
<CAPTION>
<S> <C>
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
Social Awareness Fund 200 million
================
Social Awareness Fund A Class 100 million
================
Social Awareness Fund B Class 25 million
================
Social Awareness Fund C Class 25 million
================
Social Awareness Fund Institutional Class 50 million
================
</TABLE>
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<PAGE>
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.
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 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 on February 21, 1997, the name
Delaware Group Decatur Fund, Inc. was changed to Delaware Group Equity Funds II,
Inc. Effective as of the close of business on January 28, 1998, the name of
Quantum Fund series was changed to Social Awareness series and the names of the
Quantum Fund A Class, Quantum Fund B Class, Quantum Fund C Class and Quantum
Fund Institutional Class changed to Social Awareness Fund A Class, Social
Awareness Fund B Class, Social Awareness Fund C Class and Social Awareness Fund
Institutional Class, respectively.
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<PAGE>
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.
-92-
<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.
-93-
<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, Decatur Total Return Fund's,
Blue Chip Fund's and Social Awareness Fund's Statements of Net Assets,
Statements of Operations, Statements of Changes in Net Assets, and Notes to
Financial Statements, as well as the reports of Ernst & Young LLP, independent
auditors, for the fiscal year ended November 30, 1997 are included in Delaware
Group Equity Funds II, Inc. - Decatur Income Fund's and Delaware Group Equity
Funds II, Inc. - Decatur Total Return Fund's Annual Report to shareholders,
Delaware Group Equity Funds II, Inc. - Blue Chip Fund's Annual Report to
shareholders and Delaware Group Equity Funds II, Inc. - Social Awareness Fund's
Annual Report to shareholders. The financial statements and financial
highlighrts the notes relating thereto and the reports of Ernst & Young LLP,
listed above are incorporated by reference from the Annual Reports into this
Part B.
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<PAGE>
The Delaware Group includes funds with a wide range of investment
objectives. Stock funds, income funds, national and state-specific tax-exempt
funds, money market funds, global and international funds and closed-end funds
give investors the ability to create a portfolio that fits their personal
financial goals. For more information, shareholders of the Fund Classes should
contact their financial adviser or call Delaware Group at 800-523-4640, and
shareholders of the Institutional Class should contact Delaware Group at
800-828-5052.
INVESTMENT MANAGER
Delaware Management Company, Inc.
One Commerce Square
Philadelphia, PA 19103
SUB-ADVISER
Blue Chip Fund and
Social Awareness Fund:
Vantage Global Advisors, Inc.
630 Fifth Avenue
New York, NY 10111
NATIONAL DISTRIBUTOR
Delaware Distributors, L.P.
1818 Market Street
Philadelphia, PA 19103
SHAREHOLDER SERVICING,
DIVIDEND DISBURSING,
ACCOUNTING SERVICES
AND TRANSFER AGENT
Delaware Service Company, Inc.
1818 Market Street
Philadelphia, PA 19103
LEGAL COUNSEL
Stradley, Ronon, Stevens & Young, LLP
One Commerce Square
Philadelphia, PA 19103
INDEPENDENT AUDITORS
Ernst & Young LLP
Two Commerce Square
Philadelphia, PA 19103
CUSTODIAN
Decatur Income Fund and
Decatur Total Return Fund:
Bankers Trust Company
One Bankers Trust Plaza
New York, NY 10006
Blue Chip Fund and
Social Awareness Fund:
The Chase Manhattan Bank
4 Chase Metrotech Center
Brooklyn, NY 11245
<PAGE>
- --------------------------------------------------------------------------------
DECATUR INCOME FUND
DECATUR TOTAL RETURN FUND
BLUE CHIP FUND
SOCIAL AWARENESS FUND (formerly Quantum Fund)
- --------------------------------------------------------------------------------
A CLASSES
B CLASSES
C CLASSES
- --------------------------------------------------------------------------------
INSTITUTIONAL CLASSES
- --------------------------------------------------------------------------------
CLASSES OF DELAWARE GROUP
EQUITY FUNDS II, INC.
- --------------------------------------------------------------------------------
PART B
STATEMENT OF
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
JANUARY 29, 1998
DELAWARE
GROUP
---------
<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
Report of Independent Auditors
* The financial statements and Report of Independent
Auditors listed above for Decatur Income Fund, Decatur
Total Return Fund, Blue Chip Fund and Social Awareness
Fund are incorporated by reference into Part B from the
Registrant's Annual Report for such Funds for the fiscal
year ended November 30, 1997.
(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) Executed Articles Supplementary
(March 24, 1997) incorporated into
this filing by reference to
Post-Effective Amendment No. 108
filed August 22, 1997.
(d) Executed Articles of Amendment
(March 24, 1997) incorporated into
this filing by reference to
Post-Effective Amendment No. 108
filed August 22, 1997.
(e) Executed Articles of Amendment
(January 6, 1998) attached as
Exhibit.
(2) By-Laws. By-Laws, as amended to date,
incorporated into this filing by reference
to Post-Effective Amendment No. 104 filed
November 27, 1995.
(3) Voting Trust Agreement. Inapplicable.
<PAGE>
PART C - Other Information
(Continued)
(4) Copies of All Instruments Defining the
Rights of Holders.
(a) Articles of Incorporation, Articles
of Amendment and Articles
Supplementary.
(i) Article Second of Articles
Supplementary (June 30,
1993, April 27, 1994 and
September 2, 1994),
Article Fifth of the
Articles of Incorporation
(March 4, 1983) and
Article Eleventh of
Articles of Amendment (May
2, 1985) incorporated into
this filing by reference
to Post-Effective
Amendment No. 104 filed
November 27, 1995.
(ii) Articles Third and Fourth
of Articles Supplementary
(November 28, 1995)
incorporated into this
filing by reference to
Post-Effective Amendment
No. 105 filed January 30,
1996.
(iii) Articles Fifth of Articles
Supplementary (March 24,
1997) incorporated by
reference to Exhibit
24(b)(1)(c) incorporated
into this filing by
reference to Post-Effective
Amendment No. 108 filed
August 22, 1997.
(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 Social Awareness Fund
(formerly Quantum Fund)
incorporated into this filing by
reference to Post-Effective
Amendment No. 106 filed December
10, 1996.
<PAGE>
PART C - Other Information
(Continued)
(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 Social Awareness Fund
(formerly Quantum Fund)
incorporated into this filing by
reference to Post-Effective
Amendment No. 106 filed December
10, 1996.
(6) (a) Distribution Agreements.
(i) Proposed 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 Social Awareness Fund
(formerly 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.
<PAGE>
PART C - Other Information
(Continued)
(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.
(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
Social Awareness Fund (formerly
Quantum Fund) incorporated into
this filing by reference to
Post-Effective Amendment No. 106
filed December 10, 1996.
(e) Amended Custodian Agreement (1997)
between The Chase Manhattan Bank
and the Registrant on behalf of
Blue Chip Fund and Quantum Fund
attached as Exhibit.
(f) Amendment to Custodian Agreement
(November 20, 1997) between The
Chase Manhattan Bank and the
Registrant on behalf of Blue Chip
Fund and Social Awareness Fund
(formerly Quantum Fund) attached as
Exhibit.
(9) Other Material Contracts.
(a) Proposed Amended and Restated
Shareholders Services Agreement
(February 24, 1997) 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.
<PAGE>
PART C - Other Information
(Continued)
(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.
(10) Opinion of Counsel. Inapplicable.
(11) Consent of Auditors. Consent and Report 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.
(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
Social Awareness Fund (formerly
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
Social Awareness Fund (formerly
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
Social Awareness Fund (formerly
Quantum Fund) Class C (February __,
1997) incorporated into this filing
by reference to Post-Effective
Amendment No. 106 filed
December 10, 1996.
<PAGE>
PART C - Other Information
(Continued)
(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, Post-Effective Amendment
No. 105 filed January 30, 1996,
Post-Effective Amendment No. 107
filed February 21, 1997 and
Post-Effective Amendment No. 108
filed August 22, 1997.
(b) Schedule of Computation for each
period not previously filed
attached as Exhibit.
(17) Financial Data Schedules.
(a) Financial Data Schedules for the
fiscal year ended November 30, 1997
are attached as an Exhibit.
(18) Plan under Rule 18f-3.
(a) Amended Plan (September 24, 1997)
under Rule 18f-3 attached as
Exhibit.
(b) Amended Appendix A (December 18,
1997) to Plan under Rule 18f-3
attached as Exhibit.
(19) Other: Directors' Power of Attorney.
Attached as Exhibit.
Item 25. Persons Controlled by or under Common Control with
Registrant. None.
<PAGE>
PART C - Other Information
(Continued)
Item 26. Number of Holders of Securities.
<TABLE>
<CAPTION>
(1) (2)
<S> <C>
Number of
Title of Class Record Holders
-------------- --------------
Delaware Group Equity Funds II, Inc.'s
Decatur Income Fund series:
Decatur Income Fund A Class
Common Stock Par Value 72,440 Accounts as of
$1.00 Per Share December 31, 1997
Decatur Income Fund B Class
Common Stock Par Value 6,169 Accounts as of
$1.00 Per Share December 31, 1997
Decatur Income Fund C Class
Common Stock Par Value 866 Accounts as of
$1.00 Per Share December 31, 1997
Decatur Income Fund Institutional Class
Common Stock Par Value 89 Accounts as of
$1.00 Per Share December 31, 1997
Delaware Group Equity Funds II, Inc.'s
Decatur Total Return Fund series:
Decatur Total Return Fund A Class
Common Stock Par Value 41,040 Accounts as of
$1.00 Per Share December 31, 1997
Decatur Total Return Fund B Class
Common Stock Par Value 9,116 Accounts as of
$1.00 Per Share December 31, 1997
Decatur Total Return Fund C Class
Common Stock Par Value 1,587 Accounts as of
$1.00 Per Share December 31, 1997
</TABLE>
<PAGE>
PART C - Other Information
(Continued)
<TABLE>
<CAPTION>
(1) (2)
<S> <C>
Number of
Title of Class Record Holders
-------------- --------------
Decatur Total Return Fund Institutional Class
Common Stock Par Value 48 Accounts as of
$1.00 Per Share December 31, 1997
Delaware Group Equity Funds II, Inc.'s
Blue Chip Fund series:
Blue Chip Fund A Class
Common Stock Par Value 355 Accounts as of
$1.00 Per Share December 31, 1997
Blue Chip Fund B Class
Common Stock Par Value 278 Accounts as of
$1.00 Per Share December 31, 1997
Blue Chip Fund C Class
Common Stock Par Value 61 Accounts as of
$1.00 Per Share December 31, 1997
Blue Chip Fund Institutional Class
Common Stock Par Value 14 Accounts as of
$1.00 Per Share December 31, 1997
Delaware Group Equity Funds II, Inc.'s
Social Awareness Fund (formerly Quantum Fund) series:
Social Awareness Fund A Class
(formerly Quantum Fund)
Common Stock Par Value 1,171 Accounts as of
$1.00 Per Share December 31, 1997
Social Awareness Fund B Class
(formerly Quantum Fund)
Common Stock Par Value 890 Accounts as of
$1.00 Per Share December 31, 1997
Social Awareness Fund C Class
(formerly Quantum Fund)
Common Stock Par Value 145 Accounts as of
$1.00 Per Share December 31, 1997
</TABLE>
<PAGE>
PART C - Other Information
(Continued)
<TABLE>
<CAPTION>
(1) (2)
<S> <C>
Number of
Title of Class Record Holders
-------------- --------------
Social Awareness Fund Institutional Class
(formerly Quantum Fund)
Common Stock Par Value 11 Accounts as of
$1.00 Per Share December 31, 1997
</TABLE>
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
Equity Funds I, Inc., Delaware Group Equity Funds III, Inc., Delaware Group
Equity Funds IV, Inc., Delaware Group Equity Funds V, Inc., Delaware Group
Foundation Funds, Delaware Group Government Fund, Inc., Delaware Group Income
Funds, Inc., Delaware Group Limited-Term Government Funds, Inc., Delaware Group
Cash Reserve, Inc., Delaware Group Tax-Free Fund, Inc., Delaware Group State
Tax-Free Income Trust, 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., Delaware Group Global Dividend and Income Fund, Inc.,
Voyageur Tax-Free Funds, Inc., Voyageur Intermediate Tax-Free Funds, Inc.,
Voyageur Insured Funds, Inc., Voyageur Funds, Inc., Voyageur Investment Trust,
Voyageur Investment Trust II, Voyageur Mutual Funds, Inc., Voyageur Mutual Funds
II, Inc., Voyageur Mutual Funds III, Inc., Voyageur Arizona Municipal Income
Fund, Inc., Voyageur Colorado Insured Municipal Income Fund, Inc., Voyageur
Florida Insured Municipal Income Fund, Voyageur Minnesota Municipal Fund, Inc.,
Voyageur Minnesota Municipal Fund II, Inc. and Voyageur Minnesota Municipal Fund
III, Inc.) and provides investment advisory services to institutional accounts,
primarily retirement plans and endowment funds. In addition, certain directors
of the Manager also serve as directors/trustees of the other Delaware Group
funds, and certain officers are also officers of these other funds. A company
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 services, dividend disbursing, accounting servicing 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 Principle 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.; Chairman of the Board, President, Chief Executive Officer and
Director of DMH Corp., Delaware Distributors, Inc. and Founders
Holdings, Inc.; Chairman, Chief Executive Officer and Director of
Delaware International Holdings Ltd. and Delaware International
Advisers Ltd.; Chairman of the Board and Director of the Registrant,
each of the other funds in the Delaware Group, Delaware Management
Holdings, Inc. and Delaware Capital Management, Inc.; Chairman of
Delaware Distributors, L.P.; President and Chief Executive Officer of
Delvoy, Inc.; and Director of Delaware Service Company, Inc. and
Delaware Investment & Retirement Services, Inc.
Richard G. Unruh, Jr. Executive Vice President and Director of Delaware Management
Company, Inc.; Executive Vice President of the Registrant, each of the
other funds in the Delaware Group, 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, AAA 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, each of the other
funds in the Delaware Group and Delaware Management Holdings,
Inc.; Executive Vice President and Director of Founders Holdings, Inc.;
Executive Vice President of Delaware Capital Management, Inc.; and
Director of Founders CBO Corporation
Director, HYPPCO Finance Company Ltd.
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
</TABLE>
<PAGE>
PART C - Other Information
(Continued)
<TABLE>
<CAPTION>
Name and Principle 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, Chief Financial
Officer and Director of Delaware Management Company, Inc., DMH
Corp, Delaware Distributors, Inc., Founders Holdings, Inc. and Delvoy,
Inc.; Executive Vice President, Chief Operating Officer and Chief
Financial Officer of the Registrant and each of the other funds in the
Delaware Group, Delaware Management Holdings, Inc., Founders CBO
Corporation, Delaware Capital Management, Inc. and Delaware
Distributors, L.P.; President, Chief Executive Officer, Chief Financial
Officer and Director of Delaware Service Company, Inc.; President,
Chief Operating Officer, Chief Financial Officer and Director of
Delaware International Holdings Ltd.; Chairman, Chief Executive
Officer and Director of Delaware Investment & Retirement Services,
Inc.; Chairman and Director of Delaware Management Trust Company;
Director of Delaware International Advisers Ltd.; and Vice President of
Lincoln Funds Corporation
Chief Executive Officer and Director of Forewarn, Inc. since 1993, 8
Clayton Place, Newtown Square, PA
George M. Senior Vice President, General Counsel, Secretary and Director of
Chamberlain, Jr. Delaware Management Company, Inc., DMH Corp., Delaware Distributors,
Inc., Delaware Service Company, Inc., Founders Holdings, Inc.,
Delaware Capital Management, Inc., Delaware Investment & Retirement
Services, Inc. and Delvoy, Inc.; Senior Vice President, Secretary
and General Counsel of the Registrant, each of the other funds in the
Delaware Group, Delaware Distributors, L.P. and Delaware Management
Holdings, Inc.; Senior Vice President and Director of Delaware
International Holdings Ltd.; Executive Vice President, Secretary,
General Counsel and Director of Delaware Management Trust Company;
Director of Delaware International Advisers Ltd.; Secretary of
Lincoln Funds Corporation
*Business address of each is 1818 Market Street, Philadelphia, PA 19103.
</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>
Richard J. Flannery Senior Vice President/Corporate and International Affairs of the
Registrant, each of the other funds in the Delaware Group, Delaware
Management Holdings, Inc., DMH Corp., Delaware Management
Company, Inc., Delaware Distributors, Inc., Delaware Distributors,
L.P., Delaware Management Trust Company, Delaware Capital
Management, Inc., Delaware Service Company, Inc. and Delaware
Investment & Retirement Services, Inc.; Executive Vice
Presidnet/Corporate & International Affairs and Director of Delaware
International Holdings Ltd.; Senior Vice President/ Corporate and
International Affairs and Director of Founders Holdings, Inc. and
Delvoy, Inc.; Senior Vice President of Founders CBO Corporation;
and Director of Delaware International Advisers Ltd.
Director, HYPPCO Finance Company Ltd.
Limited Partner of Stonewall Links, L.P. since 1991, Bulltown Rd.,
Elverton, PA; Director and Member of Executive Committee of
Stonewall Links, Inc. since 1991, Bulltown Rd., Elverton, PA
Michael P. Bishof Senior Vice President and Treasurer of the Registrant, each of the
other funds in the Delaware Group and Founders Holdings, Inc.;
Senior Vice President/Investment Accounting of Delaware
Management Company, Inc. and Delaware Service Company, Inc.;
Senior Vice President and Treasurer/Manager, Investment
Accounting of Delaware Distributors, L.P.; Assistant Treasurer of
Founders CBO Corporation; and Senior Vice President and Manager
of Investment Accounting of Delaware International Holdings Ltd.
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
</TABLE>
<PAGE>
PART C - Other Information
(Continued)
<TABLE>
<CAPTION>
Name and Principle Positions and Offices with the Manager and its
Business Address * Affiliates and Other Positions and Offices Held
- ------------------ -----------------------------------------------
<S> <C>
Joseph H. Hastings Senior Vice President/Corporate Controller and Treasurer of
Delaware Management Holdings, Inc., DMH Corp., Delaware
Management Company, Inc., Delaware Distributors, Inc., Delaware
Capital Management, Inc., Delaware Distributors, L.P., Delaware
Service Company, Inc., Delaware International Holdings Ltd. and
Delvoy, Inc.; Senior Vice President/Corporate Controller of the
Registrant, each of the other funds in the Delaware Group and
Founders Holdings, 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.; Senior Vice President/Assistant Treasurer
of Founders CBO Corporation; and Treasurer of Lincoln Funds
Corporation.
Michael T. Taggart Senior Vice President/Facilities Management and Administrative
Services of Delaware Management Company, Inc.
Douglas L. Anderson Senior Vice President/Operations of Delaware Management
Company, Inc., Delaware Investment and Retirement Services, Inc.
and Delaware Service Company, Inc.; Senior Vice President/
Operations and Director of Delaware Management Trust Company
James L. Shields Senior Vice President/Chief Information Officer of Delaware
Management Company, Inc., Delaware Service Company, Inc. and
Delaware Investment & Retirement Services, Inc.
Eric E. Miller Vice President, Assistant Secretary and Deputy General Counsel of
the Registrant and each of the other funds in the Delaware Group,
Delaware Management Company, Inc., Delaware Management
Holdings, Inc., DMH Corp., Delaware Distributors, L.P., Delaware
Distributors Inc., Delaware Service Company, Inc., Delaware
Management Trust Company, Founders Holdings, Inc., Delaware
Capital Management, Inc. and Delaware Investment & Retirement
Services, Inc.; and Vice President and Assistant Secretary of Delvoy,
Inc.
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
</TABLE>
<PAGE>
PART C - Other Information
(Continued)
<TABLE>
<CAPTION>
Name and Principle 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., Founders Holdings, Inc. and Delvoy, Inc.;
Vice President and Secretary of Delaware International Holdings
Ltd.; and Secretary of Founders CBO Corporation;
Partner of Tri-R Associates since 1989, 10001 Sandmeyer Lane,
Philadelphia, PA
Richard Salus(1) Vice President/Assistant Controller of Delaware Management
Company, Inc. and Delaware Management Trust Company
Bruce A. Ulmer Vice President/Director of LNC Internal Audit of Delaware
Management Company, Inc., the Registrant, each of the other
funds in the Delaware Group, Delaware Management Holdings,
Inc., DMH Corp., Delaware Management Trust Company and Delaware
Investment & Retirement Services, Inc.; Vice President/Director
of Internal Audit of Delvoy, Inc.
Steven T. Lampe(2) Vice President/Taxation of Delaware Management Company, Inc.,
the Registrant, each of the other funds in the Delaware Group,
Delaware Management Holdings, Inc., DMH Corp., Delaware
Distributors, L.P., Delaware Distributors, Inc., Delaware Service
Company, Inc., Delaware Management Trust Company, Founders
Holdings, Inc., Founders CBO Corporation, Delaware Capital
Management, Inc., Delaware Investment & Retirement Services, Inc.
and Delvoy, Inc.
Christopher Adams(3) Vice President/Strategic Planning of Delaware Management
Company, Inc. and Delaware Service Company, Inc.
Susan L. Hanson Vice President/Strategic Planning of Delaware Management
Company, Inc. and Delaware Service Company, Inc.
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
</TABLE>
<PAGE>
PART C - Other Information
(Continued)
<TABLE>
<CAPTION>
Name and Principle Positions and Offices with the Manager and its
Business Address * Affiliates and Other Positions and Offices Held
- ------------------ -----------------------------------------------
<S> <C>
Dennis J. Mara(4) Vice President/Acquisitions of Delaware Management Company, Inc.
Scott Metzger Vice President/Business Development of Delaware Management
Company, Inc. and Delaware Service Company, 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.; Vice President of Delvoy, Inc.
Rosemary E. Milner Vice President/Legal Registrations of Delaware Management
Company, Inc., the Registrant, each of the other funds in the
Delaware Group, Delaware Distributors, L.P. and Delaware
Distributors, Inc.
Mary Ellen Carrozza Vice President/Client Services of Delaware Management Company,
Inc. and the Registrant
Gerald T. Nichols Vice President/Senior Portfolio Manager of Delaware Management Company,
Inc., each of the tax-exempt funds, the fixed income funds and the
closed-end funds in the Delaware Group; Vice President of Founders
Holdings, Inc.; and Treasurer, Assistant Secretary and Director of
Founders CBO Corporation
Paul A. Matlack Vice President/Senior Portfolio Manager of Delaware Management Company,
Inc., each of the tax-exempt funds, the fixed income funds and the
closed-end funds in the Delaware Group; Vice President of Founders
Holdings, Inc.; and President and Director of Founders CBO Corporation.
Gary A. Reed Vice President/Senior Portfolio Manager of Delaware Management Company,
Inc., each of the tax-exempt funds and the fixed income funds in the
Delaware Group and Delaware Capital Management, Inc.
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
</TABLE>
<PAGE>
PART C - Other Information
(Continued)
<TABLE>
<CAPTION>
Name and Principle Positions and Offices with the Manager and its
Business Address * Affiliates and Other Positions and Offices Held
- ------------------ -----------------------------------------------
<S> <C>
Patrick P. Coyne Vice President/Senior Portfolio Manager of Delaware Management
Company, Inc., each of the tax-exempt funds and the fixed income
funds in the Delaware Group and Delaware Capital Management, Inc.
Roger A. Early Vice President/Senior Portfolio Manager of Delaware Management
Company, Inc., each of the tax-exempt funds and the fixed income
funds in the Delaware Group
Mitchell L. Conery(5) Vice President/Senior Portfolio Manager of Delaware Management
Company, Inc., and each of the tax-exempt and fixed income funds
in the Delaware Group
George H. Burwell Vice President/Senior Portfolio Manager of Delaware Management
Company, Inc., the Registrant and each of the equity funds in the
Delaware Group
John B. Fields Vice President/Senior Portfolio Manager of Delaware Management
Company, Inc., the Registrant and each of the equity funds in
the Delaware Group and Delaware Capital Management, Inc.
Gerald S. Frey(6) Vice President/Senior Portfolio Manager of Delaware Management
Company, Inc., the Registrant and each of the equity funds in the
Delaware Group
Christopher Beck(7) Vice President/Senior Portfolio Manager of Delaware Management
Company, Inc., the Registrant and each of the equity funds in the
Delaware Group
Elizabeth H. Howell(8) Vice President/Senior Portfolio Manager of Delaware Management
Company, Inc. and the Delaware-Voyageur Tax-Free Minnesota
Intermediate, Delaware-Voyageur Minnesota Insured, Delaware-
Voyageur Tax-Free Minnesota, Delaware-Voyageur Tax-Free Idaho,
Delaware-Voyageur Tax-Free Kansas, Delaware-Voyageur Tax-Free
Missouri, Delaware-Voyageur Tax-Free Oregon, Delaware-Voyageur
Tax-Free Washington, Delaware-Voyageur Tax-Free Iowa and
Delaware-Voyageur Tax-Free Wisconsin Funds.
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
</TABLE>
<PAGE>
PART C - Other Information
(continued)
<TABLE>
<CAPTION>
Name and Principle Positions and Offices with the Manager and its
Business Address * Affiliates and Other Positions and Offices Held
- ------------------ -----------------------------------------------
<S> <C>
Andrew M. McCullagh(9) Vice President/Senior Portfolio Manager of Delaware Management
Company, Inc. and the Delaware-Voyageur Tax-Free Arizona
Insured, Delaware-Voyageur Tax-Free Arizona, Delaware-Voyageur
Tax-Free California Insured, Delaware-Voyageur Tax-Free Colorado,
Delaware-Voyageur Tax-Free New Mexico, Delaware-Voyageur Tax-
Free North Dakota and Delaware-Voyageur Tax-Free Utah Funds.
Babak Zenouzi Vice President/Senior Portfolio Manager of Delaware Management
Company, Inc., the Registrant and each of the equity funds and
the closed-end funds in the Delaware Group
Paul Grillo Vice President/Portfolio Manager of Delaware Management
Company, Inc. and each of the tax-exempt and fixed income funds in
the Delaware Group
Marshall T. Bassett Vice President/Portfolio Manager of Delaware Management Company, Inc.
John Heffern Vice President/Portfolio Manager of Delaware Management Company, Inc.
1 SENIOR MANAGER, Ernst & Young LLP prior to December 1996.
2 TAX MANAGER, Price Waterhouse LLP prior to October 1995.
3 SENIOR ASSOCIATE, FAS, Coopers & Lybrand LLP prior to October 1995.
4 CORPORATE CONTROLLER, IIS prior to July 1997 and DIRECTOR, FINANCIAL PLANNING,
Decision One prior to March 1996.
5 INVESTMENT OFFICER, Travelers Insurance prior to January 1997.
6 SENIOR DIRECTOR, Morgan Grenfell Capital Management prior to June 1996.
7 SENIOR PORTFOLIO MANAGER, Pitcairn Trust Company prior to May 1997.
8 SENIOR PORTFOLIO MANAGER, Voyageur Fund Managers, Inc. prior to May 1997.
9 SENIOR VICE PRESIDENT, SENIOR PORTFOLIO MANAGER, Voyageur Asset Management LLC prior to May 1997.
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
</TABLE>
<PAGE>
PART C - Other Information
(continued)
Vantage Global Advisors, Inc. ("Vantage"), 630 Fifth Avenue, New
York, NY 10111, is an indirect, wholly owned subsidiary of Lincoln National
Corporation and an affiliate of Delaware Management Company, Inc. Vantage
provides investment advice to pension plans, endowments, insurance and
commingled products. Vantage serves as sub-investment adviser to the Blue Chip
Fund series and the Social Awareness 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
* Business address is 200 East Berry Street, Fort Wayne, IN 46802.
</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>
<PAGE>
PART C - Other Information
(continued)
Item 29. Principal Underwriters.
(a) Delaware Distributors, L.P. serves as principal
underwriter for all the mutual funds in the Delaware
Group.
(b) Information with respect to each director, officer
or partner of principal underwriter:
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address * with Underwriter with Registrant
- ------------------ --------------------- ---------------------
<S> <C> <C>
Delaware Distributors, Inc. General Partner None
Delaware Management
Company, Inc. Limited Partner Investment Manager
Delaware Capital
Management, Inc. Limited Partner None
Wayne A. Stork Chairman Chairman
Bruce D. Barton President and Chief Executive None
Officer
David K. Downes Senior Vice President, Executive Vice
Chief Administrative Officer President/Chief
and Chief Financial Officer Operating Officer/
Chief Financial Officer
George M. Chamberlain, Jr. Senior Vice President/Secretary/ Senior Vice President/
General Counsel Secretary/General Counsel
Terrence P. Cunningham Senior Vice President/ Financial None
Institutions
Thomas E. Sawyer Senior Vice President/ None
National Sales Director
Dana B. Hall Senior Vice President/ None
Key Accounts
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
</TABLE>
<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>
Mac McAuliffe Senior Vice President/Sales None
Manager, Western Division
William F. Hostler Senior Vice President/ None
Marketing Services
J. Chris Meyer Senior Vice President/ None
Director Product Management
Stephen H. Slack Senior Vice President/Wholesaler None
William M. Kimbrough Senior Vice President/Wholesaler None
Daniel J. Brooks Senior Vice President/Wholesaler None
Richard J. Flannery Senior Vice President/Corporate Senior Vice President/
and International Affairs Corporate and
International Affairs
Bradley L. Kolstoe Senior Vice President/Western None
Division Sales Manager
Henry W. Orvin Senior Vice President/Eastern None
Division Sales Manager - Wire/
Regional Channel
Michael P. Bishof Senior Vice President and Treasurer/ Senior Vice
Manager, Investment Accounting President/Treasurer
Eric E. Miller Vice President/Assistant Secretary/ Vice President/
Deputy General Counsel Assistant Secretary/
Deputy General Counsel
Richelle S. Maestro Vice President/ Vice President/
Assistant Secretary Assistant Secretary
Steven T. Lampe Vice President/Taxation Vice President/Taxation
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
</TABLE>
<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>
Joseph H. Hastings Vice President/Corporate Senior Vice President/
Controller & Treasurer Corporate Controller
Lisa O. Brinkley Vice President/Compliance Vice President/
Compliance
Rosemary E. Milner Vice President/Legal Registrations Vice President/Legal
Registrations
Daniel H. Carlson Vice President/Strategic Marketing None
Diane M. Anderson Vice President/Plan Record Keeping None
and Administration
Anthony J. Scalia Vice President/Defined Contribution None
Sales, SW Territory
Courtney S. West Vice President/Defined Contribution None
Sales, NE Territory
Denise F. Guerriere Vice President/Client Services None
Gordon E. Searles Vice President/Client Services None
Julia R. Vander Els Vice President/Participant Services None
Jerome J. Alrutz Vice President/Retail Sales None
Joanne A. Mettenheimer Vice President/New Business None
Development
Scott Metzger Vice President/Business Development Vice President/Business
Development
Stephen C. Hall Vice President/Institutional Sales None
Gregory J. McMillan Vice President/ National Accounts None
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
</TABLE>
<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>
Christopher H. Price Vice President/Manager, None
Insurance
Stephen J. DeAngelis Vice President/Product None
Development
Zina DeVassal Vice President/Financial Institutions None
Andrew W. Whitaker Vice President/Financial Institutions None
Jesse Emery Vice President/ Marketing None
Communications
Darryl S. Grayson Vice President, Broker/Dealer None
Internal Sales
Susan T. Friestedt Vice President/Client Service None
Dinah J. Huntoon Vice President/Product None
Manager Equity
Soohee Lee Vice President/Fixed Income None
Product Management
Michael J. Woods Vice President/ UIT Product None
Management
Ellen M. Krott Vice President/Marketing None
Dale L. Kurtz Vice President/Marketing Support None
Holly W. Reimel Vice President/Manager, Key Accounts None
David P. Anderson Vice President/Wholesaler None
Lee D. Beck Vice President/Wholesaler None
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
</TABLE>
<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>
Gabriella Bercze Vice President/Wholesaler None
Terrence L. Bussard Vice President/Wholesaler None
William S. Carroll Vice President/Wholesaler None
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
Ronald A. Haimowitz Vice President/Wholesaler None
Christopher L. Johnston Vice President/Wholesaler None
Michael P. Jordan Vice President/Wholesaler None
Jeffrey A. Keinert Vice President/Wholesaler None
Thomas P. Kennett Vice President/ Wholesaler None
Debbie A. Marler Vice President/Wholesaler None
Nathan W. Medin Vice President/Wholesaler None
Roger J. Miller Vice President/Wholesaler None
Patrick L. Murphy Vice President/Wholesaler None
Stephen C. Nell Vice President/Wholesaler None
Julia A. Nye Vice President/Wholesaler None
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
</TABLE>
<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>
Joseph T. Owczarek Vice President/Wholesaler None
Mary Ellen Pernice-Fadden Vice President/Wholesaler None
Mark A. Pletts Vice President/Wholesaler None
Philip G. Rickards Vice President/Wholesaler None
Laura E. Roman Vice President/Wholesaler None
Linda Schulz Vice President/Wholesaler None
Edward B. Sheridan Vice President/Wholesaler None
Robert E. Stansbury Vice President/Wholesaler None
Julia A. Stanton Vice President/Wholesaler None
Larry D. Stone Vice President/Wholesaler None
Edward J. Wagner Vice President/Wholesaler None
Wayne W. Wagner Vice President/Wholesaler None
John A. Wells Vice President/Marketing Technology None
Scott Whitehouse Vice President/Wholesaler None
</TABLE>
(c) Not Applicable.
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
PART C - Other Information
(continued)
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) Not Applicable.
(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 meet 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 27th day of January 1998.
DELAWARE GROUP EQUITY FUNDS V, INC.
By /s/ Wayne A. Stork
---------------------
Wayne A. Stork
Chairman
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>
<S> <C> <C>
Signature Title Date
- ----------------------------- ----------------------------------------- -----------------
/s/ Wayne A. Stork
- ----------------------------- Chairman and Director January 27, 1998
Wayne A. Stork
/s/ David K. Downes Executive Vice President/Chief Operating
- ----------------------------- Officer/Chief Financial Officer January 27, 1998
David K. Downes (Principal Financial Officer and Principal
Accounting Officer)
/s/Walter P. Babich *
- ----------------------------- Director January 27, 1998
Walter P. Babich
/s/Anthony D. Knerr *
- ----------------------------- Director January 27, 1998
Anthony D. Knerr
/s/ Ann R. Leven *
- ----------------------------- Director January 27, 1998
Ann R. Leven
/s/ W. Thacher Longstreth *
- ----------------------------- Director January 27, 1998
W. Thacher Longstreth
/s/ Thomas F. Madison *
- ----------------------------- Director January 27, 1998
Thomas F. Madison
/s/ Jeffrey J. Nick *
- ----------------------------- Director January 27, 1998
Jeffrey J. Nick
/s/ Charles E. Peck *
- ----------------------------- Director January 27, 1998
Charles E. Peck
*By /s/ Wayne A. Stork
--------------------
Wayne A. Stork
as Attorney-in-Fact
for each of the persons indicated
</TABLE>
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Exhibits
to
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Exhibit
- ----------- -------
EX-99.B1E Executed Articles of Amendment (January 6, 1998)
EX-99.B8E Amended Custodian Agreement (1997) between The Chase Manhattan
Bank and the Registrant on behalf of Blue Chip Fund and Social
Awareness Fund (formerly Quantum Fund)
EX-99.B8F Amendment to Custody Agreement (November 20, 1997)
EX-99.B11 Consent and Report of Auditors
EX-99.B16B Schedules of Computation
EX-99.B18A Amended Plan under Rule 18f-3 (September 24, 1997)
EX-99.B18B Amended Appendix A (December 18, 1997) to Plan under Rule 18f-3
EX-99.19 Directors' Power of Attorney
EX-27 Financial Data Schedules
<PAGE>
EX-99.B1E
EXHIBIT 24B1E
DELAWARE GROUP EQUITY FUNDS II, INC.
ARTICLES OF AMENDMENT
TO
ARTICLES OF INCORPORATION
DELAWARE GROUP EQUITY FUNDS II, INC., a Maryland corporation
having its principal office in Baltimore, Maryland (hereinafter called the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
FIRST: The Corporation is registered as an open-end management
investment company under the Investment Company Act of 1940, as amended.
SECOND: The Articles of Incorporation of the Corporation, as
amended and supplemented, are further amended by changing the name of the
Quantum Fund series of shares to the Social Awareness Fund series of shares and
by changing the name of each of the series' classes as follows: by changing
Quantum Fund A Class of shares of the series to the Social Awareness Fund A
Class of shares; by changing the name of the Quantum Fund B Class of shares of
the series to the Social Awareness Fund C Class of shares; by changing the name
of the Quantum Fund C Class of shares of the series to the Social Awareness Fund
C Class of shares; and by changing the name of the Quantum Fund Institutional
Class of shares of the series to the Social Awareness Fund Institutional Class
of shares; and by deleting the old names of the series and such classes from the
Articles of Incorporation, as amended and supplemented to date, and inserting in
lieu thereof, the new names of such series and classes as changed hereby.
THIRD: The amendments to the Articles of Incorporation of the
Corporation as set forth above have been duly approved by a majority of the
entire Board of Directors of the Corporation as required by law and are limited
to changes permitted by Section 2-605(a)(4) of the Maryland General Corporation
Law to be made without action by the stockholders of the Corporation.
FOURTH: The amendments to the Articles of Incorporation of the
Corporation as set forth above do not change the preferences, conversion or
other rights, voting powers, restrictions, limitations as to dividends,
qualifications, or terms or conditions of redemption of the shares that are the
subject of the name changes.
<PAGE>
FIFTH: These Articles of Amendment shall become effective at
the close of business on January 28, 1998.
IN WITNESS WHEREOF, DELAWARE GROUP EQUITY FUNDS II, INC. has
caused these Articles of Amendment to be signed in its name and on its behalf by
its Assistant Vice President and attested by its Assistant Secretary on this 6th
day of January, 1998.
DELAWARE GROUP EQUITY FUNDS II, INC.
By: /s/ George M. Chamberlain, Jr.
----------------------------------
George M. Chamberlain, Jr.
Senior Vice President & Secretary
Attest:
/s/ Meghan M. Mahon
- ----------------------
Meghan M. Mahon
Assistant Secretary
-2-
<PAGE>
THE UNDERSIGNED, Assistant Vice President of DELAWARE GROUP
EQUITY FUNDS II, INC., who executed on behalf of said Corporation the foregoing
Articles of Amendment, of which this certificate is made a part, hereby
acknowledges, in the name and on behalf of said Corporation, the foregoing
Articles of Amendment to be the corporate act of said Corporation and further
certifies that, to the best of his knowledge, information and belief, the
matters and facts set forth therein with respect to the approval thereof are
true in all material respects, under the penalties of perjury.
/s/ George M. Chamberlain, Jr.
------------------------------
George M. Chamberlain, Jr.
Senior Vice President & Secretary
-3-
<PAGE>
EX-99.B8E
Exhibit 24(b)(8)(e)
AMENDMENT, dated November 20, 1997 to the May 1, 1996 custody agreement
("Agreement"), between those registered investment companies listed on Schedule
A to the Agreement (each a "Customer"), having a place of business at 1818
Market Street, Philadelphia, PA 19103 and The Chase Manhattan Bank ("Bank"),
having a place of business at 270 Park Ave., New York, N.Y. 10017-2070.
It is hereby agreed as follows:
Section 1. Except as modified hereby, the Agreement is confirmed in all
respects. Capitalized terms used herein without definition shall have the
meanings ascribed to them in the Agreement.
Section 2. The Agreement is amended by deleting the mutual fund rider
thereto and inserting, in lieu thereof, the following mutual fund rider:
1. Add a new Section 15 to the Agreement as follows:
15. Compliance with SEC rule 17f-5 ("Rule 17f-5").
(a) Customer's board of directors (or equivalent body) (hereinafter
"Board") hereby delegates to Bank, and Bank hereby accepts the delegation to it,
of the obligation to perform as Customer's "Foreign Custody Manager" (as that
term is defined in Rule 17f-5(a)(2)) adopted under the Investment Company Act of
1940 ("Act"), as amended ("1940 Act"), the following responsibilities in a
manner consistent with Rule 17f-5, to: (i) select Eligible Foreign Custodians
(as that term is defined in Rule 17f-5(a)(1), and as the same may be amended
from time to time, or that have otherwise been made exempt pursuant to an SEC
exemptive order); (ii) enter into written contracts with such Eligible Foreign
Custodians that are banks or trust companies and with Eligible Foreign
Custodians that are "Securities Depositories" (as defined in Rule 17f-5(a)(6))
and that are not Compulsory Depositories (as defined below) where the Depository
has such a contract; and (iii) to monitor the appropriateness of maintaining
Assets of the series of the Customer with such Eligible Foreign Custodians;
provided that, Bank shall not be responsible for these duties with respect to
any compulsory Securities Depository ("Compulsory Depository"). A Compulsory
Depository shall mean a Securities Depository or clearing agency the use of
which is compulsory because: (1) its use is required by law or regulation or (2)
maintaining securities outside the depository is not consistent with prevailing
custodial practices in the country which the Depository serves. Compulsory
Depositories used by Chase as of the date hereof are set forth in Appendix 1-A
hereto. Appendix 1-A may be amended on notice to Customer from time to time. In
that connection, Bank shall notify Customer promptly of pending changes to
Appendix 1-A.
<PAGE>
(b) In connection with the foregoing, Bank shall:
(i) provide written reports to Customer's Board upon the placement of
Assets with a particular Eligible Foreign Custodian and of any Material
Change (as defined below) in the arrangements with such Eligible
Foreign Custodians, with such reports to be provided to Customer's
Board at such times as the Board deems reasonable and appropriate based
on the circumstances of Customer's foreign custody arrangements (and
until further notice from Customer such reports shall be provided
within 30 days after Bank becomes aware of any such Material Change.
For purposes of the foregoing, a Material Change shall include, but
shall not be limited to, Bank's decision to remove Customer's Assets
from a particular Eligible Foreign Custodian, an event that has a
material adverse affect on an Eligible Foreign Custodian's financial or
operational strength, any non-compliance by an Eligible Foreign
Custodian with a "Material Term" of Bank's subcustodian agreement with
such Eligible Foreign Custodian (as defined below) or any failure by an
Eligible Foreign Custodian to meet the requirements for its status as
such under Rule 17f-5. A Material Term shall mean a term which provides
that (a) the Customer will be adequately indemnified or its Assets
adequately insured, or an adequate combination thereof, in the event of
loss; (b) the Assets of the Series will not be subject to any right,
charge, security interest, lien or claim of any kind in favor of an
Eligible Foreign Custodian or such Eligible Foreign Custodian's
creditors, except a claim of payment for their safe custody or
administration, or in the case of cash deposits, liens or rights in
favor of creditors of the Eligible Foreign Custodian arising under
bankruptcy, insolvency or similar laws; (c) beneficial ownership for
the Assets of the Series will be freely transferable without the
payment of money or value other than for safe custody or administration
of the Assets of the Series; (d) adequate records will be maintained
identifying the Assets as belonging to the Customer or the Series or as
being held by a third party for the benefit of the Customer or the
Series; (e) the independent auditors for the Customer will be given
access to those records or confirmation of the contents of those
records; and (f) the Customer will receive periodic reports with
respect to the safekeeping of the Series' Assets, including, but not
necessarily limited to, notification of any transfer to or from the
Customer's account or a third party account containing Assets held for
the benefit of the Customer. In addition, in the event that a contract
with an Eligible Foreign Custodian does not include any or all of the
terms described in (a) through (f) of this paragraph 15(b)(i), a
Material Term shall mean a term which, in the Bank's judgment, if not
complied with, would cause the contract not to provide the same or
greater level of care and protection for Customer's Assets than if the
contract contained the provisions described in (a) through (f) of this
paragraph 15(b)(i).
2
<PAGE>
(ii) exercise such reasonable care, prudence and diligence in
performing as Customer's Foreign Custody Manager as a person having
responsibility for the safekeeping of Assets would exercise;
(iii) in selecting an Eligible Foreign Custodian, first have determined
that Assets placed and maintained in the safekeeping of such Eligible
Foreign Custodian shall be subject to reasonable care, based on the
standards applicable to custodians in the relevant market, after having
considered all factors relevant to the safekeeping of such Assets,
including, without limitation, those factors set forth in Rule
17f-5(c)(1)(i)-(iv);
(iv) determine that the written contract with the Eligible Foreign
Custodian (or, in the case of an Eligible Foreign Custodian that is a
Securities Depository or clearing agency, such contract, the rules or
established practices or procedures of the depository, or any
combination of the foregoing) requires that the Eligible Foreign
Custodian will provide reasonable care for Assets based on the
standards applicable to custodians in the relevant market.
(v) have established a system to monitor the continued appropriateness
of maintaining Assets with particular Eligible Foreign Custodians based
on the standards set forth herein and of the governing contractual
arrangements based on the standards set forth in Rule 17f-5(c)(2), as
it may be amended from time to time.
Subject to (b)(i)-(v) above, Bank is hereby authorized to place and maintain
Assets on behalf of Customer with Eligible Foreign Custodians pursuant to a
written contract which either contains the terms described in Rule
17f-5(c)(2)(i) or which, in lieu of any or all of the terms described in Rule
17f-5(c)(2)(i), contains such other provisions which the Bank determines will
provide in their entirety, the same or a greater level of care and protection
for the Customer's Assets as the provisions of Rule 17f-5(c)(2)(i) in their
entirety. The written contract shall be in such form as deemed appropriate by
Bank. In addition, with respect to Eligible Foreign Custodians that are
non-compulsory Securities Depositories, reliance may be had on such a contract,
the rules or established practices and procedures of such Depository or any
combination thereof.
3
<PAGE>
(c) Except as expressly provided herein, Customer shall be solely
responsible to assure that the maintenance of Assets hereunder complies with the
rules, regulations, interpretations and exemptive orders promulgated by or under
the authority of the SEC which are applicable to Fund's business or which have
been granted to Fund. Bank shall advise Customer of any exemptive orders which
it obtains which may have an impact on Bank's relationship with Customer.
(d) Bank represents to Customer that it is a U.S. Bank as defined in
Rule 17f-5(a)(7). Customer represents to Bank that: (1) the Assets being placed
and maintained in Bank's custody are subject to the 1940 Act, as the same may be
amended from time to time; (2) its Board has determined that it is reasonable to
rely on Bank to perform as Customer's Foreign Custody Manager. Nothing contained
herein shall require Bank, on Customer's behalf, to make any selection regarding
countries in which Customer invests or to engage in any monitoring of Customer's
decision to invest in any particular country in which Bank selects , contracts
and monitors Eligible Foreign Custodians, as Customer's Foreign Custody Manager
pursuant to the Agreement.
(e) Bank shall provide to Customer such information as is specified in
Appendix 1-B hereto. Customer hereby acknowledges that: (i) such information is
solely designed to inform Customer of market conditions and procedures, but is
not intended to influence Customer's investment decisions; and (ii) Bank has
gathered the information from sources it considers reliable, but that Bank shall
have no responsibility for inaccuracies or incomplete information except to the
extent that Bank was negligent in selecting the sources of such information.
2. Add the following after the first sentence of Section 3 of the
Agreement:
At the request of Customer, Bank may, but need not, add to Schedule A
an Eligible Foreign Custodian that is either a bank or a non-Compulsory
Depository where Bank has not acted as Foreign Custody Manager with
respect to the selection thereof. Bank shall notify Customer in the
event that it elects not to add any such entity.
4
<PAGE>
3. Add the following language to the end of Section 3 of the Agreement:
The term Subcustodian as used herein shall mean the following:
(a) a "U.S. Bank," which shall mean a U.S. bank as defined in Rule
17f-5(a)(7); and (b) with respect to Securities for which the primary
market is outside the U.S. an "Eligible Foreign Custodian," shall mean
(i) a banking institution or trust company, incorporated or organized
under the laws of a country other than the United States, that is
regulated as such by that country's government or an agency thereof,
(ii) a majority-owned direct or indirect subsidiary of a U.S. Bank or
bank holding company which subsidiary is incorporated or organized
under the laws of a country other than the United States; (iii) a
Securities Depository or clearing agency (other than a Compulsory
Depository), incorporated or organized under the laws of a country
other than the United States, that acts as a system for the central
handling of securities or equivalent book-entries in that country and
that is regulated by a foreign financial regulatory authority as
defined under section 2(a)(50) of the 1940 Act, (iv) a Securities
Depository or clearing agency organized under the laws of a country
other than the United States that acts as a transnational system
("Transnational Depository") for the central handling of securities or
equivalent book-entries, and (v) any other entity that shall have been
so qualified by exemptive order, rule or other appropriate action of
the SEC.
The term Subcustodian as used in Section 12(a)(i) (except the last
sentence thereof) shall not include any Eligible Foreign Custodians as
to which Bank has not acted as Foreign Custody Manager, any Compulsory
Depository and any Transnational Depository.
4. Add the following after the word "administration" at the end of
Subsection 4(d)(i): "or, in the case of cash deposits, liens or rights in favor
of creditors of Subcustodian arising under bankruptcy, insolvency, or similar
laws".
5. Delete all of Subsection 4(e) after the word "located" in (ii)
thereof and add the word "and" between "Subcustodian" and "(ii)".
*********************
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first above written.
Customer THE CHASE MANHATTAN BANK
By: /s/ Michael P. Bishof By: /s/ Rosemary M. Stidmon
Name: Michael P. Bishof Name: Rosemary M. Stidmon
Title: Senior Vice President/ Title: Vice President
Treasurer
Date: Nov. 20, 1997 Date: Nov. 20, 1997
6
<PAGE>
APPENDIX A
Delaware Group Adviser Funds, Inc.
U.S. Growth Fund
Overseas Equity Fund
New Pacific Fund
Delaware Group Equity Funds I, Inc.
Delaware Fund
Devon Fund
Delaware Group Equity Funds II, Inc.
Blue Chip Fund
Quantum Fund
Delaware Group Equity Funds IV, Inc.
DelCap Fund
Capital Appreciation Fund
Delaware Group Equity Funds V, Inc.
Retirement Income Fund
Small Cap Value Fund
Delaware Pooled Trust, Inc.
The International Equity Portfolio
The International Fixed Income Portfolio
The Global Equity Portfolio
The Global Fixed Income Portfolio
The High-Yield Bond Portfolio
The Labor Select International Equity Portfolio
The Real Estate Investment Trust Portfolio
The Real Estate Investment Trust Portfolio II
The Emerging Markets Portfolio
Delaware Group Global & International Funds, Inc.
Emerging Markets Series
Global Assets Series
Global Bond Series
Global Equity Series
International Equity Series
International Small Cap Series
7
<PAGE>
APPENDIX A CON'T
Delaware Group Premium Fund, Inc.
Convertible Securities Series
Devon Series
Emerging Markets Series
Quantum Series
Strategic Income Series
Global Bond Series
DelCap Series
International Equity Series
Delaware Series
Value Series
Voyageur Mutual Funds III, Inc.
Tax-Efficient Equity Fund
Dated: November 20, 1997
8
<PAGE>
Appendix 1-A
COMPULSORY DEPOSITORIES
<TABLE>
<CAPTION>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Argentina Caja de Valores Equity, Corporate & Government Debt
- ------------------------------------------------------------------------------------------------------------------------------------
Australia Austraclear Ltd. Corporate Debt, Money Market & Semi-Government Debt
- ------------------------------------------------------------------------------------------------------------------------------------
CHESS Equity
(Clearing House Electronic Sub-register System)
- ------------------------------------------------------------------------------------------------------------------------------------
RITS Government Debt
(Reserve Bank Information and Transfer System)
- ------------------------------------------------------------------------------------------------------------------------------------
Austria Oesterreichische Kontrolbank AG Equity, Corporate + Government Debt
- ------------------------------------------------------------------------------------------------------------------------------------
Belgium CIK Equity + Corporate Debt
(Caisse Interprofessionnelle de Depots et de
Virements de Titres)
- ------------------------------------------------------------------------------------------------------------------------------------
Banque Nationale de Belgique Treasury Bills + Government Debt
- ------------------------------------------------------------------------------------------------------------------------------------
Brazil BOVESPA Equity
(Bolsa de Valores de Sao Paolo)
- ------------------------------------------------------------------------------------------------------------------------------------
BVRJ Equity
(Bolsa de Valores de Rio de Janeiro)
- ------------------------------------------------------------------------------------------------------------------------------------
Canada CDS Equity, Corporate + Government Debt
(Canadian Depository for Securities)
- ------------------------------------------------------------------------------------------------------------------------------------
China, Shanghai SSCCRC Equity
(Shanghai Securities Central Clearing and
Registration Corp.)
- ------------------------------------------------------------------------------------------------------------------------------------
China, Shenzhen SSCC Equity
(Shenzhen Securities Registration Co., Ltd.)
- ------------------------------------------------------------------------------------------------------------------------------------
Czech Republic SCP Equity + Long-Term Government Debt
(Securities Center)
- ------------------------------------------------------------------------------------------------------------------------------------
TKD Treasury Bills + Money Market
(Trh Kratkododich Dlluhopisu or Short-Term
Bond Market)
- ------------------------------------------------------------------------------------------------------------------------------------
Denmark VP (Vaerdipapircentralen) Equity, Corporate + Government Debt
- ------------------------------------------------------------------------------------------------------------------------------------
Egypt Misr Clearing & Sec. Dep. Equity
- ------------------------------------------------------------------------------------------------------------------------------------
Estonia EVK Equity
(Estonian Central Depository for Securities Ltd.)
- ------------------------------------------------------------------------------------------------------------------------------------
Euromarket Cedel & Euroclear Euro-Debt
- ------------------------------------------------------------------------------------------------------------------------------------
Finland CSR Equity + Government Debt
(Central Share Registry Finland)
- ------------------------------------------------------------------------------------------------------------------------------------
Helsinki Money Market Center Ltd. Money Market
- ------------------------------------------------------------------------------------------------------------------------------------
France SICOVAM Equity + Corporate Debt.
(Banque de France)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
France SATURNE Government Debt.
(Banque de France)
- ------------------------------------------------------------------------------------------------------------------------------------
Germany DKV Equity, Corporate + Government Debt
(Deutscher Kassenverein)
- ------------------------------------------------------------------------------------------------------------------------------------
Greece Apothetirio Titlon A.E. Equity
- ------------------------------------------------------------------------------------------------------------------------------------
Bank of Greece Government Debt
- ------------------------------------------------------------------------------------------------------------------------------------
Hong Kong CCASS Equity
(Central Clearing and Settlement System)
- ------------------------------------------------------------------------------------------------------------------------------------
CMU Corporate + Government Debt
(Central Moneymarkets Unit)
- ------------------------------------------------------------------------------------------------------------------------------------
Hungary Keler Ltd. Equity + Government Debt
- ------------------------------------------------------------------------------------------------------------------------------------
Ireland CREST Equity
- ------------------------------------------------------------------------------------------------------------------------------------
GSO Government Debt
(Gilt Settlement Office)
- ------------------------------------------------------------------------------------------------------------------------------------
Israel TASE Clearing House Equity, Corporate + Government Debt
(Tel Aviv Stock Exchange Clearing House)
- ------------------------------------------------------------------------------------------------------------------------------------
Italy Monte Titoli Equity + Corporate Debt
- ------------------------------------------------------------------------------------------------------------------------------------
Bank of Italy Government Debt
- ------------------------------------------------------------------------------------------------------------------------------------
Japan Bank of Japan Registered Government Debt
- ------------------------------------------------------------------------------------------------------------------------------------
Latvia LCD Equity + Government Debt
(Latvian Central Depository)
- ------------------------------------------------------------------------------------------------------------------------------------
Lebanon Midclear Equity
(Custodian and Clearing Center of Lebanon and
the Middle East)
- ------------------------------------------------------------------------------------------------------------------------------------
Luxembourg Cedel Equity
- ------------------------------------------------------------------------------------------------------------------------------------
Malaysia MCD Equity
(Malaysian Central Depository Snd Bhd)
- ------------------------------------------------------------------------------------------------------------------------------------
Mauritius CDS Equity
(Central Depository System)
- ------------------------------------------------------------------------------------------------------------------------------------
Mexico Indeval Equity, Corporate + Government Debt.
(Institucion para el Deposito de Valores)
- ------------------------------------------------------------------------------------------------------------------------------------
Morocco Maroclear Equity + Corporate Debt
- ------------------------------------------------------------------------------------------------------------------------------------
Bank Al'Maghrib Government Debt
- ------------------------------------------------------------------------------------------------------------------------------------
Netherlands NECIGEF/KAS Associate NV Equity, Corp. + Govt. D
- ------------------------------------------------------------------------------------------------------------------------------------
De Nederlandsche Bank N.V. Money Market
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Netherlands NIEC Premium Bonds
(Nederlands Interpforessioneel Effectencentrum
B.V.)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
New Zealand Austraclear New Zealand Equity, Corporate + Government Debt
- ------------------------------------------------------------------------------------------------------------------------------------
Norway VPS Equity, Corporate + Government Debt
(Verdipapirsentralen)
- ------------------------------------------------------------------------------------------------------------------------------------
Oman NONE
- ------------------------------------------------------------------------------------------------------------------------------------
Pakistan CDC Equity
(Central Depository Company of Pakistan Ltd.)
- ------------------------------------------------------------------------------------------------------------------------------------
Equity
(Caja de Valores)
- ------------------------------------------------------------------------------------------------------------------------------------
Philippines PCD Equity
(Philippine Central Depository)
- ------------------------------------------------------------------------------------------------------------------------------------
Poland NDS Equity, Long-Term Government Debt + Vouchers
(National Securities Depository)
- ------------------------------------------------------------------------------------------------------------------------------------
CRT Treasury-Bills
(Central Registry of Treasury-Bills)
- ------------------------------------------------------------------------------------------------------------------------------------
Portugal Interbolsa Equity, Corporate + Government Debt
- ------------------------------------------------------------------------------------------------------------------------------------
Romania SNCDD - RASDAQ Equity
(National Company for Clearing, Settlement and
Depository for Securities)
- ------------------------------------------------------------------------------------------------------------------------------------
Budapest Stock Exchange Registry Equity
- ------------------------------------------------------------------------------------------------------------------------------------
National Bank of Romania Treasury-Bills
- ------------------------------------------------------------------------------------------------------------------------------------
Russia MICEX GKO's
(Moscow Interbank Currency Exchange) (Gosudarstvennye Kratkosrochnye Obyazatelstva [T-Bills])
OFZ's
(Obligatsyi Federalnogo Zaima [Federal Loan Bonds])s
- ------------------------------------------------------------------------------------------------------------------------------------
Singapore CDP Equity + Corporate Debt and Malaysian equities
(Central Depository Pte. Ltd.) traded on CLOB
- ------------------------------------------------------------------------------------------------------------------------------------
Monetary Authority of Singapore Government Debt
- ------------------------------------------------------------------------------------------------------------------------------------
Slovak Republic SCP Equity + Government Debt
(Stredisko Cennych Papiru)
- ------------------------------------------------------------------------------------------------------------------------------------
National Bank of Slovakia Treasury-Bills
- ------------------------------------------------------------------------------------------------------------------------------------
So. Africa CD Corporate + Government Debt
(Central Depository)
- ------------------------------------------------------------------------------------------------------------------------------------
So. Korea KSD Equity, Corporate + Government Debt
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Spain SCLV Equity + Corporate Debt.
(Servicio de Compensacion y Liquidacion de
Valores)
- ------------------------------------------------------------------------------------------------------------------------------------
CBEO Government Debt
(Central Book Entry Office)
- ------------------------------------------------------------------------------------------------------------------------------------
Sri Lanka CDS Equity
(Central Depository System (Private) Ltd.)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Sweden VPC Equity, Corporate + Government Debt
(Vardepapperscentralen AB)
- ------------------------------------------------------------------------------------------------------------------------------------
Switzerland SEGA Equity, Corporate + Government Debt
(Schweizerische Effekten-Giro AG)
- ------------------------------------------------------------------------------------------------------------------------------------
Taiwan TSCD Equity + Government Debt
(Taiwan Securities Central Depository Co.,
Ltd.)
- ------------------------------------------------------------------------------------------------------------------------------------
Thailand TSDC Equity, Corporate + Government Debt
(Thailand Securities Depository Company Ltd.)
- ------------------------------------------------------------------------------------------------------------------------------------
Tunisia STICODEVAM Equity
(Societe Tunisienne Interprofessionnelle pour
la Compensation et le Depot des Valeurs
Mobilieres)
- ------------------------------------------------------------------------------------------------------------------------------------
Ministry of Finance Government Debt tradable on the stock exchange
(BTNBs)
- ------------------------------------------------------------------------------------------------------------------------------------
Central Bank of Tunisia Government Debt not tradable on the stock exchange
(BTCs)
- ------------------------------------------------------------------------------------------------------------------------------------
Turkey Takas Bank Equity + Corporate Debt
- ------------------------------------------------------------------------------------------------------------------------------------
Central Bank of Turkey Government Debt
- ------------------------------------------------------------------------------------------------------------------------------------
United Kingdom CREST Equity + Corp. Debt
- ------------------------------------------------------------------------------------------------------------------------------------
CMO Sterling CDs & CP
(Central Moneymarket Office)
- ------------------------------------------------------------------------------------------------------------------------------------
CGO Gilts
(Central Gilts Office)
- ------------------------------------------------------------------------------------------------------------------------------------
United States DTC Equity + Corporate Debt
(Depository Trust Company)
- ------------------------------------------------------------------------------------------------------------------------------------
PTC Mortgage Back Debt
(Participants Trust Company)
- ------------------------------------------------------------------------------------------------------------------------------------
Fed Book-Entry Government Debt.
- ------------------------------------------------------------------------------------------------------------------------------------
Zambia LuSE Equity + Government Debt
(LuSE Central Shares Depository Ltd.)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Appendix 1-B
Information Regarding Country Risk
----------------------------------
1. To aid Customer's board in its determinations regarding Country
Risk, Bank shall furnish board annually and upon the initial placing of Assets
into a country the following information (check items applicable):
A. Opinions of local counsel concerning:
___ i. Whether applicable foreign law would restrict the access
afforded Customer's independent public accountants to books
and records kept by an eligible foreign custodian located in
that country.
___ ii. Whether applicable foreign law would restrict the Customer's
ability to recover its assets in the event of the bankruptcy
of an Eligible Foreign Custodian located in that country.
___ iii. Whether applicable foreign law would restrict the Customer's
ability to recover assets that are lost while under the
control of an Eligible Foreign Custodian located in the
country.
B. Written information concerning:
___ i. The likelihood of expropriation, nationalization, freezes, or
confiscation of Customer's assets.
___ ii. Whether difficulties in converting Customer's cash and cash
equivalents to U.S. dollars are reasonably foreseeable.]
C. A market report with respect to the following topics:
5
<PAGE>
(i) securities regulatory environment, (ii) foreign ownership
restrictions, (iii) foreign exchange, (iv) securities settlement and
registration, (v) taxation, and (vi) compulsory depositories (including
depository evaluation).
2. To aid Customer's board in monitoring Country Risk, Bank shall
furnish board the following additional information:
Market flashes, including with respect to changes in the information in
market reports.
6
<PAGE>
EX-99.B8F
Exhibit 24(b)(8)(f)
APPENDIX A
Delaware Group Adviser Funds, Inc.
U.S. Growth Fund
Overseas Equity Fund
New Pacific Fund
Delaware Group Equity Funds I, Inc.
Delaware Fund
Devon Fund
Delaware Group Equity Funds II, Inc.
Blue Chip Fund
Quantum Fund
Delaware Group Equity Funds IV, Inc.
DelCap Fund
Capital Appreciation Fund
Delaware Group Equity Funds V, Inc.
Retirement Income Fund
Small Cap Value Fund
Delaware Pooled Trust, Inc.
The International Equity Portfolio
The International Fixed Income Portfolio
The Global Equity Portfolio
The Global Fixed Income Portfolio
The High-Yield Bond Portfolio
The Labor Select International Equity Portfolio
The Real Estate Investment Trust Portfolio
The Real Estate Investment Trust Portfolio II
The Emerging Markets Portfolio
The Diversified Core Fixed Income Portfolio (12/97)
Delaware Group Global & International Funds, Inc.
Emerging Markets Series
Global Assets Series
Global Bond Series
Global Equity Series
International Equity Series
International Small Cap Series
<PAGE>
APPENDIX A CON'T
Delaware Group Premium Fund, Inc.
Convertible Securities Series
Devon Series
Emerging Markets Series
Quantum Series
Strategic Income Series
Global Bond Series
DelCap Series
International Equity Series
Delaware Series
Value Series
Voyageur Mutual Funds III, Inc.
Tax-Efficient Equity Fund
Delaware Group Foundation Funds (12/97)
Income Portfolio
Balanced Portfolio
Growth Portfolio
Dated: December 18, 1997
<PAGE>
EX-99.B11
EXHIBIT 24(b)(11)
Consent of Ernst & Young LLP, 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. 109 to the Registration Statement (Form N-1A) (No.
2-13017) of Delaware Group Equity Funds II, Inc. of our reports dated January 5,
1998, included in the 1997 Annual Reports to shareholders.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
January 26, 1998
<PAGE>
Report of Independent Auditors
To the Shareholders and Board of Directors
Delaware Group Equity Funds II, Inc. - Decatur Income Fund
Delaware Group Equity Funds II, Inc. - Decatur Total Return Fund
We have audited the accompanying statements of net assets of Delaware Group
Equity Funds II, Inc. - Decatur Income Fund and Delaware Group Equity Funds II,
Inc. - Decatur Total Return Fund as of November 30, 1997, and the related
statements of operations for the year then ended, the statements of changes in
net assets for each of the two years in the period then ended, and the financial
highlights for each of the periods indicated therein. These financial statements
and financial highlights are the responsibility of the Funds' management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of November 30, 1997, by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Delaware Group Equity Funds II, Inc. - Decatur Income Fund and Delaware Group
Equity Funds II, Inc. - Decatur Total Return Fund at November 30, 1997, the
results of their operations for the year then ended, the changes in their net
assets for each of the two years in the period then ended, and their financial
highlights for each of the periods indicated therein, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
January 5, 1998
<PAGE>
Report of Independent Auditors
To the Shareholders and Board of Directors
Delaware Group Equity Funds II, Inc. - Blue Chip Fund
We have audited the accompanying statement of net assets of Delaware Group
Equity Funds II, Inc. - Blue Chip Fund as of November 30, 1997, and the related
statement of operations, the statement of changes in net assets, and the
financial highlights for the period February 24, 1997 (commencement of
operations) to November 30, 1997. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements and
financial highlights. Our procedures included confirmation of securities owned
as of November 30, 1997, by correspondence with the custodian and brokers. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Delaware Group Equity Funds II, Inc. - Blue Chip Fund at November 30, 1997, and
the results of its operations, the changes in its net assets, and the financial
highlights for the period February 24, 1997 (commencement of operations) to
November 30, 1997, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
January 5, 1998
<PAGE>
Report of Independent Auditors
To the Shareholders and Board of Directors
Delaware Group Equity Funds II, Inc. - Quantum Fund
We have audited the accompanying statement of net assets of Delaware Group
Equity Funds II, Inc. - Quantum Fund as of November 30, 1997, and the related
statement of operations, the statement of changes in net assets, and the
financial highlights for the period February 24, 1997 (commencement of
operations) to November 30, 1997. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements and
financial highlights. Our procedures included confirmation of securities owned
as of November 30, 1997, by correspondence with the custodian and brokers. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Delaware Group Equity Funds II, Inc. - Quantum Fund at November 30, 1997, and
the results of its operations, the changes in its net assets, and the financial
highlights for the period February 24, 1997 (commencement of operations) to
November 30, 1997, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
January 5, 1998
<PAGE>
AT NAV
Delaware Group Equity Funds II, Inc.- Decatur Total Return Fund
B Class
Cumulative Total Return Performance
Three Years
- -------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning NAV $12.31
Initial Shares 81.235
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- ------------------------------------------------------------------------------
1995 64.309 $0.720 21.673 85.982
- ------------------------------------------------------------------------------
1996 85.982 $1.530 9.037 95.019
- ------------------------------------------------------------------------------
1997 95.019 $2.030 12.516 107.535
- ------------------------------------------------------------------------------
Ending Shares 107.535
Ending NAV x $19.20
------------
Investment Return $2,064.67
Total Return Performance
- ------------------------
Investment Return $2,064.67
Less Initial Investment $1,000.00
------------
$1,064.67 / $1,000.00 x 100
Total Return: 106.47%
<PAGE>
Including CDSC
Delaware Group Equity Funds II, Inc.- Decatur Total Return Fund
B Class
Cumulative Total Return Performance
Three Years (INCLUDING CDSC)
- -------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning NAV $12.31
Initial Shares 81.235
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- -------------------------------------------------------------------------------
1995 81.235 $64.309 4.747 85.982
- -------------------------------------------------------------------------------
1996 85.982 $1.530 9.037 95.019
- -------------------------------------------------------------------------------
1997 95.019 $2.030 12.516 107.535
- -------------------------------------------------------------------------------
Ending Shares 107.535
Ending NAV x $19.20
----------
$2,064.67
Less CDSC $30.00
----------
Investment Return $2,034.67
Total Return Performance
- ------------------------
Investment Return $2,034.67
Less Initial Investment $1,000.00
----------
$1,034.67 / $1,000.00 x 100
Total Return: 103.47%
<PAGE>
Delaware Group Equity Funds II, Inc.- Decatur Total Return Fund
B Class
Average Annual Total Return Performance
Three Years
- -------------------------------------------------------------------------------
n
P(1 + T) = ERV
THREE
YEARS
--------
3
$1000(1 + T) = $2064.90
T = 27.34%
<PAGE>
Delaware Group Equity Funds II, Inc.- Decatur Total Return Fund
B Class
Average Annual Total Return Performance
Three Years (INCLUDING CDSC)
- -------------------------------------------------------------------------------
n
P(1 + T) = ERV
THREE
YEARS
-------
3
$1000(1 + T) = $2,034.90
T = 26.72%
<PAGE>
Delaware Group Equity Funds II, Inc.- Decatur Income Fund
B Class
Average Annual Total Return Performance
Three Years
- -------------------------------------------------------------------------------
n
P(1 + T) = ERV
THREE
YEARS
-------
3
$1000(1 + T) = $1,982.80
T = 25.63%
<PAGE>
Delaware Group Equity Funds II, Inc.- Decatur Income Fund
B Class
Average Annual Total Return Performance
Three Years (INCLUDING CDSC)
- -------------------------------------------------------------------------------
n
P(1 + T) = ERV
THREE
YEARS
-------
3
$1000(1 + T) = $1,953.10
T = 25.00%
<PAGE>
AT NAV
Delaware Group Equity Funds II, Inc.- Decatur Income Fund
B Class
Cumulative Total Return Performance
Three Years
- -------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning NAV $15.55
Initial Shares 64.309
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- -------------------------------------------------------------------------------
1995 64.309 $0.970 3.923 68.232
- -------------------------------------------------------------------------------
1996 68.232 $1.880 7.151 75.383
- -------------------------------------------------------------------------------
1997 75.383 $3.130 12.827 88.210
- -------------------------------------------------------------------------------
Ending Shares 88.210
Ending NAV x $22.48
----------
Investment Return $1,982.96
Total Return Performance
- ------------------------
Investment Return $1,982.96
Less Initial Investment $1,000.00
-----------
$982.96 / $1,000.00 x 100
Total Return: 98.30%
<PAGE>
Including CDSC
Delaware Group Equity Funds II, Inc.- Decatur Income Fund
B Class
Cumulative Total Return Performance
Three Years (INCLUDING CDSC)
- -------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning NAV $15.55
Initial Shares 64.309
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- -------------------------------------------------------------------------------
1995 64.309 $64.309 3.923 68.232
- -------------------------------------------------------------------------------
1996 68.232 $1.880 7.151 75.383
- -------------------------------------------------------------------------------
1997 75.383 $3.130 12.827 88.210
- -------------------------------------------------------------------------------
Ending Shares 88.210
Ending NAV x $22.48
---------
$1,982.96
Less CDSC $30.00
---------
Investment Return $1,952.96
Total Return Performance
- ------------------------
Investment Return $1,952.96
Less Initial Investment $1,000.00
---------
$952.96 / $1,000.00 x 100
Total Return: 95.30%
<PAGE>
Delaware Group Equity Funds II, Inc. - Blue Chip Fund
A Class
Total Return Performance
Six Months
- -------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning NAV $8.72
Initial Shares 114.679
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- -------------------------------------------------------------------------------
1997 114.679 $0.000 0.000 114.679
- -------------------------------------------------------------------------------
Ending Shares 114.679
Ending NAV x $9.85
-----------
Investment Return $1,129.59
Total Return Performance
- ------------------------
Investment Return $1,129.59
Less Initial Investment $1,000.00
------------
$129.59 / $1,000.00 x 100
Total Return: 12.96%
<PAGE>
Delaware Group Equity Funds II, Inc. - Blue Chip Fund
A Class
Total Return Performance
Six Months (At Offer)
- -------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $9.15
Initial Shares 109.290
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- -------------------------------------------------------------------------------
1997 109.290 $0.000 0.000 109.290
- -------------------------------------------------------------------------------
Ending Shares 109.290
Ending NAV x $9.85
-----------
Investment Return $1,076.51
Total Return Performance
- ------------------------
Investment Return $1,076.51
Less Initial Investment $1,000.00
-----------
$76.51 / $1,000.00 x 100
Total Return: 7.65%
<PAGE>
Delaware Group Equity Funds II, Inc. - Blue Chip Fund
B Class
Total Return Performance
Six Months
- -------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning NAV $8.70
Initial Shares 114.943
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- -------------------------------------------------------------------------------
1997 114.943 $0.000 0.000 114.943
- -------------------------------------------------------------------------------
Ending Shares 114.943
Ending NAV x $9.80
----------
Investment Return $1,126.44
Total Return Performance
- ------------------------
Investment Return $1,126.44
Less Initial Investment $1,000.00
----------
$126.44 / $1,000.00 x 100
Total Return: 12.64%
<PAGE>
Delaware Group Equity Funds II, Inc. - Blue Chip Fund
B Class
Total Return Performance
Six Months (Including CDSC)
- -------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning NAV $8.70
Initial Shares 114.943
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- -------------------------------------------------------------------------------
1997 114.943 $0.000 0.000 114.943
- -------------------------------------------------------------------------------
Ending Shares 114.943
Ending NAV x $9.80
-----------
$1,126.44
Less CDSC $40.00
-----------
Investment Return $1,086.44
Total Return Performance
- ------------------------
Investment Return $1,086.44
Less Initial Investment $1,000.00
-----------
$86.44 / $1,000.00 x 100
Total Return: 8.64%
<PAGE>
Delaware Group Equity Funds II, Inc. - Blue Chip Fund
C Class
Total Return Performance
Six Months
- -------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning NAV $8.71
Initial Shares 114.811
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- -------------------------------------------------------------------------------
1997 114.811 $0.000 0.000 114.811
- -------------------------------------------------------------------------------
Ending Shares 114.811
Ending NAV x $9.80
-----------
Investment Return $1,125.15
Total Return Performance
- ------------------------
Investment Return $1,125.15
Less Initial Investment $1,000.00
----------
$125.15 / $1,000.00 x 100
Total Return: 12.52%
<PAGE>
Delaware Group Equity Funds II, Inc. - Blue Chip Fund
C Class
Total Return Performance
Six Months (Including CDSC)
- -------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning NAV $8.71
Initial Shares 114.811
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- -------------------------------------------------------------------------------
1997 114.811 $0.000 0.000 114.811
- -------------------------------------------------------------------------------
Ending Shares 114.811
Ending NAV x $9.80
----------
$1,125.15
Less CDSC $10.00
----------
Investment Return $1,115.15
Total Return Performance
- ------------------------
Investment Return $1,115.15
Less Initial Investment $1,000.00
----------
$115.15 / $1,000.00 x 100
Total Return: 11.52%
<PAGE>
Delaware Group Equity Funds II, Inc. - Blue Chip Fund
Institutional Class
Total Return Performance
Six Months
- -------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning NAV $8.72
Initial Shares 114.679
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- -------------------------------------------------------------------------------
1997 114.679 $0.000 0.000 114.679
- -------------------------------------------------------------------------------
Ending Shares 114.679
Ending NAV x $9.87
---------
Investment Return $1,131.88
Total Return Performance
- ------------------------
Investment Return $1,131.88
Less Initial Investment $1,000.00
-----------
$131.88 / $1,000.00 x 100
Total Return: 13.19%
<PAGE>
Delaware Group Equity Funds II, Inc. - Blue Chip Fund
A Class
Total Return Performance
Nine Months
- -------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning NAV $8.30
Initial Shares 120.482
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- -------------------------------------------------------------------------------
1997 120.482 $0.000 0.000 120.482
- -------------------------------------------------------------------------------
Ending Shares 120.482
Ending NAV x $9.85
----------
Investment Return $1,186.75
Total Return Performance
- ------------------------
Investment Return $1,186.75
Less Initial Investment $1,000.00
-----------
$186.75 / $1,000.00 x 100
Total Return: 18.68%
<PAGE>
AT OFFER
Delaware Group Equity Funds II, Inc. - Blue Chip Fund
A Class
Total Return Performance
Nine Months (At Offer)
- -------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $8.71
Initial Shares 114.811
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- -------------------------------------------------------------------------------
1997 114.811 $0.000 0.000 114.811
- -------------------------------------------------------------------------------
Ending Shares 114.811
Ending NAV x $9.85
----------
Investment Return $1,130.89
Total Return Performance
- ------------------------
Investment Return $1,130.89
Less Initial Investment $1,000.00
----------
$130.89 / $1,000.00 x 100
Total Return: 13.09%
<PAGE>
Delaware Group Equity Funds II, Inc. - Blue Chip Fund
B Class
Total Return Performance
Nine Months
- -------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning NAV $8.30
Initial Shares 120.482
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- -------------------------------------------------------------------------------
1997 120.482 $0.000 0.000 120.482
- -------------------------------------------------------------------------------
Ending Shares 120.482
Ending NAV x $9.80
----------
Investment Return $1,180.72
Total Return Performance
- ------------------------
Investment Return $1,180.72
Less Initial Investment $1,000.00
----------
$180.72 / $1,000.00 x 100
Total Return: 18.07%
<PAGE>
Delaware Group Equity Funds II, Inc. - Blue Chip Fund
B Class
Total Return Performance
Nine Months (Including CDSC)
- -------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning NAV $8.30
Initial Shares 120.482
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- -------------------------------------------------------------------------------
1997 120.482 $0.000 0.000 120.482
- -------------------------------------------------------------------------------
Ending Shares 120.482
Ending NAV x $9.80
----------
$1,180.72
Less CDSC $40.00
----------
Investment Return $1,140.72
Total Return Performance
- ------------------------
Investment Return $1,140.72
Less Initial Investment $1,000.00
----------
$140.72 / $1,000.00 x 100
Total Return: 14.07%
<PAGE>
Delaware Group Equity Funds II, Inc. - Blue Chip Fund
C Class
Total Return Performance
Nine Months
- -------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning NAV $8.30
Initial Shares 120.482
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- -------------------------------------------------------------------------------
1997 120.482 $0.000 0.000 120.482
- -------------------------------------------------------------------------------
Ending Shares 120.482
Ending NAV x $9.80
----------
Investment Return $1,180.72
Total Return Performance
- ------------------------
Investment Return $1,180.72
Less Initial Investment $1,000.00
----------
$180.72 / $1,000.00 x 100
Total Return: 18.07%
<PAGE>
Delaware Group Equity Funds II, Inc. - Blue Chip Fund
C Class
Total Return Performance
Nine Months (Including CDSC)
- -------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning NAV $8.30
Initial Shares 120.482
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- -------------------------------------------------------------------------------
1997 120.482 $0.000 0.000 120.482
- -------------------------------------------------------------------------------
Ending Shares 120.482
Ending NAV x $9.80
----------
$1,180.72
Less CDSC $10.00
----------
Investment Return $1,170.72
Total Return Performance
- ------------------------
Investment Return $1,170.72
Less Initial Investment $1,000.00
----------
$170.72 / $1,000.00 x 100
Total Return: 17.07%
<PAGE>
Delaware Group Equity Funds II, Inc. - Blue Chip Fund
Institutional Class
Total Return Performance
Nine Months
- -------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning NAV $8.30
Initial Shares 120.482
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- -------------------------------------------------------------------------------
1997 120.482 $0.000 0.000 120.482
- -------------------------------------------------------------------------------
Ending Shares 120.482
Ending NAV x $9.87
---------
Investment Return $1,189.16
Total Return Performance
- ------------------------
Investment Return $1,189.16
Less Initial Investment $1,000.00
----------
$189.16 / $1,000.00 x 100
Total Return: 18.92%
<PAGE>
Delaware Group Equity Funds II, Inc. - Quantum Fund
A Class
Total Return Performance
Six Months
- -------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning NAV $8.76
Initial Shares 114.155
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- -------------------------------------------------------------------------------
1997 114.155 $0.000 0.000 114.155
- -------------------------------------------------------------------------------
Ending Shares 114.155
Ending NAV x $10.33
---------
Investment Return $1,179.22
Total Return Performance
- ------------------------
Investment Return $1,179.22
Less Initial Investment $1,000.00
----------
$179.22 / $1,000.00 x 100
Total Return: 17.92%
<PAGE>
Delaware Group Equity Funds II, Inc. - Quantum Fund
A Class
Total Return Performance
Six Months (At Offer)
- -------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $9.20
Initial Shares 108.696
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- -------------------------------------------------------------------------------
1997 108.696 $0.000 0.000 108.696
- -------------------------------------------------------------------------------
Ending Shares 108.696
Ending NAV x $10.33
----------
Investment Return $1,122.83
Total Return Performance
- ------------------------
Investment Return $1,122.83
Less Initial Investment $1,000.00
----------
$122.83 / $1,000.00 x 100
Total Return: 12.28%
<PAGE>
Delaware Group Equity Funds II, Inc. - Quantum Fund
B Class
Total Return Performance
Six Months
- -------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning NAV $8.75
Initial Shares 114.286
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- -------------------------------------------------------------------------------
1997 114.286 $0.000 0.000 114.286
- -------------------------------------------------------------------------------
Ending Shares 114.286
Ending NAV x $10.28
---------
Investment Return $1,174.86
Total Return Performance
- ------------------------
Investment Return $1,174.86
Less Initial Investment $1,000.00
----------
$174.86 / $1,000.00 x 100
Total Return: 17.49%
<PAGE>
Delaware Group Equity Funds II, Inc. - Quantum Fund
B Class
Total Return Performance
Six Months (INCLUDING CDSC)
- -------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning NAV $8.75
Initial Shares 114.286
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- -------------------------------------------------------------------------------
1997 114.286 $0.000 0.000 114.286
- -------------------------------------------------------------------------------
Ending Shares 114.286
Ending NAV x $10.28
----------
$1,174.86
Less CDSC $40.00
----------
Investment Return $1,134.86
Total Return Performance
- ------------------------
Investment Return $1,134.86
Less Initial Investment $1,000.00
----------
$134.86 / $1,000.00 x 100
Total Return: 13.49%
<PAGE>
Delaware Group Equity Funds II, Inc. - Quantum Fund
C Class
Total Return Performance
Six Months
- -------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning NAV $8.75
Initial Shares 114.286
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- -------------------------------------------------------------------------------
1997 114.286 $0.000 0.000 114.286
- -------------------------------------------------------------------------------
Ending Shares 114.286
Ending NAV x $10.28
---------
Investment Return $1,174.86
Total Return Performance
- ------------------------
Investment Return $1,174.86
Less Initial Investment $1,000.00
----------
$174.86 / $1,000.00 x 100
Total Return: 17.49%
<PAGE>
Delaware Group Equity Funds II, Inc. - Quantum Fund
C Class
Total Return Performance
Six Months (INCLUDING CDSC)
- -------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning NAV $8.75
Initial Shares 114.286
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- -------------------------------------------------------------------------------
1997 114.286 $0.000 0.000 114.286
- -------------------------------------------------------------------------------
Ending Shares 114.286
Ending NAV x $10.28
----------
$1,174.86
Less CDSC $10.00
----------
Investment Return $1,164.86
Total Return Performance
- ------------------------
Investment Return $1,164.86
Less Initial Investment $1,000.00
----------
$164.86 / $1,000.00 x 100
Total Return: 16.49%
<PAGE>
Delaware Group Equity Funds II, Inc. - Quantum Fund
Institutional Class
Total Return Performance
Six Months
- -------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning NAV $8.77
Initial Shares 114.025
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- -------------------------------------------------------------------------------
1997 114.025 $0.000 0.000 114.025
- -------------------------------------------------------------------------------
Ending Shares 114.025
Ending NAV x $10.35
----------
Investment Return $1,180.16
Total Return Performance
- ------------------------
Investment Return $1,180.16
Less Initial Investment $1,000.00
----------
$180.16 / $1,000.00 x 100
Total Return: 18.02%
<PAGE>
Delaware Group Equity Funds II, Inc. - Quantum Fund
A Class
Total Return Performance
Nine Months
- -------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning NAV $8.28
Initial Shares 120.773
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- -------------------------------------------------------------------------------
1997 120.773 $0.000 0.000 120.773
- -------------------------------------------------------------------------------
Ending Shares 120.773
Ending NAV x $10.33
----------
Investment Return $1,247.59
Total Return Performance
- ------------------------
Investment Return $1,247.59
Less Initial Investment $1,000.00
----------
$247.59 / $1,000.00 x 100
Total Return: 24.76%
<PAGE>
AT OFFER
Delaware Group Equity Funds II, Inc. - Quantum Fund
A Class
Total Return Performance
Nine Months (At Offer)
- -------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $8.69
Initial Shares 115.075
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- -------------------------------------------------------------------------------
1997 115.075 $0.000 0.000 115.075
- -------------------------------------------------------------------------------
Ending Shares 115.075
Ending NAV x $10.33
-----------
Investment Return $1,188.72
Total Return Performance
- ------------------------
Investment Return $1,188.72
Less Initial Investment $1,000.00
----------
$188.72 / $1,000.00 x 100
Total Return: 18.87%
<PAGE>
Delaware Group Equity Funds II, Inc. - Quantum Fund
B Class
Total Return Performance
Nine Months
- -------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning NAV $8.28
Initial Shares 120.773
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- -------------------------------------------------------------------------------
1997 120.773 $0.000 0.000 120.773
- -------------------------------------------------------------------------------
Ending Shares 120.773
Ending NAV x $10.28
----------
Investment Return $1,241.55
Total Return Performance
- ------------------------
Investment Return $1,241.55
Less Initial Investment $1,000.00
----------
$241.55 / $1,000.00 x 100
Total Return: 24.16%
<PAGE>
Delaware Group Equity Funds II, Inc. - Quantum Fund
B Class
Total Return Performance
Nine Months (INCLUDING CDSC)
- -------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning NAV $8.28
Initial Shares 120.773
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- -------------------------------------------------------------------------------
1997 120.773 $0.000 0.000 120.773
- -------------------------------------------------------------------------------
Ending Shares 120.773
Ending NAV x $10.28
----------
$1,241.55
Less CDSC $40.00
----------
Investment Return $1,201.55
Total Return Performance
- ------------------------
Investment Return $1,201.55
Less Initial Investment $1,000.00
----------
$201.55 / $1,000.00 x 100
Total Return: 20.16%
<PAGE>
Delaware Group Equity Funds II, Inc. - Quantum Fund
C Class
Total Return Performance
Nine Months
- -------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning NAV $8.28
Initial Shares 120.773
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- -------------------------------------------------------------------------------
1997 120.773 $0.000 0.000 120.773
- -------------------------------------------------------------------------------
Ending Shares 120.773
Ending NAV x $10.28
----------
Investment Return $1,241.55
Total Return Performance
- ------------------------
Investment Return $1,241.55
Less Initial Investment $1,000.00
----------
$241.55 / $1,000.00 x 100
Total Return: 24.16%
<PAGE>
Delaware Group Equity Funds II, Inc. - Quantum Fund
C Class
Total Return Performance
Nine Months (INCLUDING CDSC)
- -------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning NAV $8.28
Initial Shares 120.773
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- -------------------------------------------------------------------------------
1997 120.773 $0.000 0.000 120.773
- -------------------------------------------------------------------------------
Ending Shares 120.773
Ending NAV x $10.28
----------
$1,241.55
Less CDSC $10.00
----------
Investment Return $1,231.55
Total Return Performance
- ------------------------
Investment Return $1,231.55
Less Initial Investment $1,000.00
----------
$231.55 / $1,000.00 x 100
Total Return: 23.16%
<PAGE>
Delaware Group Equity Funds II, Inc. - Quantum Fund
Institutional Class
Total Return Performance
Nine Months
- -------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning NAV $8.28
Initial Shares 120.773
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- -------------------------------------------------------------------------------
1997 120.773 $0.000 0.000 120.773
- -------------------------------------------------------------------------------
Ending Shares 120.773
Ending NAV x $10.35
----------
Investment Return $1,250.00
Total Return Performance
- ------------------------
Investment Return $1,250.00
Less Initial Investment $1,000.00
----------
$250.00 / $1,000.00 x 100
Total Return: 25.00%
<PAGE>
Exhibit 99.B18A TO COME
<PAGE>
EX-99.B18B
EXHIBIT 24 (b)(18)(b)
APPENDIX A
(As revised December 18, 1997)
List of Funds and Their Classes
-------------------------------
1. Delaware Group Equity Funds I, 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 Equity Funds II, 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
Blue Chip Fund (Added February 24, 1997)
Blue Chip Fund A Class
Blue Chip Fund B Class
Blue Chip Fund C Class
Blue Chip Fund Institutional Class
Quantum Fund (Added February 24, 1997)
Quantum Fund A Class
Quantum Fund B Class
Quantum Fund C Class
Quantum Fund Institutional Class
<PAGE>
3. Delaware Group Equity Funds III, Inc. (Formerly Trend)
Trend Fund
Trend Fund A Class
Trend Fund B Class
Trend Fund C Class
Trend Fund Institutional Class
4. 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
5. Delaware Group Equity Funds V, Inc. (Formerly Value)
Small Cap Value Fund (Formerly Value Fund)
Small Cap Value Fund A Class
Small Cap Value Fund B Class
Small Cap Value Fund C Class
Small Cap Value Fund Institutional Class
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
<PAGE>
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
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
8. Delaware Pooled Trust, Inc.
The Real Estate Investment Trust Portfolio (added
October 14, 1997)
REIT Fund A Class
REIT Fund B Class
REIT Fund C Class
REIT Fund Institutional Class
<PAGE>
9. Delaware Group Foundation Funds (added December 18, 1997)
Income Portfolio
Income Fund A Class
Income Fund B Class
Income Fund C Class
Income Fund Institutional Class
Balanced Portfolio
Balanced Fund A Class
Balanced Fund B Class
Balanced Fund C Class
Balanced Fund Institutional Class
Growth Portfolio
Growth Fund A Class
Growth Fund B Class
Growth Fund C Class
Growth Fund Institutional Class
<PAGE>
EX-99.B19
EXHIBIT 24(19)(b)
POWER OF ATTORNEY
Each of the undersigned, a member of the Boards of Directors/Trustees
of the Delaware Group Funds listed on Exhibit A to this Power of Attorney,
hereby constitutes and appoints on behalf of each of the Funds listed on Exhibit
A, Wayne A. Stork, Jeffrey J. Nick and Walter P. Babich and any one of them
acting singly, his true and lawful attorneys-in-fact, in his name, place, and
stead, to execute and cause to be filed with the Securities and Exchange
Commission and other federal or state government agency or body, such
registration statements, and any and all amendments thereto as either of such
designees may deem to be appropriate under the Securities Act of 1933, as
amended, the Investment Company Act of 1940, as amended, and all other
applicable federal and state securities laws.
IN WITNESS WHEREOF, the undersigned have executed this instrument as of
this 18th day of December, 1997.
/s/ Walter P. Babich /s/ Thomas F. Madison
- ------------------------- ---------------------
Walter P. Babich Thomas F. Madison
/s/ Anthony D. Knerr /s/ Jeffrey J. Nick
- ------------------------- ---------------------
Anthony D. Knerr Jeffrey J. Nick
/s/ Ann R. Leven /s/ Charles E. Peck
- ------------------------- ---------------------
Ann R. Leven Charles E. Peck
/s/ W. Thacher Longstreth /s/ Wayne A. Stork
- ------------------------- ---------------------
W. Thacher Longstreth Wayne A. Stork
<PAGE>
POWER OF ATTORNEY
EXHIBIT A
DELAWARE GROUP FUNDS
DELAWARE GROUP EQUITY FUNDS I, INC.
DELAWARE GROUP EQUITY FUNDS II, INC.
DELAWARE GROUP EQUITY FUNDS III, 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 CASH RESERVE, INC.
DELAWARE GROUP LIMITED-TERM GOVERNMENT FUNDS, INC.
DELAWARE GROUP TAX-FREE FUND, INC.
DELAWARE GROUP TAX-FREE MONEY FUND, INC.
DELAWARE GROUP GLOBAL & INTERNATIONAL FUNDS, INC.
DELAWARE GROUP ADVISER FUNDS, INC.
DELAWARE POOLED TRUST, INC.
DELAWARE GROUP PREMIUM FUND, INC.
DELAWARE GROUP STATE TAX-FREE INCOME TRUST
DELAWARE GROUP DIVIDEND AND INCOME FUND, INC.
DELAWARE GROUP GLOBAL DIVIDEND AND INCOME FUND, INC.
DELAWARE GROUP FOUNDATION FUNDS
VOYAGEUR FUNDS, INC.
VOYAGEUR INSURED FUNDS, INC.
VOYAGEUR INTERMEDIATE TAX FREE FUNDS, INC.
VOYAGEUR INVESTMENT TRUST
VOYAGEUR INVESTMENT TRUST II
VOYAGEUR MUTUAL FUNDS, INC.
VOYAGEUR MUTUAL FUNDS II, INC.
VOYAGEUR MUTUAL FUNDS III, INC.
VOYAGEUR TAX FREE FUNDS, INC.
VOYAGEUR ARIZONA MUNICIPAL INCOME FUND, INC.
VOYAGEUR COLORADO INSURED MUNICIPAL INCOME FUND, INC.
VOYAGEUR FLORIDA INSURED MUNICIPAL INCOME FUND
VOYAGEUR MINNESOTA MUNICIPAL INCOME FUND, INC.
VOYAGEUR MINNESOTA MUNICIPAL INCOME FUND II, INC.
VOYAGEUR MINNESOTA MUNICIPAL INCOME FUND III, INC.
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<NAME> DELAWARE GROUP EQUITY FUNDS II, INC.
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<NUMBER> 013
<NAME> DECATUR INCOME FUND C CLASS
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<NAME> DELAWARE GROUP EQUITY FUNDS II, INC.
<SERIES>
<NUMBER> 014
<NAME> DECATUR INCOME FUND INSTITUTIONAL CLASS
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<CIK> 0000027574
<NAME> DELAWARE GROUP EQUITY FUNDS II, INC.
<SERIES>
<NUMBER> 021
<NAME> DECATUR TOTAL RETURN FUND A CLASS
<S> <C>
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<CIK> 0000027574
<NAME> DELAWARE GROUP EQUITY FUNDS II, INC.
<SERIES>
<NUMBER> 022
<NAME> DECATUR TOTAL RETURN FUND B CLASS
<S> <C>
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<CIK> 0000027574
<NAME> DELAWARE GROUP EQUITY FUNDS II, INC.
<SERIES>
<NUMBER> 023
<NAME> DECATUR TOTAL RETURN FUND C CLASS
<S> <C>
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<CIK> 0000027574
<NAME> DELAWARE GROUP EQUITY FUNDS II, INC.
<SERIES>
<NUMBER> 024
<NAME> DECATUR TOTAL RETURN FUND INSTITUTIONAL CLASS
<S> <C>
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<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000027574
<NAME> DELAWARE GROUP EQUITY FUNDS II, INC.
<SERIES>
<NUMBER> 031
<NAME> BLUE CHIP FUND A CLASS
<S> <C>
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<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000027574
<NAME> DELAWARE GROUP EQUITY FUNDS II, INC.
<SERIES>
<NUMBER> 032
<NAME> BLUE CHIP FUND B CLASS
<S> <C>
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<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000027574
<NAME> DELAWARE GROUP EQUITY FUNDS II, INC.
<SERIES>
<NUMBER> 033
<NAME> BLUE CHIP FUND C CLASS
<S> <C>
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<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000027574
<NAME> DELAWARE GROUP EQUITY FUNDS II, INC.
<SERIES>
<NUMBER> 034
<NAME> BLUE CHIP FUND INSTITUTIONAL CLASS
<S> <C>
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<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000027574
<NAME> DELAWARE GROUP EQUITY FUNDS II, INC.
<SERIES>
<NUMBER> 041
<NAME> QUANTUM FUND A CLASS
<S> <C>
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000027574
<NAME> DELAWARE GROUP EQUITY FUNDS II, INC.
<SERIES>
<NUMBER> 042
<NAME> QUANTUM FUND B CLASS
<S> <C>
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000027574
<NAME> DELAWARE GROUP EQUITY FUNDS II, INC.
<SERIES>
<NUMBER> 043
<NAME> QUANTUM FUND C CLASS
<S> <C>
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000027574
<NAME> DELAWARE GROUP EQUITY FUNDS II, INC.
<SERIES>
<NUMBER> 044
<NAME> QUANTUM FUND INSTITUTIONAL CLASS
<S> <C>
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</TABLE>
