<PAGE>
DELAWARE
GROUP
- --------
A Class
B Class
C Class
BLUE CHIP FUND
SOCIAL AWARENESS FUND
(formerly Quantum Fund)
PROSPECTUS JANUARY 30, 1998
<PAGE>
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
<PAGE>
Blue Chip Fund
Social Awareness Fund
A Class/B Class/C Class
January 30, 1998
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 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.
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.
1
<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.
2
<PAGE>
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.
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.
3
<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
-------------------------------------------
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++
</TABLE>
<TABLE>
<CAPTION>
Social Awareness 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++
</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.
4
<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%+++
==== ==== ====
</TABLE>
<TABLE>
<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>
+ 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
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.
5
<PAGE>
The following example illustrates the expenses that an investor would pay
on a $1,000 investment over various time periods, assuming (1) a 5% annual rate
of return, (2) redemption and no redemption at the end of each time period and
(3) for Class B Shares and Class C Shares, payment of a CDSC at the time of
redemption, if applicable. The following example assumes the voluntary waiver
of the management fee by the Manager as discussed in this Prospectus. 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 $ 62(1) $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.
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.
<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
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Blue Chip Fund Blue Chip Fund
B Class C Class
------------------ -----------------
Period Period
2/24/971 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(Loss)(2)................................................. (0.009) (0.011)
Net Realized and Unrealized Gain from Investments ............................. 1.309 1.311
----------- -----------
Total From Investment Operations ............................................ 1.300 1.300
----------- -----------
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 ................................................ $ 9.800 $ 9.800
=========== ===========
- -------------------
Total Return .................................................................. 15.29%(3,4) 15.29%(3,4)
- -----------
Ratios/Supplemental Data
Net Assets, End of Period (000's omitted) ..................................... $ 1,444 $ 239
Ratio of Expenses to Average Daily Net Assets ................................. 2.20% 2.20%
Ratio of Expenses to Average Daily Net Assets Prior to Expense Limitation ..... 3.65% 3.65%
Ratio of Net Investment Income (Loss) to Average Daily Net Assets ............. (0.01%) (0.01%)
Ratio of Net Investment Income (Loss) to Average Daily Net Assets Prior to
Expense Limitation ........................................................... (1.46%) (1.46%)
Portfolio Turnover Rate ....................................................... 25% 25%
Average Commission Rate Paid(5) ................................................. $ 0.0359 $ 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.
7
<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
</TABLE>
<TABLE>
<CAPTION>
Social Awareness Social Awareness
Fund Fund
B Class C 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 (Loss)(2)................................................ (0.044) ( 0.044)
Net Realized and Unrealized Gain from Investments ............................. 1.824 1.824
----------- -----------
Total From Investment Operations ............................................ 1.780 1.780
----------- -----------
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 .............................................. $ 10.280 $ 10.280
=========== ===========
Total Return .................................................................. 20.94%(3,4) 20.94%(3,4)
- -------------------
Ratios/Supplemental Data
Net Assets, End of Period (000's omitted) ..................................... $ 6,919 $ 1,290
Ratio of Expenses to Average Daily Net Assets ................................. 2.20% 2.20%
Ratio of Expenses to Average Daily Net Assets Prior to Expense Limitation ..... 2.66% 2.66%
Ratio of Net Investment Income (Loss) to Average Daily Net Assets ............. (0.32%) (0.32%)
Ratio of Net Investment Income (Loss) to Average Daily Net Assets Prior to
Expense Limitation ........................................................... (0.78%) (0.78%)
Portfolio Turnover Rate ....................................................... 29% 29%
Average Commission Rate Paid(5)................................................ $ 0.0357 $ 0.0357
</TABLE>
<PAGE>
- -----------
(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.
8
<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.
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.
9
<PAGE>
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
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.
10
<PAGE>
The Fund may hold cash or invest in short-term debt securities and other
money market instruments when, in the Sub-Adviser's opinion, such holdings are
prudent given then prevailing market conditions. The Fund may also invest in
such instruments pending investment by the Fund of proceeds from the sale of
portfolio securities or proceeds from new sales of Fund shares pending
investment in other types of securities for the Fund as to maintain sufficient
liquidity to meet redemptions. All such short-term investments will be of the
highest quality as determined by a nationally-recognized statistical rating
organization (e.g., AAA by S&P or Aaa by Moody's) or, if unrated, judged to be
of comparable quality as determined by the Sub-Adviser. See Short-Term
Investments under Other Investment Policies and Risk Considerations.
The Fund will constantly strive to achieve its objective and, in investing
to do so, may hold securities for any period of time. To the extent the Fund
engages in short-term trading in attempting to achieve its objective, it may
increase the turnover rate and incur larger brokerage commissions and other
expenses than might otherwise be the case.
* * *
For additional information on each Fund's investment policies and certain
risks associated with investments in certain types of securities, see Other
Investment Policies and Risk Considerations.
Although each Fund will constantly strive to attain its respective
investment objectives, there can be no assurance that they will be attained.
11
<PAGE>
The Delaware
Difference
PLANS AND SERVICES
The Delaware Difference is our commitment to provide you with superior
information and quality service on your investments in the Delaware Group of
funds.
SHAREHOLDER PHONE DIRECTORY
Investor Information Center
800-523-4640
Fund Information; Literature Price; Yield and Performance Figures
Shareholder Service Center
800-523-1918
Information on Existing Regular Investment
Accounts and Retirement Plan Accounts; Wire Investments; Wire
Liquidations; Telephone
Liquidations and Telephone Exchanges
Delaphone
800-362-FUND
(800-362-3863)
Performance Information
You can call the Investor Information Center at any time for current
performance information.
Shareholder Services
During business hours, you can call the Delaware Group's Shareholder
Service Center. Our representatives can answer any questions about your
account, the Funds, various service features and other funds in the
Delaware Group.
Delaphone Service
Delaphone is an account inquiry service for investors with Touch-Tone(R)
phone service. It enables you to get information on your account faster than
the mailed statements and confirmations. Delaphone also provides current
performance information on the Funds, as well as other funds in the Delaware
Group. Delaphone is available seven days a week, 24 hours a day.
Dividend Payments
Dividends, capital gains and other distributions, 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.
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 MoneyLine(SM) On Demand transactions. This service is not
available for retirement plans, except for purchases of shares by IRAs.
12
<PAGE>
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.
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.
13
<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 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.
14
<PAGE>
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.
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
---- ----
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
* 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.
- --------------------------------------------------------------------------------
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
--------------------
Amount of Purchase (as a percentage of
- ---------------------------------- 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
15
<PAGE>
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.
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.
16
<PAGE>
Combined purchases of $1,000,000 or more, including certain purchases made
at net asset value pursuant to a Right of Accumulation or under a Letter of
Intention, may result in the payment of a dealer's commission and the
applicability of a Limited CDSC. Investors should consult their financial
advisers or the Shareholder Service Center about the operation of these
features. See Front-End Sales Charge Alternative -- Class A Shares, above.
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.
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.
17
<PAGE>
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.
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.
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.
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.
19
<PAGE>
The following table sets forth the rates of the CDSC for the Class B
Shares of the Funds:
Contingent Deferred
Sales Charge (as a
Percentage of
Dollar Amount
Year After Purchase Made Subject to Charge)
- -------------------------- -------------------------
0-2 4%
3-4 3%
5 2%
6 1%
7 and thereafter None
During the seventh year after purchase and, thereafter, until converted
automatically into Class A Shares, Class B Shares will still be subject to the
annual 12b-1 Plan expenses of up to 1% of average daily net assets of those
shares. See Automatic Conversion of Class B Shares, above. Investors are
reminded that the Class A Shares into which the Class B Shares will convert are
subject to ongoing annual 12b-1 Plan expenses of up to a maximum of 0.30% of
average daily net assets of such shares. 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.
In determining whether a CDSC applies to a redemption of Class B Shares,
it will be assumed that shares held for more than six years are redeemed first,
followed by shares acquired through the reinvestment of dividends or
distributions, and finally by shares held longest during the six-year period.
With respect to Class C Shares, it will be assumed that shares held for more
than 12 months are redeemed first followed by shares acquired through the
reinvestment of dividends or distributions, and finally by shares held for 12
months or less.
All investments made during a calendar month, regardless of what day of
the month the investment occurred, will age one month on the last day of that
month and each subsequent month.
The CDSC is waived on certain redemptions of Class B Shares and Class C
Shares. See Waiver of Contingent Deferred Sales Charge -- Class B and Class C
Shares under Redemption and Exchange.
Other Payments to Dealers -- Class A, Class B and Class C Shares
From time to time at the discretion of the Distributor, all registered
broker/dealers whose aggregate sales of the Classes exceed certain limits, as
set by the Distributor, may receive from the Distributor an additional payment
of up to 0.25% of the dollar amount of such sales. The Distributor may also
provide additional promotional incentives or payments to dealers that sell
shares of the Delaware Group of funds. In some instances, these incentives or
payments may be offered only to certain dealers who maintain, have sold or may
sell certain amounts of shares.
Subject to pending amendments to the NASD's 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.
20
<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.
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.
21
<PAGE>
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.
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.
22
<PAGE>
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.
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.
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.
23
<PAGE>
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.
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.
24
<PAGE>
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.
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.
25
<PAGE>
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.
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 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.
26
<PAGE>
The applicable CDSC for Class B Shares and Class C Shares redeemed via a
Systematic Withdrawal Plan will be waived if, on the date that the Plan is
established, the annual amount selected to be withdrawn is less than 12% of the
account balance. If the annual amount selected to be withdrawn exceeds 12% of
the account balance on the date that the Systematic Withdrawal Plan is
established, all redemptions under the Plan will be subject to the applicable
CDSC. Whether a waiver of the CDSC is available or not, the first shares to be
redeemed for each Systematic Withdrawal Plan payment will be those not subject
to a CDSC because they have either satisfied the required holding period or
were acquired through the reinvestment of distributions. The 12% annual limit
will be reset on the date that any Systematic Withdrawal Plan is modified (for
example, a change in the amount selected to be withdrawn or the frequency or
date of withdrawals), based on the balance in the account on that date. See
Waiver of Contingent Deferred Sales Charge -- Class B and Class C Shares,
below.
For more information on Systematic Withdrawal Plans, call the Shareholder
Service Center.
Contingent Deferred Sales Charge for Certain Redemptions of Class A Shares
Purchased at Net Asset Value
A Limited CDSC will be imposed on certain redemptions of Class A Shares
(or shares into which such Class A Shares are exchanged) made within 12 months
of purchase, if such purchases were made at net asset value and triggered the
payment by the Distributor of the dealer's commission previously described. See
Classes
of Shares.
The Limited CDSC will be paid to the Distributor and will be equal to the
lesser of 1% of: (1) the net asset value at the time of purchase of the Class A
Shares being redeemed; or (2) the net asset value of such Class A Shares at the
time of redemption. For purposes of this formula, the "net asset value at the
time of purchase" will be the net asset value at purchase of the Class A Shares
even if those shares are later exchanged for shares of another Delaware Group
fund and, in the event of an exchange of Class A Shares, the "net asset value
of such shares at the time of redemption" will be the net asset value of the
shares acquired in the exchange.
Redemptions of such Class A Shares held for more than 12 months will not
be subjected to the Limited CDSC and an exchange of such Class A Shares into
another Delaware Group fund will not trigger the imposition of the Limited CDSC
at the time of such exchange. The period a shareholder owns shares into which
Class A Shares are exchanged will count towards satisfying the 12-month holding
period. The Limited CDSC is assessed if such 12-month period is not satisfied
irrespective of whether the redemption triggering its payment is of Class A
Shares of a Fund or Class A Shares acquired in the exchange.
In determining whether a Limited CDSC is payable, it will be assumed that
shares not subject to the Limited CDSC are the first redeemed followed by other
shares held for the longest period of time. The Limited CDSC will not be
imposed upon shares representing reinvested dividends or capital gains
distributions, or upon amounts representing share appreciation. All investments
made during a calendar month, regardless of what day of the month the
investment occurred, will age one month on the last day of that month and each
subsequent month.
Waiver of Limited Contingent Deferred Sales Charge -- Class A Shares
The Limited CDSC for Class A Shares on which a dealer's commission has
been paid will be waived in the following instances: (i) redemptions that
result from a Fund's right to liquidate a 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).
27
<PAGE>
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.
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.
28
<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.
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 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.
29
<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 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.
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.
30
<PAGE>
The automatic conversion of Class B Shares into Class A Shares at the end
of approximately eight years after purchase will be tax-free for federal tax
purposes. See Automatic Conversion of Class B Shares under Classes
of Shares.
Each Fund may be subject to foreign withholding taxes on income from
certain of its foreign securities.
In addition to 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.
31
<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.
32
<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.
33
<PAGE>
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.
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 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 28, 1997 through December 31, 1997, the aggregate
return for Class A Shares, Class B Shares and Class C Shares of Blue Chip Fund
excluding sales charge was 20.74%, 20.12% and 20.12%, respectively and the
aggregate return for Class A Shares, Class B Shares and Class C Shares of
Social Awareness Fund excluding sales charge was 27.97%, 26.94% and 26.94%,
respectively. These total returns assume the reinvestment of all dividends and
capital gains and reflect fee waivers and expense payments in effect. Without
these waivers and expense payments, 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 average annual total returns for Lincoln Growth and Income Fund as of
December 31, 1997. This information is provided to illustrate the past
performance of the Sub-Adviser and Mr. Wittman in managing a similar fund as
compared to the Standard & Poor's 500(R) Composite Stock Price Index ("S&P
500"), a standard benchmark of large company stocks. The past performance of
the Lipper Growth and Income Average is also included. The Blue Chip Fund is
included in this average for the period February 28, 1997 through December 31,
1997. The performance shown below does not represent the past or future
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.
<PAGE>
<TABLE>
<CAPTION>
Period
2/28/97(1)
through 1 2 3 5 10 Since
12/31/97 Year Years Years Years Years Inception(2)
----------- ---------- ---------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Lincoln Growth
and Income(3) 22.1% 30.9% 25.6% 29.9% 20.3% 15.7% 16.2%
S&P 500(4) ........... 24.5% 33.4% 28.0% 31.1% 20.3% 18.0% 17.8%
Lipper Growth
and Income
Average(5) ......... 21.1% 27.1% 24.3% 26.5% 17.5% 15.7% 15.6%
</TABLE>
(1) Total return has not been annualized.
(2) Lincoln Growth and Income Fund's inception date is December 21, 1981. The
Lipper Growth and Income Average and S&P 500 inception date is December
31, 1981.
(3) 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.
(4) The S&P 500 is an unmanaged index of 500 selected common stocks, most of
which are listed on the New York Stock Exchange. It includes a broad range
of
34
<PAGE>
industries and represents approximately 70% of the total value of the U.S.
stock market. The index assumes reinvestment of dividends and
distributions, but not management fees and other expenses. A direct
investment in an index is not possible.
(5) Returns represented in the Lipper Analytical Services growth and income
category reflect changes in share prices and reinvestment of dividends and
distributions and are net of all expenses. For the time periods shown,
there were 650 funds in the average for the period February 28, 1997
through December 31, 1997; 624 funds in the average for the 1 year period
ended December 31, 1997; 489 funds in the average for the 2 years ended
December 31, 1997; 402 funds in the average for the 3 years ended December
31, 1997; 241 funds in the average for the 5 years ended December 31,
1997; 137 funds in the average for the 10 years ended December 31, 1997;
and 78 funds in the average for the period December 31, 1981 through
December 31, 1997.
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 average annual total returns for
Lincoln Social Awareness Fund as of December 31, 1997. This information is
provided to illustrate the past performance of the Sub-Adviser and Mr. Wittman
in managing a similar fund as compared to the S&P 500, a standard benchmark of
large company stocks. The past performance of the Lipper Growth Average is also
included. The Social Awareness Fund is included in this average for the period
February 28, 1997 through December 31, 1997. The performance shown below does
not represent past or future 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>
Period
2/28/97(1)
through 1 2 3 5 Since
12/31/97 Year Years Years Years Inception(2)
----------- ---------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Lincoln Social
Awareness
Fund(3) ............ 30.1% 37.5% 33.7% 37.0% 24.0% 19.3%
S&P 500(4) ........... 24.5% 33.4% 28.0% 31.1% 20.3% 17.9%
Lipper Growth
Average(5) ......... 20.6% 25.3% 22.4% 25.1% 16.5% 15.5%
</TABLE>
(1) Total return is not annualized.
(2) Lincoln Social Awareness Fund's inception date is May 2, 1988. The Lipper
Growth Average and S&P 500 inception date is April 30, 1988.
(3) 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.
(4) The S&P 500 is an unmanaged index of 500 selected common stocks, most of
which are listed on the New York Stock Exchange. It includes a broad range
of industries and represents approximately 70% of the total value of the
U.S. stock market. The index assumes reinvestment of dividends and
distributions, but not management fees and other expenses. A direct
investment in an index is not possible.
(5) Returns represented in the Lipper Analytical Services growth category
reflect changes in share prices and reinvestment of dividends and
distributions and are net of all expenses. For the time periods shown,
there were 862 funds in the average for the period February 28, 1997
through December 31, 1997; 838 funds in the average for the 1 year period
ended December 31, 1997; 638 funds in the average for the 2 years ended
December 31, 1997; 517 funds in the average for the 3 years ended December
31, 1997; 315 funds in the average for the 5 years ended December 31,
1997; and 186 funds in the average for the period April 30, 1988 through
December 31, 1997.
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.
35
<PAGE>
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.
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.
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
36
<PAGE>
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.
37
<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.
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.
38
<PAGE>
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.
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.
39
<PAGE>
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.
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.
40
<PAGE>
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.
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).
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).
41
<PAGE>
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.
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.
42
<PAGE>
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.
43
<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
DELAWARE INVESTMENTS
Printed in the U.S.A. on recycled paper.
P-143[--] PP1/98
<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, 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.
1
<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.
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.
2
<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
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.
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. Equity Funds II,
Inc. 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 Institutional Class ............ $12 $38
Social Awareness Fund Institutional Class ..... $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.
3
<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.
- --------------------------------------------------------------------------------
<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 Paid(4).............................................. $ 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.
4
<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.
5
<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.
6
<PAGE>
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
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.
* * *
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.
7
<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.
8
<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.
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.
9
<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.
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.
10
<PAGE>
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.
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.
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.
11
<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.
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.
12
<PAGE>
Each year, Equity Funds II, Inc. will mail to you information on the tax
status of a Fund's dividends and distributions. Shareholders will also receive
each year information as to the portion of dividend income that is derived from
U.S. government securities that are exempt from state income tax. Of course,
shareholders who are not subject to tax on their income would not be required
to pay tax on amounts distributed to them by a Fund.
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.
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.
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.
13
<PAGE>
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.
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 28, 1997 through December 31, 1997, the aggregate
return for the Institutional Class of Blue Chip Fund was 21.05% and the
aggregate return for the Institutional Class of Social Awareness Fund was
28.03%. These total returns assume the reinvestment of all dividends and
capital gains and reflect fee waivers and expense payments in effect. Without
these waivers and expense payments 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, 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
14
<PAGE>
presents average annual total returns for Lincoln Growth and Income Fund as of
December 31, 1997. This information is provided to illustrate the past
performance of the Sub-Adviser and Mr. Wittman in managing a similar fund as
compared to the Standard & Poor's 500(R) Composite Stock Price Index ("S&P
500"), a standard benchmark of large company stocks. The past performance of
the Lipper Growth and Income Average is also included. The Blue Chip Fund is
included in this average for the period February 28, 1997 through December 31,
1997. The performance shown below does not represent the past or future
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.
<TABLE>
<CAPTION>
Period
2/28/97(1)
through Since
12/31/97 1 Year 2 Years 3 Years 5 Years 10 Years Inception(2)
---------- ---------- --------- --------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Lincoln Growth and
Income(3) 22.1% 30.9% 25.6% 29.9% 20.3% 15.7% 16.2%
S&P 500(4) 24.5% 33.4% 28.0% 31.1% 20.3% 18.0% 17.8%
Lipper Growth and
Income Average(5) 21.1% 27.1% 24.3% 26.5% 17.5% 15.7% 15.6%
</TABLE>
(1) Total return has not been annualized.
(2) Lincoln Growth and Income Fund's inception date is December 21, 1981. The
Lipper Growth and Income Average and S&P 500 inception date is December 31,
1981.
(3) 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.
(4) The S&P 500 is an unmanaged index of 500 selected common stocks, most of
which are listed on the New York Stock Exchange. It includes a broad range
of industries and represents approximately 70% of the total value of the
U.S. stock market. The index assumes reinvestment of dividends and
distributions, but not management fees and other expenses. A direct
investment in an index is not possible.
(5) Returns represented in the Lipper Analytical Services growth and income
category reflect changes in share prices and reinvestment of dividends and
distributions and are net of all expenses. For the time periods shown,
there were 650 funds in the average for the period February 28, 1997
through December 31, 1997; 624 funds in the average for the 1 year period
ended December 31, 1997; 489 funds in the average for the 2 years ended
December 31, 1997; 402 funds in the average for the 3 years ended December
31, 1997; 241 funds in the average for the 5 years ended December 31,
1997; 137 funds in the average for the 10 years ended December 31, 1997;
and 78 funds in the average for the period December 31, 1981 through
December 31, 1997.
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 average annual total returns for
Lincoln Social Awareness Fund as of December 31, 1997. This information is
provided to illustrate the past performance of the Sub-Adviser and Mr. Wittman
in managing a similar fund as compared to the S&P 500, a standard benchmark of
large company stocks. The past performance of the Lipper Growth Average is also
included. The Social Awareness Fund is included in this average for the period
February 28, 1997 through December 31, 1997. The performance shown below does
not represent past or future 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.
<PAGE>
<TABLE>
<CAPTION>
Period
2/28/97(1)
through Since
12/31/97 1 Year 2 Years 3 Years 5 Years Inception(2)
---------- ---------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Lincoln Social
Awareness
Fund(3) 30.1% 37.5% 33.7% 37.0% 24.0% 19.3%
S&P 500(4) 24.5% 33.4% 28.0% 31.1% 20.3% 17.9%
Lipper Growth
Average(5) 20.6% 25.3% 22.4% 25.1% 16.5% 15.5%
</TABLE>
(1) Total return has not been annualized.
(2) Lincoln Social Awareness Fund's inception date is May 2, 1988. The Lipper
Growth Average and S&P 500 inception date is April 30, 1988.
(3) 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.
(4) The S&P 500 is an unmanaged index of 500 selected common stocks, most of
which are listed on the New York Stock Exchange. It includes a broad range
of industries and represents approximately 70% of the total value of the
U.S. stock market. The index assumes reinvestment of dividends and
distributions, but not management fees and other expenses. A direct
investment in an index is not possible.
(5) Returns represented in the Lipper Analytical Services growth category
reflect changes in share prices and reinvestment of dividends and
distributions and are net of all expenses. For the time periods shown,
there were 862 funds in the average for the period February 28, 1997
through December 31, 1997; 838 funds in the average for the 1 year period
ended December 31, 1997; 638 funds in the average for the 2 years ended
December 31, 1997; 517 funds in the average for the 3 years ended December
31, 1997; 315 funds in the average for the 5 years ended December 31,
1997; and 186 funds in the average for the period April 30, 1988 through
December 31, 1997.
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
15
<PAGE>
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
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.
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.
16
<PAGE>
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.
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.
17
<PAGE>
Convertible, Debt and Non-Traditional Equity Securities
Each Fund may invest in convertible and debt securities of issuers in any
industry. A convertible security is a security which may be converted at a
stated price within a specified period of time into a certain quantity of the
common stock of the same or a different issuer. Convertible and debt securities
are senior to common stocks in a corporation's capital structure, although
convertible securities are usually subordinated to similar nonconvertible
securities. Convertible and debt securities provide a fixed-income stream and
the opportunity, through its conversion feature, to participate in the capital
appreciation resulting from a market price advance in the convertible
security's underlying common stock. Just as with debt securities, convertible
securities tend to increase in market value when interest rates decline and
tend to decrease in value when interest rates rise. However, the price of a
convertible security is also influenced by the market value of the security's
underlying common stock and tends to increase as the market value of the
underlying stock rises, whereas it tends to decrease as the market value of the
underlying stock declines.
Each Fund may invest in convertible preferred stocks that offer enhanced
yield features, such as Preferred Equity Redemption Cumulative Stock ("PERCS"),
which provide an investor with the opportunity to earn higher dividend income
than is available on a company's common stock. A PERCS is a preferred stock
which generally features a mandatory conversion date, as well as a capital
appreciation limit which is usually expressed in terms of a stated price. Upon
the conversion date, most PERCS convert into common stock of the issuer (PERCS
are generally not convertible into cash at maturity). 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.
18
<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.
19
<PAGE>
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.
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.
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.
20
<PAGE>
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).
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).
21
<PAGE>
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.
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.
22
<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.
23
<PAGE>
[GRAPHIC OMITTED]
For more information, contact ----------------------------
Delaware Group at 800-828-5052. BLUE CHIP FUND
SOCIAL AWARENESS
FUND (formerly
Investment Manager Quantum Fund)
Delaware Management INSTITUTIONAL
Company, Inc. ----------------------------
One Commerce Square
Philadelphia, PA 19103
Sub-Advisor
Vantage Global Advisors, Inc.
630 Fifth Avenue
New York, NY 10111 P r o s p e c t u s
National Distributor January 30, 1998
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
DELAWARE
[GRAPHIC OMITTED] INVESTMENTS
Printed in the U.S.A. on recycled paper.
P-146[--] PP1/98
